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The Virginia Birth-Related Injury Compensation Act: Limited No-Fault Statutes as Solutions to the "Medical Malpractice Crisis" JAMES A. HENDERSON, JR. In this chapter I accept as a premise that we face a "medical malpractice crisis" and examine possible solu- tions. The crisis presumably consists of significant increases in the number and value of medical malpractice claims, the mounting un- availability to medical care providers of liability insurance, and the growing possibility that such providers will respond to these circum- stances by cutting back on or refusing altogether to provide needed health care services. Although several possible solutions are considered, limited no-fault statutes such as the recently enacted Virginia Birth- Related Neurological Injury Compensation Act are the major focus of concern. Statutes of this sort aim at the hottest of the hot spots in the medical malpractice crisis, replacing traditional tort liability with nar- rowly defined no-fauIt compensation programs. Because such statutes focus on areas where the problems are the greatest, presumably they offer relief where it is most needed. To assess the potential benefits of such approaches, I compare these limited no-fault approaches with traditional tort liability and with more comprehensive alternative compensation systems. The peculiar strengths and weaknesses of each system are identified, and compari- sons are drawn between and among the various approaches. I conclude that, although no-fault alternatives to traditional tort are feasible in the medical malpractice area, limited no-fault statutes such as that of Virginia are of questionable social value. Even assuming that the medi- 194

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VIRGINIA BIRTH-RE=TED ENTRY COMPENSATION ACT 195 cal malpractice crisis exists and demands legal change, such approaches may well create more problems than they solve. SIGNIFICANT FEATURES OF TRADITIONAL IY)RT AND ALTERNATIVE COMPENSATION SYSTEMS General Descriptions of the Systems Traditional Tort Liability System As masters of ceremonies are often disposed to say, the traditional tort system needs no introduction. In the medical malpractice area the basis for liability is negligence on the part of the health care provider. The plaintiff typically claims that the provider deviated in a dangerous way from the standards of the relevant branch of the medical profession, causing injury to the plaintiffs The plaintiff brings his claim by filing a complaint in a court of law and by going to trial in cases that fail to be settled. A greater percentage of medical malpractice claims actually reach trial than is typical in other areas of tort liability,2 perhaps reflecting the relatively higher costs to the defendants of appearing to admit fault by agreeing to a settlement. Medical malpractice trials are lengthy and expensive. In cases brought to trial juries typically decide at the close of the evidence whether the health care provider was or was not negligent, with negli- gence being determined by reference to the standards of care currently adhered to by the medical profession.3 A finding of liability requires the jury to assess the damages to be awarded to the plaintiff. Reflecting the relatively high expense of bringing these cases to trial, verdicts and judgments tend to be greater in malpractice claims than in tort claims generally.4 Many claimants receive little or nothing from this process; those who succeed, however, tend to recover substantial judgments. Comprehensive No-Fault Alternative In contrast to the traditional tort liability system a comprehensive no- fault alternative to compensating the victims of medically related acci- dents would define ahead of time the adverse medical outcomes for which compensation would be awarded and would process claims in an administrative rather than a judicial setting. A useful example of such a system, which I will use in this analysis for comparison, is the Designated Compensable Event (DCE) project of the American Bar Association (ABA). In 1977 the ABA Commission on

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196 MEDICO P~FESSiON~ A: VOGUE ~ Meclical Professional Responsibility recommencled that its innovative alternative subcommittee explore the possibility of implementing an enterprise liability system baser] on a preclefinect list of adverse out- comes arising from meclical treatment.5 The DCE system proposed in 1979 at the end of that stucly rests on the assumption that for most medical treatments and procedures it is possible to identify those acI- verse outcomes over which medical professionals exert significant con- tro] that is, adverse outcomes that are usually although not invariably avoidable under gooc] quality meclical cared Prepared aheac] of time by meclical researchers and reviewer] by teams of clinicians, the list of adverse outcomes, or clesignateci compensable events, forms the basis of an enterprise liability system in which patients suffering one or more of the listecI outcomes are paid out of the proceeds of insurance, which are attainer] aheac] of time by the relevant proviclers, without having to show that the providers were at fault. For outcomes on the DCE list, the enterprise liability remecly wouIc! be exclusive. For outcomes not listecI, patients wouIc] have access to the traclitional tort system.7 Presumably, such a DCE compensation system wouIc] be broac! in its coverage ant] wouic] be implemented either by contract (e.g., a contract between a health maintenance organization and its subscribers) or by statute (imposec] on all providers of medical care in the relevantjurisclic- tion). To date, the DCE program has not been implementeci in any . . . ~ Jurlsc fiction. Limited No-Fault Statutes In contrast to the DCE approach limited no-fault statutes such as the Virginia Birth-Relatec] Neurological Injury Compensation Act focus narrowly on a specifically cleaner] set of injuriesin the case of the Virginia statute, on injuries to the brain or spinal cord of infants caused by the deprivation of oxygen or by mechanical injury occurring in the process of birth.8 The Virginia statute imposes its terms on the patients of physicians and hospitals opting ahead of time to participate in the program. For covered claims, the statute excludes any and all rights to recover in tort. Claims are processed administratively, and recoveries are limited by preestablished schedules. The fund from which compen- sation payments are made is maintained by annual public assessments on participating physicians, hospitals, and physicians generally, with nonparticipating physicians paying at a reduced but not insubstantial rate. Liability insurers are also assessed, based on the extent of their involvement in writing certain kinds of insurance in the state. The Virginia statute took effect on January 1, 1988. It is not yet clear how, in fact, it will operate.

