Better Justice: Bush's Missed Opportunity

A crudely designed damage cap is no remedy for the malpractice problem. The system needs major surgery.

"Tort reform" is a dreary phrase for what could be a noble and exciting endeavor. It could be about fixing our system of justice so that more victims maimed by reckless conduct will get the compensation they need, when they need it; so that fewer good doctors and good companies will get soaked for misfortunes that weren't their fault; so that the insurance premiums and prices we all pay will no longer be inflated by legal waste, fraud, and abuse.

Measured against these aspirations, the three Bush-backed Band-Aids now before Congress are tired, unimaginative, incomplete, and—in the case of a medical-malpractice bill that the House passed in 2003—deservedly doomed to defeat.

Unless radically revised, the malpractice bill will once again die in the Senate because it would cap damage awards for some horribly injured victims of negligent medical care without doing anything to ameliorate the malpractice litigation system's worst features:

This system does nothing for most victims of medical negligence, the vast majority of whom are not compensated at all and the rest of whom wait years before getting a dime. The system cannot reliably distinguish good doctors from bad ones, and it thus exposes those who have done nothing wrong to the risk of ruinous liability. It wastes huge sums on legal fees. And it helps drive up the cost of health care.

Similarly, the biggest problem with the tort system is not overcompensation of injured plaintiffs. The biggest problems are that more than half of the money paid into the system is raked off by lawyers—some of whom enrich themselves at the expense of their clients—and insurers, or goes toward other transaction costs. The system squeezes billions of dollars out of defendants who should not be liable at all. And while it does overcompensate some plaintiffs, it undercompensates many others.

Consider these numbers from Towers Perrin, which provides consulting services to insurance companies and publishes the most complete cost statistics on torts.

The tort system now costs every man, woman, and child in America an average of $845 a year, almost 10 times the inflation-adjusted $91 per capita it cost in 1950. The $246 billion-a-year total comes to 2.2 percent of America's gross domestic product—more than triple the 0.6 percent in the United Kingdom and more than double the 0.8 percent in Japan, France, and Canada. And as of 2002, only 22 percent of all tort costs went to compensate alleged victims' out-of-pocket losses; 24 percent went to pay for non-economic losses such as pain and suffering; 19 percent went to plaintiffs' lawyers; 14 percent went to defense costs; and 21 percent went to insurance overhead.

The three pending tort-reform proposals—shaped by congressional Republicans and industry lobbyists, not by Bush—would make only a small dent in these numbers. But two of them have some merit.

The first is a bipartisan bill to shift class-action lawsuits of nationwide scope from state to federal courts. The purpose is to stop the increasing collusion among plaintiffs' lawyers and friendly local judges to rip off out-of-state defendants and even to cheat the lawyers' own "clients," who sometimes get virtually worthless coupons while the lawyers get millions. This bill seems sure to pass, as it should. But the price of getting enough Democrats on board was to make the bill so vague as to leave ample opportunities for forum-shopping and for endless litigation over which court should hear which case.

The second proposal seeks a global, congressionally approved settlement of the out-of-control asbestos litigation that has bankrupted more than 70 companies—many of which did little or nothing wrong—while clogging courts with bogus claims that crowd out many real victims of asbestos-induced cancers. The centerpiece would be a $140 billion fund put up by corporate defendants and insurers in return for a respite from asbestos lawsuits. Some such congressional solution is urgently needed. But the negotiations may well break down, and whether Bush will make a difference remains to be seen.

The third proposal represents Bush's most conspicuous missed opportunity to seek fundamental reforms to benefit injured victims as well as defendants. This is the bill that the House passed in 2003 to curb tort suits against doctors, hospitals, HMOs, and makers of medical drugs and devices, in state courts as well as federal courts. The key provision would place a $250,000 cap on awards for non-economic damages such as pain and suffering.

There is much to be said for curbing pain-and-suffering awards. They have soared in recent years. They are imposed with wild inconsistency by different juries, which are invited to pick numbers out of the air. And as noted above, they cost society more than it costs to compensate plaintiffs' out-of-pocket losses.

And cash is an odd form of "compensation" for pain and suffering: None of us voluntarily buys insurance to pay us cash for the mental pain caused by, say, the death of a child. But the tort system forces us all to pay, indirectly, for the "right" to seek cash from any doctors, corporations, or others who might be blamed for such a tragedy.

This bill's proposed $250,000 cap on pain-and-suffering awards against doctors is flawed in multiple ways, however:

  • Principles of federalism weigh against congressional intervention into this traditional state domain. Unlike, say, product-liability lawsuits, medical-malpractice litigation has little effect on interstate commerce and presents little danger of home-state bias against out-of-state defendants.
  • In the cases of some horribly injured patients, such as a woman who was disfigured by an unnecessary double mastectomy, the proposed $250,000 cap would offend most Americans' sense of justice.
  • While making it harder for malpractice victims to sue, the proposal would provide them with no offsetting benefit. It would do nothing to prevent medical errors, which cause as many as 100,000 deaths a year; to protect patients from incompetent doctors; or to change the culture of secrecy that deters doctors from reporting errors lest they be sued.
  • The proposal would provide no remedy for the peculiar randomness of malpractice litigation. A malpractice lawsuit is little more reliable than a coin flip at distinguishing between negligent doctors and good ones: While more than 90 percent of injured patients receive no compensation through the courts, studies suggest, the few juries that do find doctors negligent are wrong 80 percent of the time.
  • "This seems to me to miss a great opportunity to change this very wasteful system and pay people who really need it relatively promptly for real losses," says professor Jeffrey O'Connell of the University of Virginia Law School. O'Connell has long proposed to encourage prompt payments through a reform that could also slash litigation expenses and protect doctors and other defendants from random imposition of ruinous liability.

    Under O'Connell's proposal, when a doctor, or any tort defendant, is sued, he or she would be able to limit the risk of a huge pain-and-suffering award by offering at the outset to reimburse the plaintiff for any otherwise uncompensated medical costs and lost wages. Such an early offer would shield the defendant from pain-and-suffering liability unless the plaintiff could present especially convincing proof of recklessness or gross negligence.

    This quasi-no-fault approach would spare many injured patients from years of destitution or financial strain while they pursue the uncertain hope of a big win. It would give doctors stronger incentives to admit errors—even to apologize, which can do much to alleviate plaintiffs' psychic wounds. At the same time, pain-and-suffering awards would remain available in cases of truly gross malpractice.

    Another worthy proposal is championed by Common Good, a bipartisan law-reform group founded by Manhattan lawyer-author-civic activist Philip Howard and backed by a broad coalition of health care and legal experts. The Common Good proposal would create special health courts, with expert judges taking the place of juries, to provide patients and doctors alike with fairer, faster, cheaper, more-consistent, and more-predictable justice.

    When patients sue doctors for such things as failing to order costly CT scans for routine headaches that later turn out to be brain cancers, Howard stresses, only expert judges can reliably and predictably distinguish good from bad medical care and give doctors clear guidance on what the law requires. Such special courts should be twinned, he says, with beefed-up regulatory oversight to put incompetent doctors under scrutiny or out of business.

    "The quality of medical care today is threatened by the pervasive, unwelcome, crushing embrace of the law," as Harvard law professor Paul Weiler wrote more than a decade ago. A crudely designed damage cap is no remedy. This system needs major surgery.