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01/16/2005

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Comments

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Palooka

Japhy,

My knowledge of the medical services is relatively poor, and I thank you for that insight.

I would certainly never quibble with the mild assertion that doctors, now more than ever, are having to pay a large share of malpractice costs in addition to the medical consumer.

It is quite another thing, I think, to suggest that malpractice premiums are entirely (or almost entirely) taken out of physician's compensation. And if so, that isn't exactly something to celebrate (as Posner has done in his essay). If physicians' compensation is pinched. If the desirability of that profession suffers from reduced compensation and greater professional risk (of being sued or driven out of medicine), then fewer talented individuals will enter it and many more will leave it prematurely. The quality, and perhaps the quantity, of physicians' would direclty suffer from Posner's supposedly "costless" transfer of wealth from doctors to patients.

The marked decrease in the supply of doctors in the OB/GYN field is notable because of that field's susceptibility to medical malpractice. If Posner's hands off approach prevails, I suspect we'll see a steady decline in the medical profession as a whole.

RWS

In response to David's concern about contract law in this area, I think a good solution would be to change the current "professional standard of care" set by statute to a default rule, as well as the law of remedies. Unless parties state otherwise, the current liability regime governs the service. However, if parties consent otherwise, then they may modify the rule to get closer to an optimal result.

I do not think that such a contract would be unconscionable, as long as it is procedurally koshersuch as requiring the patient to sign right before entering the operating room, which would certainly fail such a test and which would probably not be done, anyway, given the potential for the hospital to get a nasty reputation. Patients have HMOs to bargain for them. The alternative for many people today is simply not to have health care. Many people do not, because the price is too high and because supply is too limited. Palookas point about declining supply in OB/GYN is real. I was recently talking to an ob doc who stated that only about 25% of the ob residencies in the state are being taken up by students from AMA-accredited schools, a total reversal from 20 years ago, when they were very competitive residencies. That shows med students dont want to do it. In rural areas, there are often no obstetricians, so children are born without that protection.

Michael

The point that insurance is not based on a doctor's experience is made by several people. This stands out as a gross inefficiency and fixing it would go a long way to solving the problems. An even greater inefficiency in my mind is that whether an OB delivers 1 baby in a year or 10,000 the insurance premium is the same. Clearly the number of patients served is the single biggest driver of future malpractice liability yet for some reason insurance companies do not consider it in their pricing. There seems to be something very wrong with the insurance market and that makes me think that insurance companies have more to do with the problem than lawsuits.

Lola


I have to disagree with the premise argued Mr. Posner's post above that medical malpractice carriers do not adjust rates according to an insured's claim history. This is simply untrue, as this is actually a regular part of doing business in the medical malpractice insurance business.

I have actually worked for a large mutual medical malpractice carrier, and the rates of each and every policy written by my former employer was adjusted upwards according to that physician's past claim history. While the formula was complicated, it factored in the total number of claims (regardless of whether it was a pre-litigation matter or lawsuit) in the insured's file as well as cost of any settlements or judgments paid out on behalf of that insured. In addition, physicians who fell into the category of repeat offenders often saw their policies cancelled when the volume of their case history and pay-outs made on their behalf became too high. While I left that position six months ago, I have no reason to believe that the policy at this company has changed in that short time period.

While I have a great deal of respect for the impressive body of work Mr. Posner has produced over the years, I have to ask how he came to the conclusion regarding this issue. I find it very difficult to believe that he does not have a fact checking system in place, but I am left with no other conclusion to explain such a drastic oversight on his part.

Palooka

With regard to the side discussion on allowing waivers as a way to reduce the malpractice burden. It does seem like a radical idea, and for more than the reason that it just upsets the status quo.

Power. Physicians enjoy a unique profession which gives them considerable power and respect. So not only are we dealing with just an asymetry of information which could be resolved by consumer eduction, but we are dealing with a considerable pyschological impact of the status of the physician. Even if a patient has considerable knowledge to make an informed decision (a level of which few are willing and able to achieve), they still may be influenced the the physician's status.

Moreover, I think many of the commenters advocating this scheme overestimate the percent of the population actually capable of rendering sound medical conclusions. I'd be the first to advocate patients take a more active role in their treatment, but I suspect that a significant percent of the population lacks the requisite knowledge, literacy, time, and motivation to come to a reasonable conclusion about state of their medical care.

Daniel Chapman

"My hunch is that a doctor's past malpractice lawsuit experience is a poor predictor of future malpractice suits."

This is a very good argument, and it is well supported by the observation that no insurance companies have adopted the practice of using a doctor's history to determine insurance rates. I would take this one step further and point out that since only 5% of malpractice examples are litigated, whether a mistake results in a lawsuit has little to do with the egregiousness of the doctor's mistake. Insurance companies have learned that any doctor can be sued, regardless of how careful he is.

This is also a good argument against punitive damages for doctors. We're not talking about reckless or intentional malpractice here. If the insurance companies, who make their profits by accurately determining the risk of a lawsuit, think that any doctor can be sued regardless of his history, then punitive damages will not "deter" doctors from acting negligently. There are too many factors beyond their control.

Lola


Daniel,

Please see my previous response posted above. Your premise is faulty because medical liability insurance carriers DO take a physician's claims history in account when determining the rate s/he will be charged. The author has not provided any support for his position to the contrary. Unfortunately I suspect he has failed to do so because an inquiry directed to the medical liability carriers in question would have quickly cleared up this misconception.

