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Damage caps will hurt injured consumers and they won't reduce health care costs.

Liability claims have been blamed for everything from raising health care costs to hindering America's ability to compete in the global marketplace. Opponents of civil justice argue that capping damage awards will reduce costs and prompt insurers to lower premiums, particularly for doctors and product manufacturers. Any savings will be passed on to consumers by magnanimous insurers, they assure us.

These arguments are either naive or disingenuous. Damage caps--which limit it an injured consumer's award to a predetermined amount--are arbitrary and capricious. Unlike a jury, which can weigh facts and tailor an appropriate award, a cap blindly applies regardless of the nature and severity of the injured consumer's pain and suffering.

Is it fair when a 62-year-old insurance agent who must rely on dialysis for the rest of his life because doctors removed his healthy kidney instead of the diseased one has a jury award slashed by California's $250,000 cap?

Is it fair when an 8-year-old Missouri girl who sustained brain damage and blindness when she was given three times too much intravenous saline solution during surgery has a jury award reduced by a statutory cap?

Should a second-grade teacher who suffered a massive stroke when a catheter was misplaced in her jugular vein have her award reduced by an arbitrary cap?

These cases illustrate the insidious nature of damage caps. Juries, who hear all the evidence and are in the best position to determine an injured consumer's damages, are stripped of their role. Moreover, caps allow the wrongdoer to avoid responsibility for the harm he or she has caused. Perhaps the cruelest irony is that the bases for damage caps and other anticonsumer tort "reforms" are clearly faulty.

Contrary to what the proponents of tort "reform" claim, America is not awash in tort suits. The most recent data compiled by the National Center for State Courts, a nonpartisan group in Williamsburg, Virginia, reveal that tort claims represented a little more than 1 percent of cases filed in state courts in 1992. Nearly 60 percent of tort claims stemmed from automobile collisions, while only 7 percent were for medical negligence and another 4 percent involved products liability. Over the past eight years, the center reported, tort claims have remained constant and since 1990 actually have decreased.

These findings are not unique. The overall medical negligence claims rate between 1985 and 1990 declined at an average annual rate of 8.9 percent, according to the American Medical Association publication Socioeconomic Characteristics of Medical Practice. Harvard University researchers, in a comprehensive study of medical negligence in 1990, found that only one in eight negligently injured patients ever files a claim. "[W]e do not now have a problem of too many claims; if anything, there are too few," the researchers concluded.

In contrast, litigation between businesses has exploded in recent years. The Wall Street Journal reported last December that contract disputes between businesses comprised nearly half of all federal court cases filed between 1985 and 1991. "Businesses may be their own worst enemies when it comes to the so-called litigation explosion," the newspaper stated.

This business litigation apparently has had scant effect on America's global competitiveness. The business-backed Council on Competitiveness reported in September that the United States had "significantly strengthened" its position in a dozen important technologies, while holding a big lead in several others. The 1994 World Competitiveness Report also recently ranked the United States' economy as the world's most competitive economy.

The corporate opponents of civil justice and their flacks, understandably, complain little when businesses vindicate their legal rights. Instead, it's the injured consumer who bears the brunt of their misplaced hostility.

Trials Are Rare

The proponents of damage caps also must rely on the mistaken notion that juries, for all their democratic splendor, cannot be trusted. Juries, they claim, are out of control and make awards that have no real connection to consumers' actual damages.

However, the U.S. General Accounting Office (GAO) has found that the size of compensatory awards in products liability cases varies by type and severity of injury in a manner that is consistent with the underlying economic loss. The GAO concluded that compensatory awards were neither erratic nor excessive.

Further, the most comprehensive study of punitive damages in products liability cases to date found only 355 such awards between 1965 and 1990. Nearly 25 percent of those punitive awards were in asbestos-related cases, while another 25 percent were reversed or remanded on appeal.

Most studies of medical negligence conclude that fewer than 10 percent of claims are ever tried before a jury. Moreover, the evidence shows that juries are not biased against doctors and awards are not unjustified.

For example, a 1992 study published in the Annals of Internal Medicine found that awards generally are consistent with the severity of injury. "Our findings suggest that unjustified payments are probably uncommon," the authors concluded.

Possibly the most compelling evidence against damage caps is the states' own experience mith this anticonsumer measure in medical negligence cases.

In 1975, Indiana sought to control health care costs by enacting a total cap on damages in these cases. Interestingly, Otis Bowen, the governor who signed Indiana's law into effect, was a doctor. Under this cap, injured consumers could recover no more than $500,000 (subsequently amended to $750,000) for non-economic damages such as pain and suffering and economic damages such as medical expenses.

Between 1980 and 1990, Indiana's health care spending increased 139.4 percent, according to the consulting firm Lewin/VHI. This increase was higher even than the national average increase of 138.7 percent.

Tort reformers also claim that Indiana's damage cap has lowered physicians' malpractice premiums, but this is misleading. In Indiana, insurers write up to only $100,000 in coverage. Awards above that amount are paid out of an excess compensation find, which is funded by a surcharge on Indiana doctors. Consequently, the doctors' true malpractice costs are not accurately reflected unless their premiums and the surcharge are added together. It is noteworthy that the surcharges have jumped from 10 percent of malpractice premiums in 1975 to 125 percent in 1990.

Another canard is that damage caps entice doctors to remain in the state because of supposedly lower insurance premiums. Indiana, however, had 45 fewer physicians per 100,000 residents than the national average, according to the 1991 Statistical Abstract of the United States. The Indiana Medical Association also states that half of the graduates of the Indiana University School of Medicine leave the state upon graduation.

