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OCR for page 125
7
The Legal System: The Committee's
Findings and Proposals for Change
m
l he committee spent considerable
time studying, evaluating, and discussing various proposed solutions to
the professional liability crisis in obstetrics. Its recommendations for
reforming the legal system were guided by its findings, set forth in detail
in this report, that the professional liability problem is decreasing the
availability of and access to obstetrical care, changing the practice of
obstetrics, affecting the education of future obstetricians, damaging the
physician-patient relationship, and increasing the costs of obstetrical
care.
In examining the traditional tort litigation system for adjudicating
medical malpractice claims, the committee was mindful that the prob-
lems related to the growth in medical malpractice litigation are part of
an overall growth in certain kinds of tort liability lawsuits, coupled with
increases in some types of jury awards and settlements. Moreover, many
observers believe that the growth in litigation has engendered a general
insurance crisis, which has manifested itself in sharp increases in pre-
miums for liability insurance and, in certain situations, diminished
availability or absolute withdrawal of coverage.
Medical malpractice litigation is undeniably part of this broader
phenomenon and shares many of its characteristics; but it is also a
unique problem, separable from tort litigation in general. The commit-
tee evaluated tort reforms and the various alternatives to traditional
tort litigation with a view to alleviating the problems related to medical
125
OCR for page 126
126 MEDiC~ PROFESSIONAL PITY: VOILE ~
professional liability issues in obstetrics. The committee suspects that
some of its recommendations may also apply to medical professional
liability in general.
THE TORT SYSTEM
Tort law is the branch of law allowing victims of legal wrongs to seek
compensation from responsible parties through the judicial system. The
tort system including the law of medical liability has a number of
goals. Foremost among these are deterrence of unreasonably dangerous
activity, whether intentional or negligent, and compensation of the
victims of such activity. The other goals of the system are that it provide
compensation expeditiously, that the threat of liability not deter benefi-
cial conduct, and that both claimants and those who are subject to the
threat of liability have confidence that the underlying legal rules and
their manner of application are just.
Although there may reasonably be debate about whether medical
professional liability law achieves its goal of deterring unreasonably
dangerous activity, it is the committee's conclusion that the medical
professional liability system is performing the remainder of its mission
inadequately.
Compensation is provided to victims only after considerable delay
(GAO, 1987a); the threat of liability is having far-reaching and severe
effects on access to and availability of obstetrical care; medically inad-
visable procedures are being overused, largely because of the threat of
liability if they are not so used; and health care providers, traditionally
ambivalent about medical liability, now believe this body of law to be
arbitrary and unfair in the extreme.
For all these reasons, the committee believes that it is appropriate for
the law to explore new approaches for the resolution of medical malprac-
tice claims. A variety of approaches is available and should be explored;
the committee believes that three in particular have enough promise to
warrant limited implementation.
Tort Reforms: The Comm~ttee's Findings
Tort law in the United States is based largely on common law, a body
of legal principles developed on a case-by-case basis by judges, primarily
in state courts. Since the 1970s, every state except West Virginia has
enacted some legislation modifying common-law tort doctrine that is
intended to relieve the medical liability crisis, and many are discussing
additional reforms. These tort reforms were designed to moderate the
frequency and severity of medical malpractice claims filed in order to
OCR for page 127
LEGAL SYSTEM: FINDINGS ~ PROPOSES FOR CHANGE 127
control the cost and ensure the availability of professional liability
insurance.
The committee studded these tort reforms, many of which apply only to
the area of medical malpractice. In addition, these reforms have been
evaluated in several studies. Each of these studies was also reviewed by
the committee. A particularly thorough analysis of various tort reforms
is found in the Report of the Task Force on Metrical Liability and Mat-
prc~ctzce by the Department of Health and Human Services (USDHHS,
19871. Table 7.1 lists the kinds of tort reforms that have been enacted by
state legislatures in the last 10 years.
After evaluating the reforms, the committee concluded that only a
modest reduction in medical malpractice claim frequency and size of
awards has been achieved. The limited effectiveness oftort reform can tee
perceived from the data presented in Chapters 2 through 5 ofthis report
on the continuing problems of access to and delivery of health care
generated by the medical malpractice problem. Moreover, the commit-
tee concluded that the many deleterious side effects ofthe tort system for
resolving obstetrical claims-resulting in distortions of health care
delivery patterns-have not been reduced by those tort reforms.
The committee reviewed three studies that examine the effects of the
tort reforms implemented by various states. In a 1982 study Patricia
Danzon examined the impact of several post-1975 tort reforms on the
frequency of medical malpractice claims per capita, the amount per paid
claim, and the claim cost per capita (the product of amount per paid
claim and frequency of paid claims per capita). The data base included
claims closed from 1975 to 1978 by all insurance companies writing
malpractice insurance premiums of $1 million or more in any year since
1970. No significant effects on frequency of claims or amount of awards
were found from voluntary or mandatory pretrial screening panels,
arbitration, restrictions on informed consent, restrictions on the use of
res ipsa loquitur (a doctrine of presuming liability in certain circum-
stances), or periodic payment of future damages. The only two reforms
found by Danzon to have a substantial impact affected the size of
awards-namely, caps on attorneys' fees, which lowered the amount of
awards 19 percent in the two years after implementation, and the
mandated consideration of collateral sources when determining awards,
which led to 50 percent lower awards in two years (Danzon, 19821.