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VIRGi=A BIRTH-RE=TED MARY COMPENSATION ACT 197 How Is Each System Implemented? What Is the Source of Each System's Legal Authority? The Traditional Tort System The traditional system of medical malpractice tort claims rests in the common law, modified here and there by statute. A few states in recent years have modified the common-law tort system somewhat radically,9 but the traditional common-law tort system survives as the underlying basis of medical malpractice liability in all American jurisdictions. In most states the common-law tort system governing medical malpractice claims has survived statutory tinkering largely if not completely in- tact.~ The DCE System The DCE system proposed by the ABA study might be implemented by statute, but it need not be. Indeed, the ABA study assumed that a DCE pilot program would be adopted initially and experimentally by contract, probably by a health maintenance organization, which would include such a compensation system in its basic contract with sub- scribers. It is more difficult to envision individual health care providers and their patients adopting this contractual system, given the inclina- tion of American courts to review such provider-patient contracts with suspicion after the fact of injury. If a large health maintenance organization were to decide to imple- ment a DCE approach, it might be well advised to seek legislation authorizing but not necessarily imposing such contracts and purporting to "guarantee" the validity of contracts that conform to statutorily established guidelines. In the alternative a state legislature, confront- ing what it deemed to be a serious malpractice crisis, might enact legislation imposing the DCE approach on health care providers and patients generally. Given the unavoidably controversial nature of such a proposal, and the serious implications of its enactment, many advocates of the DCE approach understandably prefer that it be implemented initially through the contract mechanism. The Virginia No-Fault Statute The Virginia approach imposes its no-fault compensation scheme on everyone in the commonwealth, in the sense that physicians or hospitals who choose to participate in the program thereby impose that scheme on their patients unilaterally.~2 The Virginia statute does not require par-

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198 MEDiC~ P~FESS!ON~ I: VOILE ~ ticipating physicians or hospitals to notify patients ahead of time that the statute has replaced any and all rights they might otherwise have under the tort system in the event of a birth-related neurological injury. What riggers Liability? What Events Are Compensable? The Traditional Tort System In a medical malpractice action brought under traditional tort princi- ples the plaintiff must show that the health care provider failed to conform to the commonly accepted standards of his or her particular branch of the medical profession.~3 That is, the plaintiff must show provider fault. The standard is relatively vague, and most often the question of liability is for the jury to decide on general instructions. Given the relative vagueness of the standards of care to be applied,~4 the tribunal "stick builds" a description of the compensable event in each case and then applies that standard to the facts. Relatively little is decided ahead of time; trials in court provide the context in which the law and fact are developed. The DCE System In contrast to the traditional tort system, the DCE system prepares a comprehensive list of adverse outcomes ahead of time, describing in detail those outcomes that will warrant compensation for injuries suf- fered. Various criteria are used in specifying outcomes to be included on the list: for example, outcomes must be generally although not invaria- bly within the control of health care providers. The DCE system should provide incentives, through the differential pricing of insurance pre- miums, to providers to exercise care in controlling the number and extent of adverse outcomes. The more frequently any given provider experiences such outcomes, the higher his or her liability premiums will be. The key to success under the DCE approach is the specificity with which the outcomes are described. Most of the value judgments must be made ahead oftime, leaving substantially mechanical judgments of fact to be determined case by case. For example, the DCE system might describe a particular type of plaintiff (excluding the very young, the very old, and patients who are particularly at risk of adverse outcomes) and a particular type of health care service (an appendectomy or a tonsillectomy) and then describe the adverse outcome as "death during the operation or during the period of immediate recovery." The phrase "the period of immediate recovery" must be described specifically in

