More on Medical Liability

By Greg Scandlen

The feedback I got from the original post has been great. I have responded to a lot of it in the comments section. But first, let’s keep in mind that the Congressional Republicans are looking to do something in this area right now. One of their biggest criticisms of last year’s “reform” effort was it did nothing to address the liability issue.

So, the first question is really what if anything should Congress (the federal government) be doing to reform the current system? My own view is that they have no business meddling in state tort law. For better or worse, the states are responsible for their own tort systems, and what they do will have an impact on the economic climate in their own state. Some states are famous for being plaintiff-friendly and local economies suffer because of it. Tort reform, broadly speaking, is a huge issue all by itself and needs concentrated attention. For instance, the way we do class actions is, in my opinion, obscene and benefits no one but attorneys.

But the focus of this blog is on health care, and the question before us is how to create a system of compensation that is more rational and fair, and whether there is a federal role in creating such a system. I don’t think it is possible to do it under tort law for all the reasons I mentioned before.

No one (including my wife) seems to like the idea of a tax on providers to pay for a compensation pool. I would think getting out from under the cost of malpractice premiums and the terror of court would be worth it, but the distrust of the federal government is so high that the words “federal” and “tax” sends people running for the hills. People are convinced (with good reason) that the Feds would use the money for other purposes, and use their new power to control physician behavior.

Not using a tax is not a deal-killer, however. It is not hard to imagine a voluntary system that enables physicians to mutually pool their resources into a patient compensation fund to recompense injured patients. Physicians who choose not to participate could continue to take their chances with the tender mercies of the courts. Such a system would need to be sanctioned by Congress (or, less likely, a state legislature) and participants freed of the tort system.

Some physicians seem comfortable with the tort system because that is what they are used to. I am scratching my head over that one. One physician told me he thought my system would be fine, but should be paid for by patients. I replied directly to him that that would be a non-started for reasons that seem obvious to me, but in case they aren’t to you, let me list a few:

  • A reformed system would relieve physicians (and hospitals) from their current costs of malpractice insurance, so paying nothing into a new system would give them quite a windfall.
  • Patients do not cause medical mishaps, physicians do. While a reformed system should not be fault-finding, you do not want to get into a blame the victim game, either.
  • Physicians really have to take the “greedy doctor” syndrome seriously. It is not something I agree with, but plenty of people do. The AMA hasn’t helped with its seeming lack of concern about the plight of patients as long as the Docs are well paid.
  • Patients very often do not have the resources of physicians. It is hardly fair to expect a working stiff to pay for the insurance to fix the problem caused by a less-than-optimal physician.

The point of this exercise has been to make damaged patients whole while freeing physicians of the burden of litigation. I am rather surprised that the Docs are not more receptive to such a change.

But, in any case, let me paste below a description of the system New Zealand has set up. This was provided to me by John McLaughry of the Ethan Allen Institute and put forth by William Hsiao as part of his report to the Vermont legislature in creating a single payer system in that state:

From William Hsiao
Alternatively, Vermont could replace its current civil malpractice tort system with a no-fault compensation system for providers. In discussing a move to a no-fault compensation system, we use the model of New Zealand, with reference to comparable models in Scandinavia, to provide a background on the system and evidence on its potential impact in Vermont.

In New Zealand, the Accident Compensation Corporation (ACC) adjudicates all injury claims and administers the country’s no-fault compensation system. In 2008, the ACC’s operating costs equaled 12 percent of claims.[149, 150] Claim payments required by the ACC are, on average, less than US $30,000. Physician indemnity insurance costs less than US$1,000 per year for all specialties in 2005.[149] The ACC model provides redress through a fixed award schedule intended to ensure that claimants with similar disabilities receive similar awards.[149] Awards are comprised of four compensation categories: 1) treatment and rehabilitation costs, 2) earnings reimbursement (up to 80% of a claimant’s lost earnings at the time of injury up until a set maximum), 3) a lump-sum payment of up to $70,000 for permanent impairment, and 4) support for dependents. The fact that New Zealand already provides free medical care also reduces the cost of awards because, unlike the U.S., this component of compensation is not at issue. The no-fault system also allows New Zealand to focus on reducing rehabilitation and return-to-work times. Recent reforms have improved public perception of the system, as 60 percent of respondents now view the ACC with confidence, up from 42% in December 2005.[150]

As of 2005, New Zealand replaced the term “compensable medical injury” with “treatment injury.” A treatment injury includes all personal injuries occurring during medical treatment, irrespective of whether negligence was involved, creating a no-fault medical liability system. To prove treatment injury, a causal link between treatment and injury must be shown, while injuries that are a “necessary part” of treatment are not covered. This change was made partially because of research which showed that even with an easy claims process, only about 3.3% of potentially compensable events resulted in successful awards. This number cannot be directly compared to the U.S. rate of 3%, since this refers to the percentage of adverse, negligent events that result in claims; however the New Zealand number refers to the percentage of all potentially compensable adverse events that receive payment. Moreover, the same study reviewed hospital records in New Zealand and showed that about 2% admissions were associated with an adverse event potentially compensable by the ACC.[151] Although an appropriate comparison would adjust for differences in case-mix, patient severity, and technology change, this compares favorably to the U.S. adverse-events rate of 3.7% mentioned above. Since the 2005 reform, medical claims to the ACC have increased as hoped from an average of 2,000 per year to over 5,000 in 2008. The system has historically compensated about 40% of claims. 23[149] Assuming pre-reform per claims costs of about US$30,000 and a 40% acceptance rate, claims costs would have jumped to US $61 million per year in 2008 or about 0.4% of New Zealand’s total health expenditure[152], comparing favorably to U.S. malpractice costs of about 2% of total health spending.24

Another interesting aspect of New Zealand’s system is the creation of a separate process for patients seeking non-monetary remedies for injuries they perceive were caused by medical treatment. A government official called the Health and Disability Commissioner (HDC) receives complaints from patients and attempts to resolve them using advocacy, mediation/investigation and disseminates the findings to improve care quality.[153]

In addition to New Zealand, all Scandinavian nations operate some form of no-fault medical-error compensation system, as well. The Scandinavian nations have similarly short waiting times to claims resolution as New Zealand and allow the patient a right to a jury trial after two appeals.