In their 1983 study Danzon and LilIard used data from medical
malpractice claims closed in 1974 and 1976 to examine the impact of
states' modifying the collateral source rule, limiting the attorneys' fees
of plaintiffs, and limiting malpractice awards. Malpractice claims in-
cluded in the study were thought to be broadly representative of claims
against physicians and hospitals. The study tentatively concluded that
OCR for page 128
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OCR for page 130
130 MEDICO PROFESSIONAL I: VOILE ~
limits on attorneys' contingent fees reduced the size of settlements by 9
percent, reduced the percentage of cases litigated to verdict by 1.5
percent, and increased the percentage of cases dropped by 5 percent.
Limits on awards reduced the size of potential verdicts by 42 percent and
reduced the size of settlements by 34 percent. Modification of the colIat-
eral source rule reduced the size of awards by only a very low percentage
(Danzon and LilIard, 19831.
In a 1985 study Sloan examined the impact of several tort reforms on
the levels and rates of change in medical malpractice insurance pre-
miums paid from 1974 through 1978 by general practitioners who do not
perform surgery, ophthalmologists, and orthopedic surgeons. Of the tort
reforms studied, only mandatory use of pretrial screening panels had a
statistically significant correlation with lower malpractice insurance
premiums.
In her most recent, and comprehensive, examination of the medical
liability issue, Danzon concluded that
of the tort reforms adopted in response to that crisis [the early 1970s], caps on
awards and mandatory offset of collateral compensation appear to have slowed
the growth in awards in states enacting such changes. But country wide, awards
have continued to outpace the rate of irritation. Moreover, although claim fre-
quency tapered off in 1976-77, this can apparently not be attributed to the tort
reforms, and since 1978 the upward trend has resumed, although at a slower
pace than in the early seventies (1985, p. 225~.
A General Accounting Office (GAO) study concluded that tort reforms
now in eject have had little impact on the professional liability problem.
The study concluded that, despite the many legislative modifications of
the tort system since the mid-1970s, "the frequency of claims and the
size of awards and settlements, for the most part, have continued to
increase" (GAO, 1987b). In addition, the GAO surveyed 54 organizations
regarding their perceptions of the impact of 14 tort reforms cited in the
AMA State Health Legislation Reports on issues related to professional
liability. There was no consensus among the six interest groups (pro-
viders, hospital affiliates, insurers, lawyers, consumers, and health
insurers) that any of the tort reforms included in the questionnaire had
had a major impact. A majority of health care providers believed that
caps on awards have had a major impact on decreasing the size of awards
and settlements and that periodic payment of awards has had a major
impact on decreasing insurers' total cash outlay for awards or settIe-
ments. A majority of consumers believed that pretrial screening panels
have had a major impact on decreasing the time required to close claims
and on decreasing the number of claims that go to trial.
OCR for page 131
LEGAL SYSTEM: FINDINGS ~ PROPOSES FOR CHANGE 131
The committee concluded that, even in cases where tort reforms have
achieved the limited objective of reducing the size of awards, they have
not lessened the tort system's negative impact on the delivery of obstet-
rical care nor have they increased providers' confidence in the system.
Tort Reform: The Committee's Recommendations
The committee believes that the problems created by medical profes-
sional liability issues in obstetrics represent a serious threat to the
delivery of obstetrical care in this nation. It is the committee's conclu-
sion that, although some of the tort reforms already in place have merit,
they do not appear sufficient to stem the exodus of obstetrical providers
from the profession or to solve the attendant problems caused by the
current professional liability climate in obstetrics. Accordingly, the
committee makes additional recommendations.
The committee was impressed by certain promising alternatives to
the civil justice system that have appeared repeatedly in the literature
over the past 10 years. However, the committee was equally struck by
the fact that these examples of legal technology have, for the most part,
been debated only as theory. There has been almost no practical experi-
ence with them. Accordingly, there is no data base for measuring the
costs of these alternatives, the volume of claims that would be made
under these regimes, or their effectiveness in efficiently and fairly
resolving medical malpractice claims.
On the basis of its findings-that the costs of the current system in
terms of impaired obstetrical care are great, that tort reforms are so far
largely ineffective, and that data evaluating the merits of proposed
alternatives to the tort system are lacking-the committee concludes
that state legislatures should not focus on further reform efforts within
the existing tort system but shout instead redirect their energies toward
developing alternatives to the traditional tort system for resolving medi-
cal malpractice claims and toward implementing these alternatives in
certain circumstances.
After extensive study of several proposals for alternative systems for
resolving medical malpractice claims, the committee recommends that
states consider three proposals for further research and implementation
on a limited basis: the no-fault designated compensable events scheme
(including the variants that have been enacted in Virginia and Florida
to provide no-fault compensation for certain neurologically impaired
infants), the AMA-Specialty Society's fault-based administrative sys-
tem, and legislation authorizing the use of contractually determined
legal relationships governing medical professional liability between
providers and patients.