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VIRGIMA BIRTH-RE=TED ENTRY COMPENSATION ACT 199 terms of time and space.~5 Once this event is included on a list of designated compensable events, death from any source--- even death resulting from collapse of the operation room ceilingwould generate a valid claim for compensation. The system must avoid addressing ques- tions of proximate cause under vague standards; most claims must be handled routinely and administratively if significant reductions in the costs of processing claims are to be achieve. Controllability by the health care provider is not the only criterion. One might include on the list of designated compensable events adverse outcomes that are not generally within the control of providers but that result from medical procedures that are close substitutes for procedures whose outcomes are included. Unless such substitutable procedures are included, providers will have incentives to substitute procedures that do not lead to DCE claims for compensation in place of procedures that do, thus skewing the systemic It should be noted that the ABA commission contemplated in its report a DCE system that would cover a wide range of medical procedures. Because the DCE list is intended to provide such coverage, it must be concerned with substitution ejects. The Virginia No-FauZt Statute The Virginia statute defines the statutory phrase "birth-related neu- rological injury" as follows: "Birth-related neurological injury" means injury to the brain or spinal cord of an infant caused by the deprivation of oxygen or mechanical injury occurring in the course of labor, delivery or resuscitation in the immediate post-delivery period in a hospital which renders the infant permanently nonambulatory, aphasic, incontinent, and in need of assistance in all phases of daily living. This defini- tion shall apply to live births only. Several observations regarding this statutory language are in order. At first blush, the language seems sufficiently specific to avoid controversy when applied case by case; one may wonder, however, whether the phrase "caused by the deprivation of oxygen or mechanical injury" raises difficult questions of causation. Can physicians determine rela- tively easily and unambiguously when brain or spinal cord injury has and has not been caused by such deprivation or injury? If not, then the seeming specificity of the statute may dissolve in a morass of adminis- trative haggling.~9 Apart from this question concerning causation, the description of the compensable events in the Virginia statute seems very narrow in scope when compared with the longer, more comprehensive list of compen- sable events in the proposed DCE system. The Virginia statute appears

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200 MEDICAL PROFESSIONAL LIABILITY: VOLUME II to have addressed the hottest issue in the malpractice crisis in that jurisdiction, aiming narrowly at a type of injury that one may reasona- bly assume leads to significant liability under the traditional tort sys- tem. Reacting to the narrowness, one begins to wonder why this particu- lar outcome was picked to receive such unusual treatment. Even if the compensable outcome in the Virginia statute can be determined fairly simply, thereby reducing transaction costs, questions of fundamental fairness remain. The DCE system arguably would provide greater bene- fits in the aggregate to persons injured in the course of receiving medical treatment than are provided by the traditional tort system. To be sure, the DCE system would pay badly injured claimants less than the tradi- tional tort system would pay successful tort plaintiffs in similar cases, but the number of victims receiving compensation under the DCE sys- tem would, presumably, be greater than the number under traditional tort. Indeed, one of the arguments favoring the DCE system is that it can provide more benefits in the aggregate, given the significant reductions in the costs of processing the claims. Those costs, many of which are legal costs, can be transferred back to victims in the form of larger aggregate compensation. In contrast the Virginia statute will almost certainly result in a net reduction in aggregate recoveries. If one is reasonable in assuming that severe birth-related neurological injuries were chosen precisely because they are among the most troublesome and costly to the providers of obstetric health care, one can be confident that the aggregate compensa- tion paid out to those who suffer such injuries will be less than the aggregate compensation (including compensation to the lawyers in- volved, in the form of attorneys' fees) paid out under the traditional tort system. Thus, the Virginia statute appears to be primarily a "reduce the liability costs of providers" approach, rather than a "reduce the transac- tion costs of handling medical malpractice claims" approach. The man- ner in which the Virginia statute describes the compensable event raises questions regarding the objectives being served by this narrowly focused compensation scheme. I shall address the question of goals and objectives in a later discussion, but problems begin to appear almost at the outset. Who Pays? Who Gets Paid? The Traditional Tort System Under traditional tort, the provider found at fault, or the provider's liability insurer, pays the tort claims. The victim of the malpractice, or

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VIRGINIA BIRTH-RELATED ENTRY COMPENSATION ACT 201 the victim's family, receives the payments. Providers are presumably free to carry or not to carry liability insurance. The problem of liability insurance being unavailable to providers has surfaced from time to time and has prompted a variety of institutional responses.20 The DCE System Under the DCE approach, compensation insurance would be manda- tory for providers participating in the system. Presumably, such insur- ance might be subject to deductibles that would cause the providers to carry some part ofthe insurance load themselves. The claimants or their survivors would receive the compensation. The Virginia No-Fault Statute The Virginia statute calls for payments out of a specially established, state-maintained fund.2i The patients or their survivors receive the benefits.22 How Is the System Funded? The Traditional Tort System Under traditional tort, health care providers presumably obtain lia- bility insurance to cover most if not all of their exposure to liability. For those providers who do not carry insurance or whose insurance does not cover all oftheir exposure, the providers satisfy liabilityjudgments from their own resources. For victims of adverse outcomes who cannot estab- lish provider fault, the losses fall on the victims themselves or on their families, to be covered to a limited extent by loss insurance and more generally by personal and community resources. The DCE System Under the DCE system, compensation insurance is mandatory for participating health care providers. In addition the DCE approach de- termines the insurance premiums on the basis of the provider's experi- ence rating, helping to establish incentives for providers to exercise care.23 For adverse outcomes not included on the DCE list, victims and their families are left to the traditional tort system, with its combination of liability insurance or self-insurance for the providers any loss insurance or self-insurance for the victims, families, and communities involved.

