Malpractice Liability Reform After Caps
Richard M. Kennedy, III, MD, JD

In his campaign for re-election, President Bush advocated medical liability reform. He made the following statement: “Frivolous and junk lawsuits are threatening medicine across the country. But for the sake of a strong health care system, for the sake of making sure health care is accessible and affordable, we need a $250,000 cap on non-economic damages.”1 Advocates of tort reform certainly welcome such statements and agree with the need for caps. But the implication that caps would address the problem of frivolous lawsuits is false and illustrates a problem with the current debate on the medical liability crisis. There are multiple components of the crisis. Caps address only one such component. One of the purposes of this article is to suggest a way of analyzing the medical liability crisis so that reform proposals can be more effectively evaluated.

As I write this article, the South Carolina House of Representatives has recently passed a Senate tort reform bill (S.83) which places a $350,000 cap on non-economic damages in medical malpractice cases.2 This bill, if enacted, will certainly help correct deficiencies in the current medical liability system. But it will not address the problem of frivolous lawsuits against physicians nor will it provide comprehensive reform of a flawed system. I hope to demonstrate how caps, if enacted, will help. But more importantly I hope to highlight other deficiencies in the system for which reform is still needed. The reform movement must not end with enactment of caps.

It is useful to separate a malpractice action into three components: (1) the initiation of the action, (2) the finding of fault, and (3) the assessment of damages. Most medical liability issues and reform proposals can be considered within the context of one of these components of the action.

The Initiation of the Action

When a patient feels he was injured by the negligence of his physician, he meets with an attorney and tells his story. The attorney is expected to evaluate the patient’s story and determine whether the necessary evidence can be developed and presented so as to obtain money for his client. If the patient’s story appears to suggest malpractice, the attorney will obtain medical records and have those records reviewed by a physician in the same specialty as the potential defendant. If this investigation suggests that admissible evidence can be developed to prove a theory of liability, the attorney will initiate the action. The attorney thus acts as a gatekeeper and he is ethically bound to refrain from bringing a lawsuit unless he has a legitimate belief than he can prevail. In most situations this gatekeeper role functions properly. The attorney refuses many more cases than he accepts simply because he feels he can’t win. The attorney does not wish to invest a significant amount of time and money if the prospects of success are not good. There is little incentive to bring a frivolous suit. So why are frivolous suits a problem?

First we must understand the definition of a frivolous suit. A suit is frivolous if it is so lacking in merit that it is dismissed by a judge before it ever goes to a jury. Many people improperly equate a frivolous suit with an outrageous suit. The famous McDonalds hot coffee case could properly be called outrageous but it went to the jury and resulted in a large verdict. It was not a frivolous suit. We certainly have a problem with frivolous malpractice suits. The attorney gatekeeper system does not always work and there are many stories of physicians who are subjected to frivolous suits and many of us personally know colleagues who have been victims of such cases. In some cases, the physician never saw the plaintiff. In others, the physician treated the plaintiff and did so in a clearly proper manner but the plaintiff simply had a bad outcome due to his underlying medical condition. In many cases, the frivolous action results from the “shotgun” technique used by some attorneys. The plaintiff may have a potential lawsuit against a particular physician, such as a surgeon, but his attorney sues every health care worker involved in the plaintiffs care. So defendants other than the surgeon may include the referring primary care physician, the anesthesiologist, the radiologist, nurses, and any consultants involved in the plaintiff’s care. In cases involving drugs under attack in the media, such as Oxycontin, suits may be brought against every physician who has ever given the plaintiff a prescription for the drug even though it can not be established that such physician violated any standard of care in writing the prescription.

These frivolous suits certainly exist and are clearly a problem. They are insulting to the physicians and cause inconvenience and emotional trauma that cannot be measured. They require significant expenditure of attorney fees to have dismissed. They generate widespread disrespect for our system of justice. However, President Bush’s statement that “frivolous and junk lawsuits are threatening medicine across the country” is not quite accurate. Jackpots verdicts may be threatening medicine across the country as we shall see later. But frivolous suits in and of themselves are more irritation than threat. A primary component of the medical liability crisis is the increasing unavailability of care (particularly obstetrics and neurosurgery) driven by increases in the cost of medical malpractice insurance. The effect of frivolous suits on malpractice cost is minimal.