OCR for page 132
132 MEDICAL PROFESSIONS CITY: VOICE ~
The committee recognizes that other groups, such as the American
Law Institute, are also developing proposals for alternative systems for
resolving medical malpractice claims. In addition, the medical malprac-
tice program of the Robert Wood Johnson Foundation has funded a
number of studies to produce data relevant to professional liability
policy and its reform that could be useful to medical and legal policy-
makers. After examining the available literature, however, the commit-
tee thought that the three proposals that it ultimately commends to
states for further evaluation are more fully developed at this time.
Although the committee recognizes that each state must indepen-
dently assess its own professional liability situation and evaluate var-
ious solutions in relation to its own needs, the committee believes that
the federal government has a responsibility to encourage states to solve
the problems associated with professional liability issues in obstetrics,
to assist them in these efforts, and to coordinate the task nationally.
Accordingly, the committee recommences that the federal government
provide challenge grants for DHHS-administered demonstration proj-
ects to finance studies of proposed legisZatzon and to begin pilot projects
for limited implementation of various solutions.
ALTERNATIVES TO THE TORT SYSTEM
No-Fault Compensation for Certain Events
No-fault compensation for medical malpractice injuries refers to a
method for compensating victims of medical maloccurrence without
making the costly determination offault. The major problem with a pure
no-fault system is the difficulty of distinguishing between adverse out-
comes due to medical interventions and those resulting from an under-
Tying condition. In addition, the problems of disciplining physicians
would have to be dealt with separately. Since most illness can be associ-
ated with medical decision making in some way, a pure no-fault system
could de facto become a system of unlimited universal health insurance.
The potential cost of such a system could be high. With these concerns in
mind, current proponents of no-fault insurance for medical injuries do
not contemplate total displacement of the fault system but seek to
provide automatic compensation for a certain subset of designated com-
pensable events (DCEs).
A DCE system would operate much the same way as compensation for
workplace injuries under the workers' compensation system. It would
rely on a listing of medical injuries (DCEs), including those associated
OCR for page 133
LEGS SYSTEM: FINDINGS At PROPOSES FOR CHARGE 133
with negligence and those not, all of which would be compensated
without regard to fault. Injuries not on the DCE list would continue to be
litigated through the tort liability system. Under such a system, physi-
cians would be required to carry both DCE and tort liability insurance.
Proponents of this system believe that the total cost of both would be less
than the cost of premiums under the current system (Havighurst and
Tancredi, 19841. The birth-related neurological injury compensation
legislation enacted recently in Virginia and Florida and the federal
Childhood Vaccine Injury Compensation Act are examples of limited
DCE systems. Because birth-related neurological injury compensation
legislation is a variant of the DCE system that relates specifically to
obstetrical professional liability, a description of the Virginia act EVa.
Code Ann. 38.2-5000 to -5021 (Supp. 19871] follows.
In theory, a DCE system could be designed to encompass a range of
compensable injuries and could, if a broad category of injuries were
included, potentially be far more extensive in scope than even the
traditional tort system. For example, one study, discussed below, esti-
mated that only 17 percent of the potentially compensable events that
occur in hospitals result in tort compensation (MilIs, 19781. Danzon
(1985), however, suggests that the reverse is likely to be true. She
predicts that the number of well-defined adverse medical outcomes on
which experts will agree were caused by negligence will constitute only
a fraction of current claims. Further, parties may disagree, and perhaps
even litigate, over the issue of whether a particular injury belongs in the
DCE system or in the tort system. A full DCE system that compensated
close to 100 percent ofthese injuries could either raise the overall cost of
providing compensation or require a reduction in the amount of compen-
sation payable to any given patient.
Any potential cost savings would, of course, be dependent on the
amount and character of compensation provided. Each state considering
such a system must decide whether minimum or maximum payments
for Toss of wages would be provided, whether an allowance would be
made for pain and suffering, and whether collateral sources of compen-
sation would be offset. To achieve substantial cost savings, it would be
necessary to limit compensation under the DCE system, either by estab-
lishing a compensation schedule, by limiting compensation to direct
medical expenses, or by covering economic losses only.
A cause-based DCE standard could be difficult to apply. The greatest
costs of the current system lie not only in determining fault but also in
determining what "caused" a patient's injury or disease. Under a DCE
system, the task of separating compensable injuries from noncompens-
able, previously existing conditions and their natural progressions on a
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134 MEDICO PROFESSIONAL CITY: VOLUME ~
case-by-case basis could prove difficult and expensive. Moreover, unless
the list of compensable events were sufficiently detailed to afford com-
pensation for most injuries in the categories in question, the right to sue
for events not on the DCE list would probably need to be preserved.