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202 MEDiC~ P~FESSiON~ CITY: VOICE The Virginia No-Fault Statute An interesting feature of the Virginia scheme is the creation of a fund from which compensation payments to successful claimants are made.24 All physicians in Virginia are taxed annually at a rate sufficient to provide a portion of the fund necessary to make compensation payments; participating physicians, hospitals, and liability insurers pay at rela- tively higher rates.25 It is puzzling why nonparticipating physicians must pay to subsidize the providers who actually participate in and benefit directly from the Virginia no-fault system. How Are the Benefits Measured? The Traditional Tort System Under traditional tort, the amount that a successful plaintiffrecovers is tailored to fit the facts of each particular case. Out-of-pocket expenses are allowed, including medical expenses and lost earnings.26 In addition, losses of future earning potential are allowed,27 as are awards for intang- ible elements of loss such as conscious pain and suffering.28 An impor- tant feature of the traditional tort system is the collateral source rule, which refuses to deduct amounts received by the plaintiff from outside sources when calculating the tort damage award.29 Outside sources may, by contract, arrange ahead of time with their insured to be repaid out of the tort recovery, but the tort system ignores such collateral in calculating tort damages. The plaintiffs attorney traditionally is paid out of the damage award. These contingent fee agreements reduce the net amounts going to successful plaintiffs, but they ensure a ready source of remuneration with which to recruit some of the best trial lawyers to bring tort actions. A distinctive feature of traditional tort is that damage awards are paid in a lump sum; that is, they are paid all at once, when judgments in favor of successful plaintiffs are satisfied. Statutory movement toward payments over time (periodic payments) has occurred in recent years,30 but most often, Jump-sum payments are made. The DCE System Instead of tailoring awards to the facts of each case, the DOE system schedules awards. The schedules are geared to the facts ofthe individual case only in the sense that amounts vary with the severity and duration of the cIaimant's injury. Recovery for pain and suffering is either elimi- nated altogether or severely limited. Compensation awards under the

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VIRGINIA BIRTH-RELATED INJURY COMPENSATION ACT 203 DCE system have an o~-the-rack quality, compared with damages awards under traditional tort. Consistent with most alternatives to traditional tort, the DCE system might well consider eliminating the traditional collateral source ruled that is, the DCE compensation system could be secondary to other sources of compensation. This need not be the case, however. In theory, the DCE system might be considered the primary source of compensa- tion, with other sources seeking reimbursement from DCE awards for amounts paid to successful claimants. The latter approach wouIcI en- hance the providers' incentives to exercise care in controlling adverse outcomes. Abolishing the collateral source rule subsidizes the DCE compensation system, blunting the incentive to take care. Regarding the questions of how the awards are paid (in a lump sum or over time) and how the plaintiffs attorneys are paid, the DCE system could take a flexible approach. It probably makes sense to favor periodic payouts of compensation awards because these may better help injured plaintiffs cope with their financial setbacks.32 Such payouts, when im- posed unilaterally, however, are vulnerable to attack as being overly paternalistic. If claimants prefer to receive their benefits in a Jump sum, perhaps they should be entitled to do so. Attorneys' fees might be han- dIed as they are under traditional tort, coming from the compensation awards, with sterner oversight by the agency that would administer the compensation system. The Virginia No-Fault Statute Under the new Virginia statute, compensation awards are sched- uled.33 Compared with the proposed DCE system, however, they appear to be aimed as much at reducing the aggregate cost of compensation as they are at reducing administrative overhead. Thus, a successful ciaim- ant will receive, for Toss of earnings from the age of 18 to the age of 65, an amount equal to half the average weekly wage in the Commonwealth of Virginia for workers in the private, nonfarm sector.34 As with many if not most no-fault systems, the Virginia system eliminates the collateral source rule, at least for out-of-pocket expenses.35 The statute provides for the award of reasonable attorneys' fees.36 By What Processes of Decision Are Claims Handed? The Traditional Tort System The two major processes for resolving most tort claims are settlement and adjudication. Settlement occurs in the context of bargaining be-

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204 MEDiC~ P~FESSiONAL LAITY: VOLUME ~ tween plaintiffs and defendants in individual cases. Most tort claims that are not settled are tried before juries of laypersons who decide the major factual disputes and apply the relevant law. Expert testimony plays a significant role in medical malpractice cases. Given their heavy reliance on expert testimony, medical malpractice cases are relatively expensive to adjudicate.37 The costs to the defendants, both in time taken to testify at the trial and mental and emotional upset, are sub- stantial.38 More than half of the states have introduced procedural reforms that require specially established screening panels to hear medical malprac- tice claims before plaintiffs take the claims to court.39 The erects of screening panels vary from jurisdiction to jurisdiction. In many states, the recommendation of the screening pane] is a~nissible at a later trial. Presumably, when the administrative screening pane] concludes that the claim is groundless, it hurts the plaintiffs chances if and when the claim is taken to court. Faced with such a disincentive, some plaintiffs may be persuaded to carry their claims no further. The DOE System As with most alternatives to traditional tort, the DCE system relies on nonadjudicative administrative procedures to handle claims. Given the very specific guidelines regarding which claims are and which are not compensable, these administrative bodies would presumably exer- cise little discretion and juries would not be required. The greatest savings of time and scarce resources should occur here. Compared with trials requiring many weeks and many thousands of dollars to accom- plish, administrative hearings would take less time and consume fewer resources. When claimants are unhappy with the outcomes reached in the administrative process, judicial review is available. The Virginia No-Fault Statute Under the Virginia statute, as with the DCE proposal, an administra- tive agency processes and handles compensation claims. In the Virginia scheme, the Industrial Commission hears the claims and makes the primary dispositions.40 Both the Board of Medicine and the Department of Health evaluate claims initially and report their reactions to the commissioned a special medical advisory panel reviews each claim and reports its recommendations at least 10 days prior to the hearing before the commission.42 The commission itself (or the single member thereof assigned to hear the cIaim) determines the validity of each claim, subject to subsequent review by the full commission and ultimate judi- cial review in the Court of Appeals.43