Most South Carolina physicians are insured through the JUA and PCF. As we know, PCF premiums have increased dramatically. However, no part of these increases can be attributed to frivolous suits. The only financial impact of a frivolous suit, since no judgment is paid, is the cost incurred in paying defense attorneys to have the suit dismissed. Since the PCF does not pay defense costs, it is not impacted by frivolous suits. The JUA does incur these defense costs in having frivolous suits dismissed, but these costs are a very small percentage of the overall defense costs for all cases and the costs of paying claims. Accordingly, the impact of frivolous suits on premiums is minimal.

Even with their limited financial impact, frivolous suits are a black mark on our system of justice and should not be tolerated. It is very important that tort reforms not neglect this aspect of the problem. But, notwithstanding President Bush’s implication, caps on non-economic damages have absolutely nothing to do with controlling frivolous litigation. South Carolina law purports to control frivolous litigation through the “South Carolina Frivolous Civil Proceedings Sanctions Act.”3 However, this law is so full of loopholes that its impact is minimal and reforms are needed. Two types of reforms are often discussed: (1) a loser pays rule and (2) a law requiring independent evaluation of the merit of a proposed malpractice action before it is initiated.

The idea of loser pays is that the losing party of a lawsuit pays the attorney fees of the victorious party. Variations of such a system exist in other countries.4 It seems to make sense that, if a patient brings a lawsuit lacking in merit and causes the physician to incur thousands of dollars in attorney fees, the patient should reimburse the physician for his loss. But typically the unsuccessful patient can not pay these fees and the successful physician may be left with a worthless judgment. And, since loser pays works both ways, if the patient is successful, the physician is potentially faced with paying an exorbitant fee to the plaintiff attorney calculated on a contingency formula. And this judgment will be collectible. Of course, there are many different ways liability for the opponent’s attorney fees can be structured. For example, a rule could be developed that the plaintiff and his attorney are responsible for the defendant’s attorney fees if the case never gets to a jury because it is voluntarily dismissed or dismissed by the judge on a pre-trial motion. Such a rule would very clearly be a reform directed at the “frivolous” or non-meritorious lawsuit problem. An attorney would be very hesitant to casually name multiple defendants in a “shotgun” fashion if there was potential financial exposure to paying the attorney fees of every defendant who was dismissed before trial.

The other reform idea often mentioned is pre-suit evaluation by an independent panel of physicians. Such a proposal was introduced in the S.C. House of Representatives last year (HR 4464). This bill envisioned that a patient wishing to pursue a malpractice claim would be required to submit evidence in support of his claim to an independent panel of physicians in the same specialty as the proposed defendant before he would be allowed to file suit. The panel would render an opinion as to whether the proposed suit had merit. The patient could not file suit until receipt of the panel’s opinion and the opinion would be presented to the court (but not the jury) as part of the pre-trial briefs. The pending Senate tort reform bill (S. 83) contains a provision requiring the plaintiff to file with his complaint an affidavit from an expert specifying at least one negligent act or omission.

These proposals are designed to reduce the number of frivolous cases by essentially requiring the plaintiff to fully develop a theory of liability and evidence in support of that theory before he is permitted to file suit. They may succeed in reducing the number of frivolous cases. But what these review panels or expert affidavits fail to do is add “tangible improvement to the capacity of the litigation system to dispose appropriately of claims.”5 This is the subject of the next section.

The Finding of Fault

The second component of the malpractice suit is the finding of fault. The function of the court and jury is to determine whether the physician failed to follow the appropriate standard of care and, if there was such a failure, whether the injury claimed by the plaintiff resulted from such failure. The problem is that courts do a very poor job of performing this function. Our system of civil justice is simply unreliable.

We can discuss this issue by defining a “valid” claim and comparing our independent determination of validity to the jury’s determination. We must recognize the fallibility of juries and not assume that the mere fact of a verdict in the plaintiff’s favor establishes that the doctor committed malpractice. Researchers have addressed this issue by having independent experts review medical records in closed malpractice files and render an opinion as to whether the defendant doctor committed malpractice, i.e., whether the claim is “valid,” or “invalid.” (The fact that a claim is “invalid” does not necessarily mean that it is frivolous.) These independent determinations are then used in statistical evaluations of claims filed and are also compared to jury determinations.