Cause-based no-fault compensation for medical maloccurrence has
been implemented in a number of countries, including Sweden and New
Zealand. New Zealand adopted a general scheme of no-fault compensa-
tion for accidents in 1974. The principle underlying the scheme is that
the community has a responsibility to protect all citizens from losses
sustained through personal injury caused by accidents occurring in
employment, in motor vehicles, and from other sources, including "med-
ical, surgical, dental or first aid misadventure" (Smith, 19821. This
definition excludes losses that result from disease, infection, or the
aging process. It embraces medical errors and failure to observe the
reasonable standard of care, but it does not include maloccurrence
resulting from the omission of treatment (Vennell, 19871. Despite the
fact that the fund has encountered financial problems, it has widespread
public support in New Zealand.
Sweden enacted a scheme of no-fault compensation for medical acci-
dents in 1975. In 1978 an additional scheme to provide compensation for
injuries resulting from drugs was introduced. The Swedish system pro-
vides compensation for loss of earnings, Toss or impairment of a bodily
function, pain and suffering, and medical costs. Payments are intended
to match the compensation that would have resulted under tort law. The
scheme attempts to limit recovery to injuries that are directly linked to
medical intervention. Disciplinary measures against physicians are
handled separately. The average cost of paid claims appears to be low
under this system; however, in interpreting these figures it is important
to recognize that Sweden has generous social security measures that
defray the major part of direct medical expenses (Oldertz, 19871.
The Centre for Socio-Legal Studies in Oxford, England, and the King's
Fund Institute in London recently recommended that Britain move
toward a cause-based no-fault compensation scheme for medical injuries
similar to the two models above (King's Fund Institute and Centre for
Socio-Legal Studies, 1988~. The King's Fund estimates that in Britain a
no-fault system would reduce the costs of compensating medical injuries
by as much as £25 million a year this in a nation that already has a
national health insurance scheme.
The critical issues with any DCE system or no-fault compensation
program are how many claims will be brought and what the per capita
administrative costs will be. The committee found very little data on
these issues. The Swedish system generates about 60 claims per 100,000
persons from all health care contacts, mostly from injuries occurring in
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LEGS SYSTEM: FINDINGS ~ PROPOSES FOR CHANGE 135
hospitals. Fifty percent of these claims are paid, averaging $6,000 per
claim. It is estimated that administrative costs for this system average
15 percent (King's F`und, 19881. However, before any inferences are
drawn from the Swedish experience, it must be reiterated that Sweden
has a generous social security system that has no parallel in the United
States.
The only U.S. study of the number of injuries resulting from medical
maloccurrence that might be compensated under a no-fault system was
commissioned by the California Medical Association and the California
Hospital Association in 1977. A team of medical and legal experts
examined 20,864 inpatient charts from 23 California hospitals to iden-
tify injuries that could potentially be compensable. The study found that
4.65 percent of all hospital inpatient stays (970 cases) resulted in inju-
ries that were potentially compensable under a no-fault regime. Ofthese
cases, it was estimated that 17 percent may have resulted from negli-
gence. The study concluded that 1 in 20 hospital inpatients suffers a
potentially compensable injury, and 1 in 125 has a legal claim under the
present tort system (Milis, 19781. The California study examined only
one state, however, and did not examine trends.
The Harvard Medical Practice Study Group is conducting a similar
study of the hospital records of 30,000 patients in New York State
hospitals in 1984. The research is specifically designed to cast light on
the critical questions related to no-fault compensation. It will examine
the incidence of adverse results and the extent of negligence. A compan-
ion survey of affected patients will ascertain the consequences of adverse
events, including the medical and other costs incurred and whether the
event led to subsequent tort or disciplinary proceedings. The study also
includes an econometric evaluation of the deterrent effect of medical
malpractice liability. The group's final report is expected in 1989.
Other research on DCE systems is currently in progress. Under the
sponsorship of the Robert Wood Johnson Foundation, research on no-
fault medical injury compensation is currently being conducted as a
joint effort of the University of Texas Health Science Center at Houston
and the Urban Institute in Washington, D.C. This project, called No-
Fault for Medical Malpractice: Moving to the Third Generation of Devel-
opment, is in the data collection stage. The first and second generations
of no-fault research were concerned with conceptualizing no-fault sys-
tems and developing DCEs, respectively. The third generation will
attempt to establish the extent to which medical records as currently
maintained are useful for finding and categorizing injuries (Tancredi,
19861. The committee is of the view that when these additional data are
generated, it will be easier to evaluate the electiveness of a DCE
system.
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136 MEDiC~ PROFESSIONS ~: VOILE ~
Virginia's Compensatzon System for Birth-Related Injuries:
A Case Study of DCE
No-fault compensation for certain birth-related neurological injuries
is a variant of a DOE system. The Virginia Birth-Related Neurological
Injury Compensation Act is the nation's first no-fault scheme of its kind:
it is both the first no-fault compensation bill dealing with medical
injuries related to professional liability and the first time a state medi-
cal society has endorsed a no-fault solution to the medical professional
liability problem. Florida enacted a slightly different version of the
Virginia act, the Florida Birth-Related Neurological Injury Compensa-
tion Plan, in February 1988.
