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PODCAST
Listen to Paul Howard, director of the Center for Medical Progress, interview Jim
Copland, author of TLI: Healthcare.
OP-ED
Here's what is stopping tort reform Jim Copland, Washington Examiner, 10-14-09
IN THE PRESS
Lawyers v health care, The Economist, 10-20-09
Malpractice from Manhattan David Freddoso, Washington Examiner, 10-14-09
Medical malpractice litigation blamed for rising health care costs Chris Rizo, Southeast Texas Record, 10-13-09 (This story also appeared on Legal Newsline, 10-13-09)
Lawyers are expensive Corrine Hess, Milwaukee Business Journal, 10-13-09
RADIO
Jim Copland on WLW's "The Mike McConnell Show", 10-15-09
Jim Copland on WIBA's "Upfront with Vicki McKenna", 10-15-09
Jim Copland on WBAL's "The Ron Smith Show", 10-14-09
Jim Copland on Westwood One's "The Lars Larson Show", 10-13-09
TELEVISION
Jim Copland on Fox News "Strategy Room", 10-20-09
FROM THE WEB
The Lobby the Democrats Dare Not Offend, Paul Howard, NRO's Critical Condition, 10-13-09
Legal Reform in Health Care: Realistic Cost Analyses, ShopFloor.com, 10-13-09
Trial Lawyers Inc. update: health care, Walter Olson, PointofLaw.com, 10-13-09
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Trial
Lawyers Inc. Update No 8, October 2009
HEALTH
HAZARD:
Litigation Increases Medical Costs, but Lawyers Block Reform
In his nationally televised speech
before both houses of Congress on September 9, President Obama
made news by acknowledging that medical-malpractice litigation
"may be contributing to unnecessary costs" in the
U.S. health-care system. The  president's
comments were in keeping with popular
opinion: 72 percent of Americans think that fear of lawsuits
compromises doctor decisions, and fully 83 percent want any
health-care reform to address medical-malpractice litigation.
Notwithstanding the president's remarks and popular opinion,
Congress has been laboring to expand medical liability
against nursing
homes, medical-device
makers, and military
doctors—changes that would be expected to drive up,
not down, health-care costs. The reason is simple: with massive
campaign contributions and lobbying clout, the organized plaintiffs'
bar—whom
the Manhattan Institute has dubbed "Trial Lawyers, Inc."—has
bought Congressional leaders' support. In the last election
cycle, the trial lawyers' political action committee gave
over $2.5 million to Congressional Democrats, making the plaintiffs'
bar the second largest donor after the electrical workers'
union (see graph). Overall, lawyers and law firms gave almost
$234 million to federal campaigns in 2008, including almost
$127 million to Congressional candidates—more
than any other industry group and significantly more than
all health-care-related contributions combined (see graph).
In a moment of candor, former Democratic National Committee
chairman Howard Dean admitted
as much at an August 26 town hall meeting when he remarked,
"The reason why tort reform is not in the bill is because
the people who wrote it did not want to take on the trial
lawyers." Himself a medical doctor, Dean is well aware
how America's lawsuit-friendly culture skews medical decision-making
and inflates costs. The tort system's impact on health care
stretches well beyond the "defensive medicine" that
President Obama noted in his speech. Regardless of the merits
or demerits of various portions of the health-care reform
bills in Congress, the bills' failure to address out-of-control
litigation is a glaring omission that will limit any reform's
ultimate effectiveness.
THE COST OF MALPRACTICE LITIGATION
In noting that malpractice lawsuits "may be contributing
to unnecessary costs" [emphasis added] in the health
care system, the president was needlessly cautious. Thoughtful
analysts of varying political stripes understand that litigation
matters in explaining America's high cost of health care.
The respected left-leaning health economist Uwe Reinhardt,
for instance, singles
out "our uniquely American tort laws" as one
of four "prominent" reasons for "excess"
health spending.
Trial lawyer lobby groups—the
American
Association for Justice and its assorted allies like Public
Citizen and the Center
for Justice and Democracy—regularly argue that litigation
is an insignificant contributor to health care cost escalation
because it only accounts for a tiny fraction of health costs.