California's experience mith a damage cap is similar to Indiana's. In 1975, California enacted MICRA (Medical Injury Compensation Reform Act), which limited noneconomic damages to $250,000. Among other "reforms," MICRA also imposes a short statute of limitations and allows health care providers to require patients to waive their right to a jury trial in the event that medical negligence occurs.

These changes, however, have failed to contain California's health care costs, which rose 143.9 percent between 1980 and 1990. A GAO study found that malpractice premiums for doctors in southern California increased from 16 to 337 percent, depending on physician specialty, between 1980 and 1986.

In contrast to Indiana and California, the District of Columbia has not enacted any major changes to its medical liability laws. Nevertheless, the per capita increase in health care spending in the District between 1980 and 1990 was 108.4 percent, far below the national average increase.

Why Caps Don't Control Costs

The reason caps have not cut health care costs is abundantly clear. Neither medical negligence litigation nor so-called defensive medicine plays any appreciable role in health care costs. In fact, malpractice insurance premiums account for less than 1 percent of total health costs, the U.S. Congressional Budget Office reported in 1992.

The National Association of Insurance Commissioners (NAIC) and the A.M. Best Co., which monitors the insurance industry, report that in 1991 malpractice premiums accounted for about 0.64 of 1 percent of national health care expenditures of nearly $752 billion. In everyday terms, that amounts to only 26 cents out of a $40 office visit.

(By comparison, products lability insurance premiums in 1991 accounted for 0.14 of 1 percent of product retail sales, according to the National Insurance Consumer Organization.

Even though malpractice insurance premiums constitute such a small share of costs, the NAIC reports that medical malpractice as a line of insurance had the highest profit as a percentage of premiums in 1991. Losses paid by insurers in 1991 for medical negligence amounted to only 0.31 percent (or 31 cents out of every $100) of national health care costs.

Another reason damage caps have failed to harness costs is that insurers do not automatically lower their premiums when a cap is enacted. In fact, insurers have consistently denied that changes to tort laws, including the adoption of damage caps, will result in lower malpractice premiums.

For instance, both the St. Paul Companies and Aetna concluded that Florida's cap on noneconomic damages in addition to other restrictions on consumer rights would not result in savings. One executive of the St. Paul Companies explained that "nowhere has it been proved that tort reform will affect our loss costs. Experience tells us that these reforms don't always have the intended effect."

Proponents of medical liability reform also charge that so-called defensive medicine drives health care costs. They argue that doctors, fearing high damage awards, order unnecessary medical tests. But the myth of defensive medicine was exposed in July in a study by Congress's Office of Technology Assessment (OTA).

The OTA reported in fuly that most physicians who order aggressive diagnostic procedures in cases where conservative management is considered medically acceptable do so because they believe such procedures are medically indicated, not primarily because of concerns about liability. Only a small percentage of diagnostic procedures--"certainly less than 8 percent"--is likely to be caused primarily by conscious concern about liability. Physicians also tend to overestimate the risk of being sued, the study concludes.

Given that medical liability accounts for such a minute portion of health care costs, it should surprise no one that damage caps have not lowered costs.

The Real Cost Drivers

As long as proponents of damage caps can focus attention on the nonexistent "litigation explosion" and defensive medicine, they can deflect attention from the real cost drivers of medical liability: self-referral practices and the incidence of negligence itself

A growing body of evidence shows that a substantial purpose of "unnecessary" tests is to increase the income of physicians. The Consumer Federation of America (CFA) reported in 1991 that the most significant change in physicians' practices during the 1980s was the dramatic increase in self-dealing for ancillary services, including clinical laboratory tests, Pap smears, X-rays, and other imaging services.

The CFA report found that doctors with a financial interest in a lab ordered 34 percent to 96 percent more tests and, as a result, their prices were 2 percent to 38 percent higher and total bills were 26 percent to 125 percent more than those of independent laboratories. At least five recent studies published by the New England Journal of Medicine and the Journal of the American Medical Association show that self-referring doctors order testing more often than referring doctors, and their costs were up to seven and a half times higher than when outside services were used.

The medical industry has vehemently opposed measures eliminating or regulating self-referral, even though such measures would be far more effective in controlling costs than damage caps. State legislatures and Congress have begun to regulate such practices.

The elimination of medical negligence, however, is by far the most effective way to reduce liability costs. Unfortunately, malpractice in the United States occurs far too frequently.

Consumers Are the Losers

The Harvard Medical Practice Study estimated that in hospitals in New York state in one year alone, there were 27,000 negligent adverse events, including nearly 7,000 deaths and 900 cases of permanent disability. Extrapolating the study's findings to the entire country, researchers have estimated that medical negligence kills more than 80,000 Americans a year and injures hundreds of thousands more.

In response to this threat to public health, the medical industry--through damage caps and other "reforms"--has sought to make it harder for injured consumers to receive adequate and just compensation for their injuries.

At the same time, the medical industry has shown that it is incapable of policing itself In 1991, less than 1 percent of the nation's 615,000 physicians were disciplined by state medical boards. Only about 200 doctors lose their licenses each year, and many of those who do have committed fraud or felonies.

Given the lack of appropriate oversight, it has fallen on America's civil justice system to deter negligent and reckless conduct. For more than 200 years, American juries made up of citizens drawn from the community have meted out justice in a fair and evenhanded manner, regardless of the parties' wealth or social standing. Their efforts have strengthened America and created consumer protections that are second to none.

The proponents of damage caps seek to undo these advances. With facts and fortitude, injured consumers will prevail, and through the justice system, they will create a safer, healthier America.

ATLA President Larry S. Stewart is a partner with Stewart, Tilgbman, Fox Bianchi in Miami. This article originally appeared in The Washington Times Insight magazine on November 7,1994.
COPYRIGHT 1994 American Association for Justice
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1994, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Stewart, Larry S.
Date:Dec 1, 1994
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