The Virginia act, which took effect on January 1, 1988, is intended to
make professional liability insurance for obstetrician-gynecologists
both available and affordable by taking claims for certain cata-
strophically injured newborns out of the civil justice system. It is also
intended to provide quicker compensation for injury and to increase
access to obstetrical care for medically underserved women.
The Virginia act sets up a program that compensates only those
infants with injuries that meet the statutory definition of a compensable
injury and provides that those infants may seek remedy solely from the
act's compensation program. The statutory definition of eligible infants
under the Virginia act is extremely narrow: it covers only those infants
suffering "injury to the brain or spinal cord 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 non-ambulatory, aphasic, incontinent,
and in need of assistance in all phases of daily living." It is estimated
that only 40 infants per year in the state of Virginia will meet these
criteria. The Virginia act expressly excludes from coverage all congeni-
tal and genetic abnormalities and applies only to live births.
To qualify for compensation under the act, an infant must be delivered
in a hospital that participates in the program and by a physician who
participates in the program. It has been argued that this could result in
unfair treatment of similarly situated infants. Further, concern has
been expressed about the lack of any provision in the act for informing
prospective mothers as to whether a physician or hospital participates
in the program.
The program is modeled after workers' compensation programs and is
administered by the Industrial Commission of Virginia, an existing
bureaucracy that adjudicates workers' compensation claims. It is a pay-
as-you-go system in which the infant is awarded expenses for lifetime
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LEGAL SYSTEM: FINDINGS ~ PROPOSES FOR CHARGE 137
medical, hospital, rehabilitative, and custodial care that are not covered
by collateral sources (except to the extent prohibited by federal law), in
addition to living expenses until the age of 18 at a predetermined rate.
There is no provision for recovery of noneconomic or punitive damages
under the Virginia act. By contrast, the Florida Birth-Related Neuro-
logical Injury Compensation Plan includes a provision allowing pay-
ment of an award no greater than $100,000 to the parent of an infant
granted an award under its program [1988 Fla. Laws 60-75, ch. SS-11.
The Virginia act is funded by an annual assessment of $250 per
licensed physician, regardless of specialty; voluntary assessments of
$5,000 per participant physician; and $50 per delivery for participating
hospitals, not to exceed $150,000 in any 12-month period. If the fund's
reserves dip too low, the state is empowered to levy annual assessments
on the liability insurance carriers in the state. The funding mechanism
of the Virginia act has aroused considerable dissatisfaction among phy-
sicians and liability insurers regarding both the mandatory and volun-
tary assessments. However, the Attorney General of Virginia issued an
opinion on August 26, 198S, stating that the mandatory $250 assess-
ment on physicians does not violate the Equal Protection Clause of the
Constitution.
The Virginia act provides that any participating physician must as-
sist in developing a plan to provide obstetrical care to patients eligible
for medical assistance services and to indigent patients. The rationale
behind this provision is that, in return for reducing the risk of practice
for obstetricians, the state asks them to contribute something to the
system by increasing the amount of care that they provide to indigent
patients. However, because the plan does not include a specific obliga-
tion to serve indigent patients, the indigent care provision of the Vir-
ginia act has been criticized as insufficient.
In light of these potential difficulties with the Virginia act as adopted,
the committee believes that states considering similar no-fault legisla-
tion to compensate neurologically impaired infants should consider
certain modifications. These modifications are set forth in Appendix G.
The AMA-Specialty Society Medical Liability Project
The AMA and 32 national medical specialty organizations have ad-
vanced a radical proposal to resolve medical malpractice claims (AMA-
Specialty Society, 19881. The proposal calls for a fault-based administra-
tive system, under the jurisdiction of strengthened state medical boards
or new state agencies, that would totally replace the existing court and
jury system for resolving medical malpractice claims.
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138 MEDiC~ PROFESSIONS LIVIDITY: VOGUE ~
The AMA-Specialty Society Project advance their proposal as one of
several possible alternatives to the tort system to be considered by the
states. Because the proposal is described in detail in an article by Carter
G. Phillips and Elizabeth Esty in the companion volume of this report
(Phillips and E sty, 1989), what follows is only a very brief summary.
The proposal has three basic parts: (1) a claims resolution function; (2)
a credentialing and disciplinary process; and (3) a codification of the
legal elements of medical liability. All three components are to be
administered by a revamped state medical board or by a new state
agency.
Claims Resolution Function
Medical malpractice complaints would be submitted to an administra-
tive agency, where they would be screened by experienced claims re-
viewers with the authority to examine medical records and to interview
the parties. It is anticipated that a significant number of claims would be
settled or dismissed at this stage. Any claimant who wished legal repre-
sentation would be provided with a lawyer from the agency's office of
general counsel at no charge to the claimant at this stage. Any claim not
settled would be assigned to a hearing examiner with broad authority to
conduct a full and prompt hearing on the merits of the claim.
Proponents of the system expect that reviewers and examiners will be
better able than a jury to evaluate medical negligence claims and to
produce consistent liability determinations and damage awards. It is
also hoped that claims will be resolved faster than in the current system,
thereby saving both plaintiffs and defendants the substantial expense
incurred in litigating cases for years in a state court.