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VIRGINIA BIRTH-RELATED INJURY COMPENSATION ACT 205 How Exclusive Is the Remedy Provided? What Is the Interface with Other Compensation Systems? The Tradilwnal Tort System Traditional tort may be fairly characterized as being unconcerned with whether other liability or compensation systems exist. Tort law simply moves forward with its own agenda and lets the chips (in terms of other possible sources of compensation for accident victims) fall where they may. This attitude is reflected clearly in the collateral source rule.44 These observations regarding the self-centeredness of traditional tort should not strike the reader as startling. After all, traditional tort was, at least apart from contract and until the advent of workers' com- pensation, the only "game" in town.45 Thus, the problem of man- aging the interface between and among liability and compensation systems is a significant problem that systems other than common-law tort must face. The DCE System Like all alternatives to common-law tort, the DCE system must be concerned with how its remedies react with potential remedies in tort. To avoid horrendous problems of adverse selectionproblems that arise when plaintiffs may, after the fact of injury, pick and choose which compensation system offers the best deal the DCE remedy must be exclusive and replace the tort remedy once the adverse outcome has occurred. ~ have explored elsewhere the practical problems of how the DCE system should attempt to work with the tort system.46 For example, when a tort claim is brought prior to the bringing of a DCE claim, what effect on the tort claim should the possibility of a DCE claim have? Should a claimant be allowed to bring both a DCE claim and a tort action simultaneously? Clearly, these problems must be worked out. One way or another, however, the DCE claim when available must be the primary and exclusive claim. Thus far, ~ have considered only ex post (after the fact of injury) elections regarding which system to pursue. What about ex ante (before the fact of injury) decisions regarding whether to opt into the DCE system? Should potential victims of adverse medical outcomes (patients) have an opportunity, prior to the delivery of the relevant medical care services, to elect to be covered by the DCE system? If the DCE system were implemented by contract, some degree of ex ante election would be available, perhaps in the form of health maintenance organization sub- scribers opting, as a group, to participate. At the least, patients should be told ahead of time that they are bound by the terms of an applicable

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206 MEDiC~ P~FESSiONAL CITY: VOILE ~ DOE system. In any event it is important for drafters to understand that the problem of the interface between compensation and tort must be addressed not only ex post but also ex ante. The Virginia No-Fault Statute Regarding ex post elections of coverage by victims of birth-related neurological injury, the Virginia statute makes the compensation rem- edy exclusive of all other rights and remedies of the affected infant and his or her representatives.47 The way the statute is worded, it appears that, if a claim were to be brought in tort for injuries presumably covered by the statute, that claim would be barred by an appropriate motion before the court, pending resolution ofthe compensation claim under the statute. The statute of limitations on the tort claim is tolled (barred from running) pending the resolution of the no-fault cIaim.48 If the no-fault claim is allowed, that is the end of the matter. If the claim is denied, presumably a tort action might follow. The one exception to the exclu- sivity of the no-fault remedy relates to the plaintiffs right to bring a tort action notwithstanding coverage under the statute when he or she can show, on clear and convincing evidence, that the covered physician or hospital intentionally or willfully caused the birth-related neurological injury.49 Even such a claim of intentional fraud will be barred if it is brought after an award under the compensation statute becomes conclu- sive and binding.50 Interestingly, the Virginia statute does not address the process by which the families of victims are notified, ex ante, regarding whether their rights to recover for injuries will be limited to the compensation scheme. The statute describes the process by which physicians and hospitals opt into the program, but there is no explicit mention of how the families of potential victimspatients of such participating physi- cians and hospitalslearn of the fact that their physician or their hospital has opted to be covered. This may be a serious flaw in the Virginia plan as originally enacted, and the legislature should give it due attention. COMPARING AND CRITIQUING THE GOALS AND OBJECTIVES OF THE THREE LIABILITY-COMPENSATION SYSTEMS The lYa~litional Tort System The major goals of tort law appear to be deterrence of wastefully risky conduct and compensation of accident victims injured by overly risky