It is suggested that plaintiffs collect damages in 90% of valid cases and in 40% of invalid cases.6 (These percentages are in accord with my personal observations from having been involved in the evaluation of many malpractice claims in my capacity as a member of the board of governors of the Patient’s Compensation Fund and my service as chairman of the claims committee of that organization.) We can look at a trial like a medical test and consider false positives and false negative. In those terms, the trial has a false negative (valid claim but no recovery) rate of 10% and a false positive (invalid claim with recovery) rate of 40%. We would never consider using a medical test with a 40% false positive rate yet society tolerates this inaccuracy in our judicial system while continuing to extol the virtues of the jury system.

Why is our system of medical justice so inaccurate? There are a number of factors. One factor is that the factual issues in malpractice trials are highly technical and complex. Juries lacking training and experience in the issues being litigated are unlikely to be able to understand much of the evidence much less evaluate the persuasiveness of competing evidence and competing expert opinions. The jury is ill-equipped to make a decision as to whether the defendant properly followed the standard of care and used proper judgment under the circumstances all the while giving due consideration to the fact that the current evaluation is being performed with the benefit of hindsight.

We also have a system of evidence law which gives wide latitude to expert testimony. It seems that the plaintiff attorneys can always find an expert somewhere in the country willing to testify that the defendant was negligent, even if 99% of physicians in the defendant’s specialty across the country would support his actions. These highly compensated plaintiff experts are experienced in courtroom presentation and can be very persuasive to the lay jury.

There is also much anecdotal evidence to suggest pervasive jury misconduct. The jury is legally required to decide the case based solely on the evidence yet this mandate is often overridden by the jury’s desire to help the unfortunate plaintiff. I have personally heard many stories of jury members who, several months after ruling for a malpractice plaintiff, have made statements that most members of the jury did not believe the physician was negligent but they felt the plaintiff needed some money and, in any event, the money was going to come from an insurance company and not from the innocent doctor. Moreover we all know the impact that emotion and sympathy for the plaintiff has on jury determinations. Plaintiff attorneys plan their entire presentation around appealing to emotion and gaining the jury’s sympathy for their clients. The goal is to get a large monetary award irrespective of whether the physician was truly responsible for the plaintiff’s plight. Despite everyone’s tacit knowledge that juries misbehave, there are virtually no controls on jury deliberations. They are conducted in absolute secrecy and no record is made. Except in case of severe and provable misconduct, once the jury finds the facts, that is the end of the matter. There is no appeal from a jury determination.

The large number of “false positives” results in a system of justice that is unreliable and unpredictable. The medical profession lacks confidence that the “innocent doctor” will be vindicated in a malpractice trial. There exists a climate of fear of being sued. Doctors know that making good clinical judgments and practicing in accordance with accepted standards of care is not enough. There is always some “expert” ready to second guess the doctor’s decisions. There is always the fear of not ordering a lab test, x-ray, or other procedure even though the tests are not indicated by the patient’s presentation. The tests just might be positive. Envision trying to explain the concept of positive predictive value to twelve ordinary citizens as they stare at an unfortunate 30- year-old woman dying of breast cancer which would have been detected in time if a mammogram had been ordered. The well-documented problem of “defensive medicine” is a consequence of our unreliable system of determining fault. This problem will not be solved with caps. Caps address the problem of excessive verdicts and jackpot justice but they have no impact on the “false positives.” Inaccurate verdicts can only be addressed by fundamental changes in our malpractice system.

The current system also inhibits efforts to minimize medical error and promote patient safety.7 When medical errors occur, there is little dissemination of information about the error, how it occurred and how it might be prevented in the future. The primary cause of this chilling effect on free discussion is the current civil justice system and the process it uses in determining fault. The problem lies not just with the inaccuracies of the results but also with the process of reaching results. Any statement, apology, or remedial measure can be twisted or mischaracterized by a skillful plaintiff lawyer into evidence of misconduct. Medical professionals no longer have faith in our legal system. They view it with fear and distrust. And the system impairs our relationships with our patients. Effective doctor patient communications are impaired when patients are viewed not as people we are tying to help but as potential adversaries.