In making this argument, such organizations play the "denominator
game": the tiny fraction they point to takes the total
$2.2 trillion in U.S. health expenditures as its denominator
and an absurdly narrow definition of health-care litigation
as its numerator.
To begin with, such groups typically
use as a numerator medical-malpractice losses as
reported by insurance companies—numbers that ignore legal
defense costs as well as the
fact that most major health systems in the U.S. cover
at least a portion of their medical malpractice losses without
insurance. More comprehensive estimates
by the insurance consulting firm Tillinghast Towers-Perrin
place the total direct cost of medical-malpractice litigation
at $30.4 billion annually—an expense that has grown almost
twice as fast as overall tort litigation and over four times
as fast as health-care inflation since 1975 (see graph).
This direct cost represents only a portion of the cost imposed
by medical-malpractice lawsuits. "Defensive
medicine"—"the application of tests and
procedures mainly as a defense against possible malpractice
litigation, rather than as a clinical imperative"—is
widespread. In a 2005
survey published in the Journal of the American Medical
Association, 93 percent of doctors said they had practiced
defensive medicine and 92 percent said they had made unnecessary
referrals or ordered unnecessary tests or procedures. The
cost of defensive medicine likely exceeds the total cost of
malpractice liability itself because doctors themselves bear
the cost of any potential litigation (even if their insurance
companies cover their losses, doctors must endure the time,
stress, and reputational effects of dealing with the lawsuit),
while they bear little cost for imposing extra tests and procedures
(since patients with low-deductible health insurance are not
price-sensitive, in part because the expenses are borne by
their insurance companies).
Putting an estimate on the cost of defensive medicine is
difficult. Many studies
have extrapolated from a 1996 study by Stanford economists
Daniel Kessler and Mark McClellan which found that tort reforms
lowered costs by 5 to 9 percent without worsening health outcomes.
Based on this study, PriceWaterhouseCoopers
estimated that 10 percent of all health care spending
is consumed by medical-malpractice-liability-related defensive
medicine and insurance costs-a total sum of $210 billion,
or almost one-third the difference between the cost of U.S.
health care and that in other developed nations.
Other academic studies using different methodologies have
found more modest cost savings from state-enacted tort reforms,
on the order of 2 percent of total health costs. Even this
level of savings is not as small as it might at first appear.
As explained below, medical-malpractice lawsuits are only
a part of the total body of litigation affecting the health
system and do not include other major classes of costly lawsuits,
including suits against drug and medical-device manufacturers,
nursing homes, and health maintenance organizations. Expenditures
on hospital and physician services constitute only 52 percent
of all U.S. health expenditures, so a 2-percent cost saving
from traditional tort reforms on medical-malpractice liability
represents 4 percent of the portion of health spending relevant
to such reforms.
In addition, the proper denominator for assessing the relative
import of defensive medicine is not health spending per
se but rather excess health spending. If U.S. health expenditures
were reduced by one-third, the percentage of the American
economy devoted to health care would be roughly on par with
that of Canada, Germany, and France. Viewed thus, defensive
medicine caused by medical-malpractice lawsuits that could
be offset by traditional tort reforms, using conservative
academic estimates, constitutes fully 12 percent of the relevant
gap in spending between the United States and these comparable
countries.
It is also worth emphasizing that academic estimates of defensive
medicine do not fully capture the actual costs of defensive
medicine per se; rather, they merely measure the impact
of traditional tort-reform measures—damage
caps, the allocation of liability among defendants, and insurance
policy offsets—in
bringing defensive-medicine costs down. Such reforms lower
medical-malpractice litigation costs and deter speculative
lawsuits, but they fail to correct fully the American tort
system's problems in assessing causation and medical negligence.
Such problems are substantial: Harvard researchers examining
thousands of patient records have determined that the vast
majority of medical-malpractice suits did not involve actual
medical injury—and
that most cases in which there was actual injury involved
no doctor error. More systemic legal reforms that go beyond
the traditional panoply of state solutions—such
as loser-pays systems or specialized health courts—might
be expected to reduce costs more than the traditional tort
reforms measured by academic researchers.