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VIRGINIA BIRTH-RELATED INJURY COMPENSATION ACT 207 behavior. These assertions are admittedly couched in instrumental terms; they view tort law as a means that serves ends outside itself. Some writers have objected to this instrumental perspective and have insisted that tort law serves noninstrumental, essentially fairness values.5i Rather than rehearse the arguments on each side, this discus- sion adopts a primarily instrumental perspective. I believe that the compensation objective is overplayed in much discussion of the objec- tives of tort. Tort law never has taken as its primary goal the compensa- tion of accident victims. Far too many constraints on liability are im- posed for that to have been the overriding goal. Rather, by defining tortious conduct in limited ways, tort law appears primarily to be aimed at creating incentives for actors to invest adequately in care. From that perspective, traditional medical malpractice tort law aims at helping to keep doctors on the right trackat pressuring them to conform to the standards of their profession. Toward that end, negligence is defined in terms of the general concept of "standards of the medical profession," and each case is then resolved on its own particular facts. Juries play a significant role, not only in determining what happened but also in determining the appropriate standard.52 In theory, the tort system creates just the right incentives for care. Over time, the adjudicative process generates patterns of outcomes that help to pressure physicians to optimize the social welfare. In practice, the vagueness of the standards and the slippage built into the jury system cause the traditional tort system to impose liability to some extent on a random rather than a systematic basis. Health care pro- viders know in a general way that carelessness and negligence will expose them to liability, but the tort system does not enable them to know with any certainty where lines will be drawn later on. The system thus takes on some of the characteristics of a lottery. To the extent that this process occurs, tort law may further goals of deterrence, but it does so only haphazardly and at high transaction costs. It would not be patently absurd to conclude that the major (if not the only) beneficiaries of traditional tort are trial lawyers. . The DCE System In contrast to traditional tort, the DCE system aims more at compen- sating the victims of adverse medical outcomes. It maintains a commit- ment to deterrence by defining compensable events in terms of adverse outcomes that health care providers may control through the exercise of care. Thus, the DCE approach compensates victims only when to do so would, over time, raise the levels of care among health care providers. The DCE system, unlike the traditional tort system, is concernedone

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208 MEDiC~ P~FESSiONAL it: VOILE ~ might say primarily concerned with the reduction oftransaction costs. Its administration through agencies other than courts helps to reduce transaction costs. The specificity with which adverse outcomes are de- scribed ahead of time reduces the time and resources consumed in applying the standards to any particular case. Benefits are spread more evenly among victims, though not so evenly as they would be spread under universal loss insurance. Most important, by adopting the desig- nated compensable event approach, the system reduces the intangible "sting and upset" costs to health care providers, costs that the tradi- tional tort system generates. The DCE approach awards compensation not because the provider has been at fault but because a previously designated adverse outcome has occurred. Admittedly, the DCE system provides off-the-rack justice, compared with the traditional tort system. The boundaries drawn by the DCE list are bright; cases falling on either side of the boundaries may be treated very differently, even though, when viewed from a traditional perspec- tive, they are quite similar. Yet the costs of arbitrariness are presuma- bly more than offset by the reductions in other kinds of costs, including transaction costs and "provider upset" costs. Admittedly, a DCE system would require periodic updating of the list as new medical procedures become available. The traditional tort system, in contrast, automat- ically adjusts for such developments insofar as standards applicable in any given case are developed at trial. Once again, the trade-off is be- tween reductions in transaction costs and tailoring remedies to fit indi- vidual cases. In theory, the tort system might be preferable, inasmuch as it ensures that, in every instance, the "punishment fits the crime." Given the slippage and the open-endedness of the tort system, however, it is doubtful that traditional tort in fact lives up to its billing. The DCE system would substitute a somewhat more rough-and-ready system that delivers greater aggregate benefits for a tort system that delivers less case-by-case substantive justice than is often assumed. The Virginia No-Fault Statute When one turns to the Virginia statute to assess its goals and objec- tives, the narrowness of the defined compensable event creates suspicion that the major objectives were not deterrence and compensation but rather the riddance of an especially troublesome (from the physician's perspective) subset of malpractice claims. One imagines a growing con- cern, reflected in the news media, that physicians offering birth-related care will refuse to do so if their exposure to traditional tort liability continues. Alarmed, the Virginia legislature reacts by enacting statu- tory relief for that very narrowly defined constituency. Presumably, the