The large number of “false positives” also contributes to the malpractice insurance crisis. The large increases in malpractice premiums have been shown to result from the increase in both frequency and severity of malpractice awards. Caps seek to address the severity of malpractice awards but have little or no impact on the frequency of awards. Award frequency increases when “innocent” physicians are increasingly made liable for bad outcomes (when the false positive rate escalates). When courts find more and more ways to make awards to unfortunate patients because of sympathy rather than fault, the increases in claims payments leads to increases in malpractice premiums. And false positive verdicts are just the tip of the iceberg because these trends trickle down to the settlement process. A great deal of the money paid for settled cases is attributable to “invalid” claims. If a plaintiff attorney has a sympathetic client and a good hired gun expert, large settlements may be paid even when the physician was not really at fault merely as a business decision to avoid the risk of a catastrophic verdict if the case is tried.

If caps have no impact on the fault finding component of the malpractice action, what reforms would address this component? Certainly controls on “hired gun” experts are indicated. Although some specialty societies may discipline members who give erroneous expert testimony in trials or depositions, few laws exist which can identify and disqualify the bad expert. Some have suggested approaches such as certification of forensic experts, requiring experts to be members of the appropriate specialty society and subject to discipline, or changing the system to have independent experts hired by the court rather than by the parties.

With regard to the goal of encouraging rather than discouraging free dissemination of information on medical errors, proposals have been made to grant privileged status to such information when it is reported to a hospital’s patient safety organization. These proposals have been well-received and a bill enacting these proposals, the Patient Safety and Quality Improvement Act (H.R. 663) has been through both houses of Congress and is pending in conference committee.

By far the most far-reaching reform proposal, which would truly address all three components of the medical malpractice action, is special health courts. Medical malpractice cases would be removed from the present jury system and decided by a panel of full-time health care judges. These judges would be appointed through a nonpartisan screening commission. They would choose their own experts from a panel of experts in each area of medicine thereby eliminating the “hired guns.” Cases would be resolved within months rather than years and the drain on patient recoveries by legal fees would be reduced by capping attorney fees at 20 percent. Victims of malpractice would be reimbursed all of their medical costs and lost income and other damages would be awarded based on a predetermined schedule similar to that used in workers compensation cases. Many prominent figures in medicine, law and politics have endorsed special health courts. The arguments in favor of special health courts are compelling. Additional information on these proposals can be found through the sponsoring organization, Common Good. (Visit www.cgood.org.)

Assessment of damages

The size of jury awards in malpractice cases has increased significantly in recent years. Nationwide, the average liability judgment increased 234% between 1996 and 2002. In South Carolina, settlements and judgments paid out by JUA/PCF increased 367% between 1998 and 2003. It is not surprising that liability premiums have increased dramatically with the resulting negative impact on availability of health care services from high risk specialists. The dramatic increase in size of malpractice awards can be attributed to the increasing willingness of juries to make large awards for non-economic and punitive damages.

Types of non-economic damages include pain and suffering, disability, emotional suffering and grief. Unlike economic damages such as medical bills and lost income, there is no way to measure non-economic damages. Juries have before them evidence on which to base an award of lost income and medical expenses, both past and future. But there is no evidence as to the value of pain and suffering, disability or grief. Juries are virtually allowed to pick a number out of thin air.8 After all, who can put a dollar amount on a life of paraplegia or blindness, or the grief from losing a family member. How do we compensate a young woman who loses a child during or immediately after birth? One South Carolina jury considered the grief resulting from the loss of a neonate from complications of a tracheoesophageal fistula to be worth $678,000. Another jury in this state felt that the grief suffered from the death of a neonate was worth $724,000. Still another South Carolina jury valued the grief suffered due to the loss of a 23 week old fetus at $2,000,000.