C-SECTIONS AND CEREBRAL PALSY
One of the best examples of the costs of defensive
medicine—and the litigation system's failure
to improve health outcomes—is the increased
use of Cesarean sections in the United States.
While the five-fold rise in the number of C- section
deliveries over the last thirty years stems from
various factors, including mothers' choices, it
is partly attributable to the liability imposed
on doctors and hospitals who deliver babies born
with birth defects, particularly cerebral palsy.
Such liability can be massive: former Senator
and presidential candidate John Edwards earned
millions through such cases, including a jury
verdict of $6.5 million (reduced to $2.75 million
on appeal) and a settlement of a reported $5 million;
and some New York verdicts have topped $100 million
for a single case.
Although such lawsuits are highly lucrative for
trial lawyers, they have not improved health outcomes.
The cases are based on the theory that oxygen
deprivation in delivery has caused an infant's
cerebral palsy. Though such cases are not unknown,
they are virtually impossible for a medical expert,
let alone a lay jury, to assess with any confidence
in an individual case: a January
2003 report issued by the American College
of Obstetricians and Gynecologists and American
Academy of Pediatrics found that "that use
of nonreassuring fetal heart rate patterns to
predict subsequent cerebral palsy had a 99% false-positive
rate." Little wonder, then, that a study
in the March 2003 American Journal of Obstetrics
& Gynecology found
that notwithstanding the dramatic increase in
C-section rates, the "rate of cerebral palsy
has not decreased."
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THE COST OF OTHER HEALTH-RELATED LITIGATION
Apart from lawsuits alleging malpractice on the part of doctors
and hospitals, Trial Lawyers, Inc. profits handsomely from
other forms of health-care-related litigation. The importance
of other such litigation is evidenced by looking
at attorney advertising for major litigation (excluding
automobile accidents and slip-and-fall-cases). In 2004, medical-malpractice-lawsuit
ads constituted 7 percent of all such spending (though such
advertising has reportedly
increased markedly in recent years), while ads seeking
plaintiffs alleging nursing-home abuse represented 16 percent
and ads seeking plaintiffs alleging injury from prescription
pharmaceuticals represented fully 46 percent of all attorney
advertising dollars.
The total cost of pharmaceutical litigation is harder to
estimate than medical-malpractice liability, since large pharmaceutical
companies self-insure against losses. The $4.85 billion settlement
that Merck reached with some 50,000 former Vioxx users in
2008 is illustrative of pharmaceutical litigation's cost.
And Merck should not expect that the settlement will end its
troubles; when Wyeth set aside $13 billion to settle claims
from former users of its diet drug cocktail Fen-Phen, it soon
found costs were ballooning, up to a now-estimated
$21 billion.
BENDECTIN AND BIRTH DEFECTS
 In
some cases, medical products targeted by the trial
bar simply cease to exist—even when safe—because
mounting legal bills make them too expensive to
produce. The morning-sickness drug Bendectin was
being used by 25 percent of expectant mothers
in 1980, when trial lawyers generated a national
panic over the unfounded claim that the drug was
associated with birth defects. By 1983, when the
drug's annual legal bills totaled 90 percent of
its sales, the product was pulled from the market,
and the incidence of hospitalization for morning
sickness in the United States has doubled. Bendectin
is still unavailable to American women, despite
being safely sold elsewhere around the world and
despite more than 30 published studies that have
failed
to establish any link between the drug and
birth defects.
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Vioxx and Fen-Phen may be two of the costliest examples of
pharmaceutical litigation, but they are hardly alone. On its
website, the trial-lawyer lobbying group the American
Association for Justice (formerly the Association of Trial
Lawyers of America) lists 33 different drugs and medical devices
as "litigation groups" through which plaintiffs'
lawyers are "able to share accumulated information and
experience, regarding a specific type of case."