Credentialing and Disciplinary Functions
All settlements and awards would be reported to the investigative
branch of the agency for comparison with other malpractice or disciplin-
ary reports to determine if a pattern of substandard conduct exists. In
addition, all health care entities would be required to conduct periodic
assessments of physician performance and to report to the board any
conclusion that a physician's overall performance has been substandard.
Insurers would be required to report policy cancellations and failures to
renew for reasons related to competence. All of this information would
be maintained in a clearinghouse accessible to persons who conduct
professional review activities. Certain credentialing agencies, such as
hospitals, would be required to check with the clearinghouse on a regu-
lar basis.
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LEGS SYSTEM: FINDINGS AND PROPOSES FOR CHARGE 139
Codification of the Legal Elements of Medical Liability
The proposal recommends specific changes in the standards for impos-
ing liability and the codification of those changes by statute in each
state in which the system is enacted. The standard of care based on
custom and locality would be abolished in favor of a standard that
focuses on whether the challenged actions fall within a range of rea-
sonableness, to be determined by reference to the standards of a prudent
and competent practitioner in the same or similar circumstances. Rea-
sonableness would be determined by a range of factors, including the
expertise end practice environment ofthe health care provider, the state
of medical knowledge, the availability of facilities, and access to trans-
portation and communications facilities.
Proponents of the proposal anticipate that it would be both fairer and
more efficient than the current system. However, because it has never
been implemented, it is not possible to evaluate its actual costs or its
electiveness in resolving medical malpractice claims, nor is it possible
to compare its costs and electiveness to the tort system or to other
alternatives. The number of claims that would ultimately be brought if
this system were implemented is not known. Accordingly, as with the
DOE system, it is possible that the number of claims for injuries in the
system wouldincrease. Similarly, the actual administrative costs ofthis
system cannot be accurately predicted in advance. It is possible that
they would be high. Moreover, the cost of the system would also be
dependent on the amount and character of compensation provided.
The AMA-Specialty Society proposal has been criticized for delegat-
ing too much regulatory power to the medical profession itself. Although
the proposal specifically provides that reviewers and examiners will
include nonphysicians, some critics charge that expert review as op-
posed to jury trial" is nonetheless fraught with potential conflicts of
interest.
Private Contracts
The use of private contracts setting forth the legal rights and respon-
sibilities of health care providers and patients and stipulating arrange-
ments to resolve disputes is another alternative to resolving medical
malpractice claims. This solution would not necessarily require legisla-
tive change.
The advantage of this approach is that it allows both consumers and
providers greater freedom of choice regarding the rules governing their
legal relationship (Epstein, 19761. They can choose any set of recovery
rules to govern compensation, or procedures to determine compensation,
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140 MEDICAL PROFESSIONAL LIABILITY: VOLUME I
for injury occurring during the course of medical treatment. One poten-
tial disadvantage is that it assumes that consumers understand the
health care system in great detail, understand the risks involved, and
know their own risk preferences. It is not clear that all health care
consumers, particularly those suffering an illness, are capable of in-
formed bargaining. However, if a system were structured to provide
consumers with incentives for informing themselves, it is possible that
individual contracting for medical risks could gain acceptance (Havi-
ghurst, 19861.
The theoretical justification for regulating medical malpractice
claims by contract has been argued by Richard A. Epstein ofthe Univer-
sity of Chicago Law School (Epstein, 1976) and is presented in the
companion volume of this report (Epstein, 19891. As a practical matter,
the mechanism is quite simple: consumers and providers of health care
may enter into contracts specifying the rules that apply in the event of
medical malpractice, maloccurrence, or both. Different consumers can
specify different arrangements. Possibilities include waiving the right
to a jury trial and agreeing to binding arbitration or some other alterna-
tive dispute resolution mechanism; limiting malpractice recovery rights
such as noneconomic damages or collateral source payments in ex-
change for recovery on an agreed fixed schedule; agreeing in advance to
the terms of settlement in the event of certain injuries; and agreeing in
advance to certain limits on recovery (Epstein, 19761.
Although some committee members believe that current trends in
health care delivery offer opportunities for limited implementation of
this approach, other members had serious reservations about the impli-
cations of adopting it. Those who believe that contract approaches might
be salutary in certain circumstances believe that existing procedures for
health care contracting between employers and providers and between
providers and consumers (such as HMOs) could provide the basis for
medical malpractice contracting. Employers, especially large ones, are
becoming accustomed to shopping around for innovative health care
delivery mechanisms and new arrangements for financing health care.
Similarly, consumers are becoming increasingly used to selecting their
own health care arrangements from an array of choices. However, this
does impose a greater burden on consumers to distinguish among var
· -
lOUS options.
Other committee members were concerned about possible abuses
arising from the use of private contracts to limit the professional lia-
bilities of obstetrical providers. These committee members believed that
the approach is unworkable and raised potentially grave ethical issues.