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VIRGINIA BiRTH-RE=TED INJURY COMPENSATION ACT 209 measure will reduce significantly the aggregate amounts paid in pre- miums by obstetricians and related specialists. Interestingly, all other categories of physicians in Virginia are required to contribute annually to subsidize their colleagues in the field of obstetrics. At the conference at which this chapter was presented orally, a physi- cian observed in open discussion that determining the cause of any neurological injury at the time of birth would be impossible for any dedicated finder of fact. Perhaps the statute assumes that the medically oriented panels that will decide the issue of causation in these cases will know it when they see it. It will be recalled that the DCE outcomes were drafted to eliminate, wherever possible, reliance on such notions of causation for example, death from any cause whatever during elective surgery would bring compensation, even if the roof ofthe operating room fell in on the patient.53 In contrast, the Virginia statute limits the compensable adverse outcome to injuries caused by certain rather nar- rowly defined sources. Admittedly, to include all newborn infants who suffer severe neuro- Togical injury would be to include many who were doomed to that fate regardless of the care provided during birth. It might also be more difficult in this context than in the DOE system's elective surgery context to weed out high-risk patients ahead of time when defining who among the larger group may recover for adverse outcomes from the medical procedure. But the Virginia statute's reliance on causation will probably cause considerable mischief Viewed from the perspective of one seeking to discern its overall goals and objectives, the Virginia statute strikes this observer as something of an odd duck. Surely the medical malpractice crisis in Virginia has larger dimensions than birth-related neurological injury. Will the next subset of physicians that manages to capture the ear of the Virginia legislature receive a similarly beneficial "solution"? Over time, will that state be peppered with these focused legislative responses to crises, reflecting those subsets of the medical profession that have substantial political clout? From a tort scholar's perspective, talking about the overall goals and objectives of the Virginia statute presents analytical difficulties at best. CONCLUSION Based on the foregoing comparative analysis, and assuming once again that we face something of a crisis under the traditional tort approach to medical malpractice, a DCE system or one like it would be preferable to the more limited, focused approach ofthe Virginia compen- sation statute. Simply stated, the Virginia approach may reflect too

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210 MEDiC~ P~FESSION~ LAITY: VOICE ~ much politics and too little concern for the appropriate goals and objec- tives of liability and compensation systems. Indeed, ~ would not be surprised if Virginia courts were to question the constitutionality (un- der the state constitution) of such a narrowly focused statute. Beyond the question of constitutionality, the act is problematic in several regards, all of which have been touched on earlier: its reliance on the element of causation may present intractable problems of proof; its disregard for patients' need to know about their rights ahead of time is troubling; the manner in which the scheme is funded, with its major beneficiaries being subsidized generally by physicians in Virginia, raises questions; and the overall impression that the act is aimed primarily at reducing obstetricians' exposure in the hottest of medical malpractice hot spots gives me reason to wonder if this statute may not be the first of a series of similar legislative responses to vocal, politically influential constituen- cies. One test that any reform proposal should be prepared to pass is whether reasonable patients would agree to it before receiving care. Arguably, they would agree to a broad-based DCE system that delivered more to them in the aggregate than does the existing tort system. In contrast, ~ rather doubt that patients would agree ahead oftime to being bound by the Virginia scheme. If my hunch is correct, then one may question the fundamental soundness ofthis hot-spot approach to solving the malpractice crisis. Ordinarily, ~ have little patience with the pro- clivity of state courts to set aside legitimate attempts by state legisla- tures to solve otherwise insoluble impasses in our traditional tort sys- tem. The Virginia statute tests my patience in quite the opposite direction. REFERENCES AND NOTES 1. McCoid, A. H. 1959. The care required of medical practitioners. Vanderbilt Law Rev. 12:549-632. 2. Danzon, P. 1985. Medical Malpractice: Theory, Evidence, and Public Policy. Cam- bridge, Mass.: Harvard University Press, p. 56; Danzon, P. 1982. The Frequency and Severity of Medical Malpractice Claims. Santa Monica, Calif.: Rand Corp. 3. Pearson, R. N. 1976. The role of custom in medical malpractice cases. Ind. Law J. 51:528-557. 4. Danzon. 1985, pp. 53-55; see note 2. 5. Report of the American Bar Association Commission on Medical Professional Lia- bility. 1977. Chicago: American Bar Association. 6. For a description of the DCE approach, see Henderson, J. A., Jr. 1982. The boundary problems of enterprise liability. Md. Law Rev. 41:659-694. The concept of general avoidability is closely akin to the premise underlying the common law tort doctrine of res ipsa loquitur, which permits an inference of negligence based on the fact of the injury itself. See, generally, Kaye, K.1979. Probability theory meets res ipsa loquitur.

