Fixing Medical Liability

By Greg Scandlen

(Note: I am hoping for and expect some vigorous comment and discussion on this issue. Fire away!)

One of the key points for the Republicans going forward is what to do about professional liability. This was ignored in ObamaCare, but is essential in any health reform proposal.

We have been wrestling with it for decades without much success. There have been a handful of states that have taken action, notably Texas and California, with good results. Other states, like Illinois, have tried, but in that case the state Supreme Court disallowed any limit on what plaintiffs could collect, so threw the law out.

As with a lot of intractable issues, sometimes the problem is that we aren’t thinking about it in the right way. The problem needs to be reframed to get us out of the cul-de-sac. Let me try to do that here.

First principles. Tort law is a state, not a federal responsibility. Some of my physician friends are so frustrated by the control the trial bar seems to have over state legislatures, that they are looking to the Feds for relief. I understand the sentiment, but I don’t think it is a good idea to sacrifice Constitutional principles of federalism for expediency. Plus, I’m not sure the trial attorneys are any less influential in Congress than they are at the state level. And, if the Feds take over the issue and get it wrong, it will be nearly impossible to fix in the future.

A better approach would be to remove professional liability from the tort system entirely. There are enormous problems with using the courts to remedy the consequences of poor medical outcomes. Notice I say “poor outcomes.” Many of the malpractice complaints have nothing to do with “malpractice” per se. The physician is not shown to have committed any error, or to have been negligent or incompetent. Things simply didn’t work out the way the patient hoped. If a jury is sympathetic to the plaintiff, it may provide an award regardless of the performance of the physician.

There are other problems with using the tort system in these cases:

  • Many patients are uncomfortable bringing suit or in dealing with lawyers. They avoid courtrooms, so have no mechanism for curing their complaint.
  • Contingency fees often mean that the complainant receives only a fraction of the award, with 25% or more going to the attorney.
  • Marginal cases are likely not to be brought at all. An attorney working on a contingency will cherry pick only the strongest cases and not risk investing time on a borderline case.
  • When there is real negligence or incompetence, the offending physician is not disciplined other than having to pay higher insurance premiums. The medical board may not even be notified of the problem, so the physician is free to continue being negligent or incompetent.
  • If the suit is settled before judgment, there is no record of the outcome, so no one knows that a particular physician has a problem.
  • Finally, using the courts is expensive and slow. It may be months or years before a damaged patient receives any compensation. Those may be months or years of extreme discomfort or pain for the patient, and real economic damage until the case is resolved.

Let me offer a better approach. This would be a no-fault system that would allow, but not require, legal representation. There would be a pool of money for awards financed by a tax on all health care providers, possibly as a percentage of income. This tax would be strictly dedicated to funding the pool. Providers would benefit by not having to pay malpractice premiums. Awards would be made by an administrative law judge (ALJ), kind of like the Workers Compensation system used by most states. The standard for awards would not be punitive, but be aimed at making the patient whole. Decisions by the ALJ could be appealed to a higher level of adjudication. The ALJ would notify regulatory boards of cases of negligence or incompetence, and the discipline of the offending provider would be left to the appropriate regulatory board. All cases and all awards would be public information. Every patient would be notified of his or her rights of remedy prior to receiving a service. Creditors of the damaged patient would be informed that a case is underway, so would be more patient in collecting debts.

This could be a federal system, like the federal bankruptcy courts. It would allow the states to continue their tort law systems in tact, but remove medical liability from those systems.

I don’t know if total costs would be any less than the current system, but I think it would be far more efficient and fair to both patients and providers.


22 Responses

  1. The smarter move for doctors is to drop medical liability insurance and put assets in legal trusts impermeable to lawyers and plaintiffs. I took the bulls eye off my back 15 years ago, saved a fortune in premiums, and have fearless professional relations with my patients. The losers are the plaintiffs bar; good! No insurance, no interest in lawsuits.

  2. The diea of alternative dispute resolution, which you propose here, has been around for several decades. Mark Hall had proposed a model, so has Randy Bovbjerg at the urban Institute and others. As I recall, we had proposed it at the Physician Payment Review Commission.

    So, good luck with that.

  3. If such legal trusts are indeed impermeable to lawyers and plaintiffs, it makes sense for physicians to follow Dr. Rubin’s example. However does this mean Dr. Rubin and those who adopt this approach are immune from liability suits? If so such docs could be as lax as they want and not suffer any more than the scorn of his/her peers. Seems like there should be more accountability than that to give patients some level of comfort in their doctor/patient relationship.