They argued that a private contracts approach could be unfair to pa-
tients who are not well enough informed about the possible risks oftheir
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LEGS SYSTEM: FINDINGS ID PROPOSES FOR CHANGE 141
treatments, or who lack bargaining power to contract electively, or who
may not realize that they are delegating the power to their employer or
union to be the contracting agents. Moreover, they argue that many
physicians themselves do not understand the legal system well enough
to come to reasonable agreement about their liability exposure. Further, it
is by no means clear that labor union negotiators, benefits administrators,
or hospital administrators could bargain effectively on these issues.
Many experts believe that it is doubtful that the courts would approve
such a contractual approach in the absence of prior legislative authori-
zation, at least in cases in which a patient's legal rights seem to be
limited rather than expanded. Even though there is considerable experi-
ence with arbitration for medical malpractice claims, and this approach
has recently received favorable judicial treatment, courts have thus far
been unreceptive to situations in which providers have used standard
form written contracts to reduce their liability for negligence to individ-
ual patients who enter into such contracts immediately prior to treat-
ment [funk! v. Regents of the University of California) 60 Cal.2d 92,383
P.2d 441, 32 Cal. Rptr. 33 (196311. In cases where employers have
negotiated contracts with HMOs to care for employees and agreed to
arbitrate malpractice claims that might arise out of future treatment,
some courts have been willing to uphold such contractual modifications
oftort rights, although others have declared the agreements unconstitu-
tional Esee, for example, Madden v. KaiserFoundationHospitals, 17 Cal.
ad 699, 552 P.2d 1178, 131 Cal. Rptr. 822 (197611. Accordingly, those
committee members who favor limited implementation of contracts
believe that it would be beneficial for a state legislature to authorize
explicitly the use of contracts between physicians and patients before
contracts are relied on, even on an experimental basis.
Economic Damage Guarantee (Moore-Gephardt Proposal)
The Moore-Gephardt proposal for a system of economic damage guar-
antees is designed to provide health care providers with incentives for
voluntarily paying economic damages to injured patients (Moore and
O'Connell, 19841. A health care provider facing a medical malpractice
claim would have the option of foreclosing such a claim by offering to pay
the injured party's net economic loss within a specified period of time. In
exchange for the provider's prompt settlement the injured party would
forfeit all tort rights, including the right to any noneconomic damages
such as Toss of consortium or pain and suffering. This proposal also
includes a provision for offsetting awards from collateral sources. Under
this proposal, if an offer of economic settlement is made, the case is
barred from court forever.
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142 MEDICAL PROFESSIONAL [IABlLiTY: VOLUME ~
A system of economic damage guarantees could be achieved by legisla-
tion at the federal or state level or by private contract. Legislation to
enact such a system at the federal level (H.R. 3084, the Alternative
Medical Liability Act) was introduced in the 99th Congress by W.
Henson Moore and Richard Gephardt. Based on extensive academic
writing by Jeffrey O'Connell, Moore discusses the system of economic
damage guarantees in detail in the companion volume of this report
(Moore, 19891.
Proponents of economic damage guarantees argue that settlements
under that system would be smaller than under the current system
because collateral sources of awards would be offset and noneconomic
damages would be eliminated. Patients, it is argued, would find the
system attractive because it provides for certain, immediate compensa-
tion, unlike the uncertainty provided by the civil justice system.
The committee was not persuaded that the system would provide
incentives for more claims to be settled. If the same type and number of
claims now being settled were settled under an economic damage guar-
antee approach, there would be some cost savings because of the elim-
ination of noneconomic damages and collateral source offset. The com-
mittee believes, however, that those savings would not necessarily
exceed the savings realized from the tort system with limits on non-
economic damages and modification of the collateral source rule.
Social Insurance
Most health care providers whose services are subsidized by the fed-
eral government must buy their own medical malpractice insurance. As
noted elsewhere in this report, those high insurance costs have effec-
tively compromised the provision of obstetrical care by certain federally
subsidized Medicaid programs and Community and Migrant Health
Centers. The federal government currently pays approximately 30 per-
cent of the nation's health bill, and the states contribute another 10
percent (HCFA Review, 19861.
Because a social insurance system would address the problem of
compensating victims of medical maloccurrence, the committee believes
it could greatly reduce the incidence of medical malpractice claims, as it
has done in the United Kingdom. A social insurance system would
involve a major commitment of resources and a major rethinking of the
way in which health care is financed and provided, however. Moreover,
whatever deterrent effects third-party medical malpractice insurance
does create would be sacrificed. (As noted earlier in this chapter, the
extent to which this deterrence function operates remains a matter of
debate.)
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LEGAL SYSTEM: FINDINGS AND PROPOSES FOR CHANGE 143
The committee believes that, in response to a number of factors,
including the medical professional liability issue, the financing of
health care in the United States is likely to become increasingly a
federal responsibility. Accordingly, the committee encourages discus-
sion, debate, and research concerning the implications of these changes
for medical professional liability questions.