Certainly, some of the products involved in litigation—including
Vioxx and Fen-Phen—are
harmful. But litigation in this area overlaps with extensive
regulation by the federal Food and Drug Administration, and
FDA-regulated companies often lack the discretion to modify
product designs or labeling. Thus, tort lawsuits can do little
more than increase company costs, which are then, of course,
passed along to consumers in the form of higher prices. For
example, in the 1980s, as trial lawyers sued the manufacturers
of vaccines that sometimes injure infants, overall vaccine
prices doubled, while the most targeted vaccines—polio
and diphtheria-pertussis-tetanus—saw
prices rise 600 percent and 4,000 percent, respectively.
TRIAL LAWYERS, INC. TAKES WASHINGTON
In spite of clear evidence that litigation contributes to
the high cost of health care in the United States, Congress
is refusing to consider any serious efforts to reform the
legal system. Instead, Congressional leaders are pushing legislation
that threatens to increase litigation and drive
up health-care costs, albeit to the substantial benefit
of Trial Lawyers, Inc.:
- Nursing homes. The cost of long-term care for the
elderly continues to escalate, fueled significantly by lawsuits:
between 1992 and 2003, the litigation costs per bed at such
facilities
swelled by 700 percent. One way in which nursing homes
have tried to lower such costs is by including arbitration
agreements in contracts, so that disputes over care quality
can be resolved without having to incur litigation costs.
In reaction, leaders in Congress have introduced the Fairness
in Nursing Home Arbitration Act of 2009 (H.R. 1237,
S. 512) that would invalidate all such contracts—and
increase the costs of caring for the elderly.
- Medical devices. In a 2008 case, Riegel
v. Medtronic, the U.S. Supreme Court determined,
in an 8-1 decision, that certain state tort lawsuits against
the manufacturers of FDA-approved medical devices were expressly
preempted by the plain language of the 1976 Amendments to
the Food, Drug, and Cosmetics Act. In response, Congressional
leaders have introduced the Medical
Device Safety Act of 2009 (H.R. 1346, S. 540), which
would not only repeal the express statutory preemption clause
but apply retroactively to all pending litigation
that was filed before the law's enactment.
- Military medicine. In seeking to overturn Supreme
Court decisions that place reasonable curbs on litigation,
Congress is not limiting itself to recent holdings. The
Carmelo
Rodriguez Military Medical Accountability Act of 2009
(H.R. 1478, S. 1347) would reverse a 1950 Supreme Court
precedent, Feres v. United States, 340 U.S. 135,
which interprets the Federal Torts Claims Act to prevent
active members of the military from suing the government
for medical malpractice related to their service on active
duty. Veterans are undoubtedly a sympathetic group deserving
of special treatment, and it certainly may be the case that
military personnel are entitled to greater benefits for
injuries or death. Veterans' injury benefits could be increased,
however, without exposing the government to greater costs
through liability-though such an approach would of course
not help to enrich Trial Lawyers, Inc.
Another striking demonstration of trial lawyers' clout in
Congress emerged this summer when House leaders were marking
up health-care reform itself in committee. In what Manhattan
Institute scholar Walter Olson called
"one of the more audacious and far-reaching trial lawyer
power grabs seen on Capitol Hill in a while," trial-lawyer
ally Lloyd Doggett (D-TX) tried to insert language into the
bill that would allow trial lawyers to sue defendants in Medicare-related
disputes on behalf of the government—"notwithstanding
the objections of the United States." Fortunately, committee
Republicans were able to remove the language after strong
objections.
A KEY PIECE OF THE PUZZLE
The U.S. health-care system is badly in need of reform. Views
on the proper approach to reforming the medical system vary,
but any reform intended to reduce the escalation of health-care
costs should rein in litigation abuse. The president's announced
intention to spend $25 million on grants for state pilot
programs is a worthwhile gesture, but little more than window
dressing: the grants would constitute less than 0.003 percent
of the reform bills' massive cost, and just over 0.001 percent
of annual health expenditures.
Any serious health-care reform should instead take major
steps to reform litigation in the health-care sector, including
pharmaceutical and medical-device as well as medical-malpractice
liability. Lawsuit abuse is hardly the sole factor underlying
American health-care cost escalation, but it is a key piece
of the puzzle.
Center
for Legal Policy
Manhattan Institute for Policy Research
52 Vanderbilt Avenue
New York, NY 10017
(212) 599-7000
www.manhattan-institute.org
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