  4. I agree with a lot of this, but like our idea of private insurance paying off claims better. No need to tax the providers. See these two chapters from our Handbook on State Health Care Reform:

    • Thanks, John,
      There is good stuff in here, but it needs a longer discussion than just this comment section. I’m still not comfortable with this much reliance on the tort system and the presumption that a “wrong” has been committed.

  5. I like the “no fault” idea, but why should it be financed by physicians when it is the patients who should decide whether to purchase “bad outcome insurance” in advance of surgery, much as they buy “accident insurance” when they are about to board an airplane? Physicians would still need to buy “malpractice insurance”, as they are not immune from error, and the legal costs of defending themselves are enormous, even if they are ultimately absolved. However, if most patients choose the surer, quicker method of being compensated for their losses, the premiums should be substantially lower.

    • I will address some of that in my next posting. Your separation of curing mishaps from actual malpractice is interesting, though.


      • This discrimination is necessary – and in fact leads very radically to the topic of structuring health care services descriptions and their respective expected outcomes to identify better uncertainty of outcomes of part of them. This is in fact domain of consumerism. Thus, first problem we need to solve is the “language” in which the “business case” between health care provider (not physician in principle!) and consumer is held. We need disclosure of “limited guarantee” in terms of outcome to lower expectations of consumer about the value of particular service proposed. And now we are surprisingly at the problem of third party payment in fact (!)

  6. The Association of American Physicians and Surgeons is endorsing an idea to replace the Medicaid system with a system of true charity instead of an entitlement. Have the physicians donate, say, 4 hours per week in a free clinic and have the states merely cover their malpractice as their only reward. No claim forms, no billing, no bureaucracy, just free care. The taxpayers, patients and physicians would all win.

    Physicians who donate their services are already covered as members of the federal public health system. The feds simply cover them and do not pay premiums. It only costs the taxpayers if a lawsuit it brought. But this is truly rare.

    Extending that coverage to the entire practice of the donating physician by the state would be enough of a reward to make donating his time worthwhile, and patients would still have redress of they are truly harmed. But the physicians would no longer feel compelled to order all those extra tests to “cover” themselves. The cost of everyone’s health insurance would come down.

    • I like it. Would it apply to hospitals as well?


      • It could easily be extended to hospitals as well They already have a system of determining which patients qualify for charity care but for some reason do not qualify for Medicaid. These patients are all seen and the hospitals try to get the state government to pony up at the end of the year.

        The politically well connected hospitals get more funding and somehow the hospital CEOs are VERY well compensated. Go figure.

        Ending that dual Medicaid and “charity care” system, but having the hospitals covered for malpractice in the same way donating physicians would be covered, would end the huge Medicaid bureaucracy that bogs everyone down.

        Ending the payments for charity medical care that emanate from state governments would end a lot of mischief as well.

        There would be simply charity care in return for just a big “thank you” from the state in the way of malpractice coverage. The ending of payments would eliminate the possibilitiy of fraud and abuse.

  7. This is good stuff. I also think that ‘loser pays’ would work well. Too often the lure of the jackpot spurs scurrilous lawsuits intended to benefit the trial lawyer bringing the case NOT the harmed plaintiff. Doctors be ware!

  8. Wonderful ideas and very glad to see practitioners contribute to the dialog. My cynical response is that all these reasonably, practical and sorely-needed ideas for reform may continue to be moot as long as the modern pirates (er-attorneys) continue to own the political process.

  9. P.S. Greg — kudos for keeping the issue prominent!

  10. Hi Greg:
    As one of the authors of MICRA, California’s tort reforms back in ’75, I soon came to realize in that the multi-billion dollar medical tort industry is an enormous waste of valuable health care resources and the threat of liability drives up the cost of care exponentially. Accordingly in the early 80’s I wrote an article which appeared in the Journal of the California Medical Association proposing that we study “flight insurance”–a combined policy of health, disability and life insurance payable upon iatrogenic injury. As with all insurance, the risk and therefore the cost of that insurance can be controlled by the underwriting, the language of the policy and the claims management. To date, no one has studied how to make such a system work–i.e. how to adjust the underwriting and claims payment mechanisms to make such a system affordable. To that end, one proposed program of a new national organization, the Patient-Physician Alliance, will be an agreement by members (patients and providers) to substitute a comprehensive “no-fault” insurance package for the right to sue. With your expertise in the insurance industry, Greg, are you aware of any companies that would like to help the PPA underwrite this pilot project? Legally, I believe this system would pass muster. Historically courts have frowned on contracts in which patients waive their right to sue. (The key case was the Calif. Supreme Court decision in a case called Tunkl). But unlike Tunkl, where the patient was handed a waiver of all rights and told to sign it in the doctor’s waiting room, PPA imposes no pressure or adhesion contract –patients, doctors and other providers participate completely voluntarily. Likewise,patients would be able to purchase the level of benefits they would receive, so there would be a fair, bargained-for exchange for their right to sue. Considerable law in the last 20 years has favored alternative dispute resolution. The PPA and I would like to work with any insurance carrier, group of physicians or patient/public organization to test and implement this program, which would create a non-legislative means of achieving tort reform. I would appreciate your thoughts and comments on this very much. Anyone reading this post who would like to contact me directly may do so at
    Thank you for your thoughtful piece, Greg. Now let’s see if we can make it happen.
    Very best regards,
    Charlie Bond