OTHER NEEDED REFORMS
It is the committee's conclusion that all future reform initiatives by
the states should be directed toward replacing the tort system for resolv-
ing medical malpractice claims. However, the committee also believes
that states should address immediately the disruptions and deteriora-
tion in maternity services for the poor that are brought about by profes-
sional liability concerns. The committee therefore recommends that the
states and the federal government consider the following short-term
solutions simultaneously with any efforts to resolve the medical profes-
sional liability crisis generally.
Expansion of the National Health Service Corps
After studying the data on the availability of obstetrical providers for
publicly insured women, and particularly the effects of medical profes-
sional liability on the delivery of obstetrical care in Community and
Migrant Health Centers, the committee has concluded that the National
Health Service Corps (NHSC) should be significantly expanded and its
enacting legislation revised. The NHSC's general scholarship program
has been eliminated, and its exceptional financial need scholarship and
loan repayment programs are far too constricted to permit recruitment
of adequate numbers of health professionals into underserved areas.
Congress should reinstate general scholarships, expand the program of
scholarships for students with exceptional financial need, and increase
the number and variety of loan repayment options.
The committee is generally pleased that over the past two years
Congress has placed increased emphasis on recruiting nurse-midwives
and other midIevel professionals into the remaining NHSC program. It
wishes to emphasize its continued support for this federal effort to
attract a maximum number of health professionals to the corps.
Extension of the Federal Tort Claims Act Coverage
Without an explicit waiver of sovereign immunity, the United States
cannot be sued. The Federal Tort Claims Act (FTCA) t28 U.S.C.A.
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14~4 MEDICAL PROFESSIONAL CITY: VOICE ~
§1346(b) (Supp. 19881] is a limited waiver of that immunity. Prior to its
enactment in 1946, a private bill was required to sue the United States
in tort. The need for a private bill was largely obviated by the FTCA. The
FTCA permits an injured party to sue the government "under circum-
stances where the United States, if a private person, would be liable to
the claimant in accordance with the law of the place where the act or
omission occurred" [28 U.S.C. § 1346(b) (Supp. 198811. The United
States is liable "in the same manner and to the same extent as a private
individual under like circumstances" t28 U.S.C. §2674 (Supp. 198811.
The committee recommends that FTCA coverage or its equivalent be
extended to all Community and Migrant Health Centers' personnel and
contract providers engaged in obstetrical work. Medical personnel
would be covered by the act only for activities related to obstetrical
services. The FTCA currently insures all commissioned officers in the
Public Health Service Corps, including those NHSC scholarship gradu-
ates who assume a commissioned officer position rather than working as
civilians in medically underserved areas. The committee believes that
this distinction between civilian and commissioned NHSC members is
aggravating the problem of providing obstetrical care in health centers
and, therefore, recommends that it be eliminated. This is particularly
important in the case of obstetrical practices that are not formally part
of a health center but that are willing to take clinic patients on referral
by Community or Migrant Health Centers. Direct precedent for this
reform can be found in the 1988 appropriations law, which extended
FTCA coverage to contract providers employed by the Indian Health
Service EP.L. 100-102, § 103(c) (198811. This amendment provides that
any person who is employed by or is a member of a tribal organization
and who is fulfilling an Indian Health Service contract is deemed to be
part of the Public Health Service contract and therefore is insured
against medical malpractice claims.
Liability Coverage for Physicians Providing
Public Health Services
The committee noted with interest that Missouri, Hawaii, and Mont-
gomery County, Maryland, have taken actions to reduce the profes-
sional liability risk of persons who provide public health services. Mis-
souri's State Legal Expense Fund, effective September 28, 1987 [Mo.
Ann. Stat. § 105.711 (Vernon, 19881] covers claims against physicians
for negligence in treating conditions caused by pregnancy and delivery
and in treating children, when the physician's services are rendered
without compensation or minimal compensation, including care of Med-
icaid patients, pursuant to an agreement with a city, county, or city
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LEGS SYSTEM: FINDINGS AND PROPOSES FOR CHANGE 145
county health department. The Legal Expense Fund pays damages to
the extent allowed under the state's medical malpractice law. The act
specifically provides that the physician's personal professional liability
insurance shall not be considered available to pay claims covered by the
act. The act limits noneconomic damages to $350,000 per occurrence,
per defendant.
As a temporary measure until a permanent solution can be imple-
mented, obstetricians performing deliveries for indigent women in
Montgomery County, Maryland, hospitals will be indemnified against
any suits brought by these patients. Under this program, which became
effective on October 1, 198S, obstetricians become county employees
when they perform such deliveries, which number approximately 1,200
per year. They are paid from a special fund provided by the county,
supplemented by Medicaid payments. The plan provides a cap of
$500,000 on recoveries.
The committee is encouraged by these efforts on the part of state and
local legislatures to address the disruptions in publicly financed care
caused by professional liability issues and encourages other states to
consider similar efforts. At the same time, the committee believes that
such solutions address only one symptom of the problem, namely, physi-
cians' reluctance to provide publicly funded care. They do not address
the problems inherent in resolving medical malpractice claims through
the tort system.
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Representative terms from entire chapter:
professional liability