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VIRGINIA BIRTH-RE=TED ENTRY COMPENSATION ACT 211 Mich. Law Rev. 77:1456-1484. As used in the DCE context, the avoidability concept would be broadened somewhat to include all instances in which the rate of adverse outcomes differs significantly between good and bad medical care, regardless of whether bad care was responsible for a large majority of adverse outcomes. The basis for this more liberal approach to the controllability concept is the DCE system's formal abandonment of the fault principle all that really matters is that strict liability imposes significantly different liability costs on good and bad medical care providers on a long-term basis, regardless of the absolute likelihood in specific cases that either class of providers was negligent. 7. Barring plaintiffs' access to the traditional tort system for unlisted outcomes was felt to be unjustifiably harsh and thus politically unacceptable. Given the overlap be- tween the DCE lists and the sorts of injuries for which recovery could be had under traditional negligence principles, the DCE system would presumably eliminate a substantial portion of the existing medical malpractice caseload; if the transaction costs associated with the cases based on unlisted outcomes were deemed unaccept- able, the DCE statute might increase the plaintiffs burden of proof to, for example, clear and convincing evidence. 8. Va. Code Ann. 38.2-5000 to 38.2-5021 (Supp. 1988). Hereafter, sections of the statute will be referred to by section number. 9. See, for example, Conn. Gen. Stat. Ann. 52-225a to 52-225d, 52-251a, 52-251e, 52-557m to 52-557n, 52-568, 52-572h (West Supp.1988). See, generally, Manzer, N. L. 1988. Note, 1986 tort reform legislation. Cornell Law Rev. 73:628-652. 10. For a brief summary of the most commonly encountered statutory modifications, see Danzon. 1985, p. 35; note 2. See also Grad, F. P. 1986. Medical malpractice and the crisis of insurance availability: The waning options. Case Western Reserve Law Rev. 36:1058-1098, esp. pp. 1076-1085. 11. Henderson, J. A., Jr.1986. Agreements changing the forum for resolving malpractice claims. Law Contemp. Prob. 49:243-251. 12. 38.2-5002. 13. McCoid. 1959; see note 1. Pearson. 1976; see note 3. See also the accompanying text. 14. In theory, at least, adoption by the courts of the medical profession's standards ought to render the legal standard more specific than merely "reasonableness under the circumstances." See, generally, Henderson, J. A., Jr.1976. Expanding the negligence concept: Retreat from the rule of law. Ind. Law J.51:467-527. Compared with the even brighter lines typically drawn by no-fault systems, the medical malpractice standard leaves room for considerable slippage. 15. For example, the period might include time spent in the postoperative recovery facility in the hospital, terminating when the patient leaves that facility. 16. Henderson. 1982, pp. 670-673; see note 6. These costs also include the costs to providers, in the form of mental upset and reputational damage, of being accused of incompetency. 17. The assumption here is that exposure to tort liability is in either instance remote. 18. 38.2-5001. 19. To avoid the haggling, administrators of the Virginia scheme might routinely deny coverage or recognize coverage only when they sense that the underlying malpractice tort claim is strong. In either event, such a pattern of reactions would defeat the purported objectives of the statute. 20. Danzon. 1985, pp. 107-112; see note 2. 21. 38.2-5015 to 38.2-5021. 22. Section 38.2-5001 of the act defines "claimant" to include the injured infant, his or her legal representative, or the estate of a deceased infant.

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212 MEDiC~ P~FESSiONAL CITY: VOLUME ~ 23. "Experience rating" means that each insured's premiums reflect the insured's claims experience; the more claims an insured has experienced in the past, and thus the more claims he or she is likely to experience during the period covered by the insurance, the higher his or her liability insurance premiums will be. 24. 38.2-5015 to 38.2-5021 and accompanying text. 25. 38.2-5019 to 38.2-5020. 26. Henderson, J. A., Jr., and R. Pearson.1988. The Torts Process. Boston: Little, Brown, pp. 202-204. 27. See, for example, Holton v. Gibson, 402 Pa. 37, 166 A.2d 4 (1960). 28. See, for example, Walters v. Hitchcock, 232 Kan. 31, 697 P.2d 847 (1985). 29. Danzon. 1985, pp. 166-170; see note 2. For a recent critique of the collateral source rule in the context of medical malpractice claims, see, generally, McDowell, B. 1985. The collateral source rule The American Medical Association and tort reform. Washburn Law J. 24:205-226. 30. Danzon. 1985, pp. 163-166; see note 2. 31. See Danzon. 1985; note 2. McDowell. 1985; see note 29. 32. Danzon. 1985, pp. 164-165; see note 2. 33. 38.2-5009. 34. 38.2-5009(3). 35. 38.2-5009(1)(a) to (d). 36. 38.2-5009(4). 37. Danzon. 1985, pp. 186-207; see note 2. 38. See note 16 and accompanying text. See also Bell, P. A. 1984. Legislative intrusion into the common law of medical malpractice: Thoughts about the deterrent effect of tort liability. Syracuse Law Rev. 35:939-993, esp. pp. 985-992. 39. Henderson. 1986, pp. 249-250; see note 11. 40. 38.2-5008. 41. 38.2-5004(B) to 38.2-5004(C). 42. 38.2-5008(B). 43. 38.2-5010 to 38.2-5011. 44. See Danzon. 1985; note 2. McDowell. 1985; see note 29. See also accompanying text. 45. The exception in the text for contract-based liability claims is, of course, a significant one. The interface between tort and contract remains interesting to this day. See, for example, the chapter by Richard Epstein in this volume. 46. Henderson. 1982, pp. 685-689; see note 6. 47. 38.2-5002. 48. 38.2-5005. 49. 38.2-5002(C). 50. Ibid. 51. See, for example, Fletcher, G. P.1972. Fairness and utility in tort theory. Harvard Law Rev. 85:537-573. 52. For example, expert witnesses often disagree regarding what procedures are called for by "good medical care." 53. See text following note 15.