Like non-economic damages, punitive damages are speculative and erratic. Juries have their second pick of a number from thin air. Emotions may be the determining factor in the size of an award. Defense attorneys brace themselves for the worse if the physician comes across poorly on the witness stand and is perceived to be arrogant or uncaring. In 2001 a South Carolina jury made a punitive damage award against an Oconee County surgeon of $15,000,000. At the time of the award the surgeon was virtually judgment proof and was no longer living in South Carolina. It wasn’t the surgeon who was punished. It was every physician in South Carolina insured with the PCF. Isn’t punishment more properly a function of the criminal justice system rather than the civil justice system? If the surgeon’s conduct is viewed to be this reprehensible by society, shouldn’t he be criminally prosecuted? Verdicts such as this have impact beyond the single case. Plaintiff attorneys see this jackpot and hope to benefit from another jury’s largess in another case. They use the leverage of a potential punitive jackpot in settlement negotiations seeking thousands or millions more than actual damages sustained. Defense attorneys must, of course, consider the risk of another jackpot and settlements are reached for much more than actual damages. The threat of unlimited punitive damages essentially operates as a threat which is used for legal extortion.

The response of the reform movement to the unpredictable and unlimited nature of non-economic and punitive damages has been caps. Most proposals have centered on caps in the amount of $250,000 based on the model of California’s MICRA legislation in the early 70s. California’s $250,000 cap on non-economic damages has been shown to be a major factor in maintaining malpractice premium stability over the past 25 years in comparison with national trends. Caps don’t prevent frivolous lawsuits and they don’t lead to improved verdict accuracy. But they do put the brakes on runaway verdicts and, as a consequence, they limit the extortion factor in settlement negotiations. Caps in South Carolina would have limited the excessive verdicts in the neonatal death cases mentioned earlier.

South Carolina will probably have a $350,000 cap on non-economic damages in the near future. But unlimited punitive damage awards are still a problem and a major risk for malpractice carriers. While South Carolina has not addressed the punitive damage problem, the U. S. Congress has seriously considered MICRA style legislation which caps both non-economic and punitive damages at $250,000.9 If we really want to put brakes on runaway verdicts, we need both caps.

I have had several conversations with Senator Lindsey Graham in which I have strongly advocated federal caps on non-economic damages but he has expressed his opposition to such reforms. He has told me that he thinks the solution to the medical liability crisis is “loser pays” legislation. This illustrates a misunderstanding of the nature of the medical liability crisis. Senator Graham clearly thinks the problem is “frivolous” cases. His “loser pays” approach may address that component of the problem as I have previously discussed. However, “loser pays” does nothing to prevent runaway verdicts. The increasing number of large verdicts based on non-economic and punitive damages is driving the malpractice premium crisis, not frivolous cases.

Conclusion

It appears likely that South Carolina will enact S. 83 and we will get a $350,000 cap on non-economic damages. But the title of this article is medical liability reform after caps. So what will we have accomplished and what problems with the medical liability system will remain? We will help prevent a number of jackpot verdicts and in addition will be in a better position to negotiate reasonable settlements. But we will still be exposed to significant liability for non-economic damages. $350,000 is not small change. Over a period of time, claims payments should level off and, as a result, liability premiums should also stabilize. We will still have the risk of jackpot punitive damage verdicts and the unlimited potential for punitive verdicts will still be used for legal extortion during settlement negotiations. So, while premiums may stabilize, they will likely remain at high levels.

The caps will do nothing to ameliorate the problem with inaccurate verdicts. Obstetricians may continue to find themselves erroneously held liable in cerebral palsy cases. Moreover, such cases often result in very high verdicts and settlements, not due to non-economic damages, but due to the very large economic damages associated in caring for these unfortunate children over the course of their life. Proposed legislation does not put caps on economic damages and, if juries use sympathy to award the insurance company’s money to these unfortunate children notwithstanding the innocence of the doctor, obstetricians will continue to shoulder very high malpractice premiums. Moreover, as long as the problem with inaccurate verdicts persists, we will continue to have the problem of defensive medicine.

And caps will not address the nuisance of frivolous lawsuits. It is hoped that the provisions of S. 83 which require the filing of an expert’s affidavit with the complaint will help in this regard. Caps are a start. They may act as a band-aid to stop the bleeding. But they don’t cure the disease. Physicians must continue to work for meaningful reform of a flawed system. I suggest that special health courts are the ultimate answer.

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