  11. Greedy Doctors, Greedy Lawyers: According to
    a number of massive medical practices studies:

    About 80% of Patients Who Were Verifiably, Medically Harmed by Treatment , DID NOT SUE!

    About 80% of Suits Brought by Lawyers Involved
    Cases Where the Patient Was Not Harmed or
    Best Practices Were Used But to No Avail.
    This Was Legal Blackmail.

    Both Professions Have Blood on Their Hands
    and Contribute to This Mess.

    In 1961, I did a research paper—for High School—
    that proposed the use of Computers and
    Programming to assist Doctors by giving them
    the most up-to-date medical diagnostic AND
    prognostic tools.

    Insurance Companies and Medical Boards
    could use the date collected to identify bad
    doctors, patthetic diagnoses, etc…

    For some years I’d approach doctors and
    insurance companies; but, no one seemed

    Finally in 1975, I talked to a receptive, Internationally
    Famed Surgeon. He listened to my outline.

    “Even if what you propose does everything you
    say it will, the medical profession will fight this
    tooth and nail. What you propose is making
    many internists and GPs into glorified technicians.
    They’ve seen what’s happened to the Engineering
    and Science Professions where lowly HS educated
    technicians can do very sophisticated science
    and engineering work with a computer and a great

    “So, why did you listen to me? Aren’t you threatened?” I asked.

    “No, I like what you propose—(wiggles his
    hands)—but, there will always be accidents,
    disease, and assaults. These are healing hands.
    I’m one of the best in the world with my clientele
    intentionally split 50/50 between US and foreign

    This doctor then mentioned his experience of
    trying to out a particularly bad surgeon who
    routinely committed malpractice… to no avail.

    Nuff Sed.

    Bill Bryan

    PS. In 1985, a Dr. Kim asked me to be an investor
    in a workable computer system approach that I
    found to be ideal and just like the system I’d envisaged in 1961. Great Opposition. Eventually
    this computer diagnostic system became known
    as ‘Med Stat’ and eventually was melded into
    some better known; but, less powerful systems.

  12. Greg, I am slow to reply, because I wanted to do some research. The Illinois State Medical Society has studied the various suggestions for handling these disputes. Their conclusion is that no fault insurance would be very expensive and still open to all kinds of graft, just as our state’s no fault insurance for workman’s compensation has demonstrated. The number of cases submitted for compensation would escalate dramatically. The problem in medical liability is not the system, but the abuses and the incentives that cause them. Caps on non-economic awards reduce the number of suits filed, the awards given (not actual economic costs to the patient), and the overall cost of medical liability, period. This has been demonstrated over and over. If a patient is harmed by negligence or incompetence, they should receive the full full amount of the economic cost of the injury and a modest amount for non-economic consequences. I could go on at length about the ramifications of abuse, but basically, sociopathic attorneys will exploit any system , if it is to their benefit. Insurance and health care involve interstate commerce in many respects, and I believe it is appropriate to address this problem federally. MICRA-type legislation works. It occcurred in California, when Sen Nostrils was president of the State Senate, because there was a mass exodus of physicians from the state. It failed in Illinois because the trial attorney/labor union controlled State Supreme Court found the law unconstitutional – 4 times. The U.S. Supreme Court might throw out caps, but we’ll have to cross that bridge when we come to it. I personally think the country is sick and tired of some of the crap that is going on whereby a small number of people abuse the system and derive benefits that everyone has to pay for. If our country is so corrupt and degenerate as to allow this travesty to continue, then our prospects for the future look pretty dim. The Illinois State Medical Society BOT will hear a white paper on alternate means of settling these disputes this week-end, and I will report on their findings. Health courts will be one of the topics.
    Bob Hamilton

    • Bob, a couple of things —

      Yes, Workers’ Comp can be abused, but no one is getting rich from it and in most states it minimizes the role of lawyers.

      I agree that a no-fault system will increase the number of claimants, but I see that as a good thing, not a bad thing. One of the problems today is that many patients fail to file legitimate claims solely because they are court-adverse or don’t have an aggressive lawyer.


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