Michael Webb

In August, 2004 the Washington Post printed an article on Medical Malpractice. In this article, they printed a chart showing median jury awards in the three DC Metro Jurisdiction (DC, MD, VA). Surprisingly there was an inverse correlation between the existence and stringency of a cap and the median jury award. In other words the jurisdiction with the lowest cap had the highest median award. Obviously three jurisdiction does not make a robust sample, but if such results were to hold more broadly, they might suggest that caps are exactly the wrong way to correct any med-mal problems. It also raises an itneresting question as to why the median awartd might be higher in states with lower caps.
Two possibilites come to mind,a lthough there are probably more. First the cap may have a psychological impact on the jury. In other words, with the existence of caps juries tend to award this amount to all patients. If the disperiosn of awards were clustered around the median, this might support this hypothesis.
Another even more insidious hypothesis is that trial lawyers are in fact profit maximizers. This assumption would certainly be consistent with standard theory. One could imagine that a trial lawyer faces two states of the world "no-cap-world" and "cap-world." In no-cap-world she would take a few cases with a high potential payout, but a low probability of success. Obviously, she would only win a few cases but when she did she'd make lots of money. In cap-world taking a few cases would not payoff because the payout is capped. In this case, she will cahnge her production function to take a large number of cases with a high probability of payout. Obviously for this scenario to work the probabilities and payouts have to be right. However, if the distribution of awards in jurisdictions without caps tended to have fatter right tails, then awards in jurisdictions with caps, that might lend credence to this hypothesis. A particularly insidious aspect of this hypothesis is that administrative costs could actually go up in cap-world because the number of lawsuits would go up.
As Judge Posner and Professor Becker both point out, caps could ahve a number of unintended consequences, and certainly are not a panacea as is suggested in some quarters.

Palooka

" In other words the jurisdiction with the lowest cap had the highest median award."

Sorry to burst your bubble, but this paradox is easily resolved. The question, Mr. Webb, is which caused which? Did high median awards cause the legislature to adopt malpractice caps, or did malpractice caps cause median awards to go up? Admittedly either is a possibility. To even begin to unravel that question you have to have more data than you speak of.

It's also interesting that the Post chose median rather than a true average as a measure of central tendency. This is a particularly questionable choice because the aim of tort reform is to limit the excessive awards (cases which which effect the average, but not the median).

Michael Webb

I would agree that the causation could run both ways. Jurisdictions with high awards might be likely to impose caps. However, you would presume that over time the caps would have an impact and therefore the median would come down. In the DC-MD-VA The caps had been in place for at least some period of time. If the legislature had impsed the caps because of high awards the awards would ahve either come down or the caps were ineffective. That said it might be interesting to look at the data in time series to see how the median varied before and after the caps.

With regard to median versus arithmetic mean (which is what I presume you mean by average) I think you are missing a deeper point on tort reform. The purpose of tort reform should be to increase economic efficiency. Excessive awards may be one form of economic inefficiency. On the other hand a large number of smaller lawsuits could be even more inefficient. This is why both measures of central tendency are valuable. The median MAY imply a larger number of smallish awards (think normal distribution sqeezed right and left)

As I ntoed at the beginning of my initial post this is not a robust smaple set (or an exhausitve look at the data). It would be itneresting to dig deeper into the data to see if this was jsut a DC-MD-VA anamoly or if there is something deeper. If there were it might generate an interesting journal article.

marbux

All of the liability cap schemes I've looked at set the same limit for a stubbed toe that they impose for near-total dismemberment, and for any injury between the extremes. Until I see a cap system proposal that actually takes account of such factors, my mind is closed on the subject. With liability caps, we are seeing a political attack on the economic viability of the plaintiffs' bar, not a considered tort reform measure.

Furthermore, the rhetoric that blames "frivolous" lawsuits as the cause of huge expense can only be used by those who are either dishonest or ill-informed. Any practicing lawyer or judge knows that "frivolous" lawsuits do not result in damage awards. The only expense involved in frivolous lawsuits worth discussion is the cost of defense, and the existing rules on fee-shifting and lawyer discipline are more than sufficient to deal with that problem.

Palooka

"However, you would presume that over time the caps would have an impact and therefore the median would come down."

If caps are aimed at the most excessive of awards, then I wouldn't expect much of a change in the median, though I would expect a change in the mean, ceteris paribus.

It's also difficult to compare awards state by state without adjustment. Economic damages by state, of course, will vary with economic conditions in each state. I'd expect the average award to be quite different in NY than in MO, for example.

Corey

"With liability caps, we are seeing a political attack on the economic viability of the plaintiffs' bar, not a considered tort reform measure."

Thank you, for a while I thought I was the
only one.

I hope there is still a plaintiffs' bar left by
the time I finish this whole law school thing.
With all this rollback, I get the feeling I should be reading more history.

The goal of Tort reform should be to promote individual justice. Remember what happened last
time the western world became obsessed with making the trains run on time? A lot of very evil
things appear economically efficient ex ante.

Marc Gersen

Why aren't malpractice premiums experience-rated? Are there legal impediments to this? Are we supposed to believe that insurance companies are leaving that proverbial hundred dollar bill on the sidewalk, by not experience rating? Or, perhaps there are simply no observable characteristics upon which to experience-rate risk for malpractice.

Michael Webb

Experience-rating or in some way differentiating between doctors based on risk is a very interesting question. Or more accurately, it is very surprising that insurance companies do not do more of it. It seems to fly in the face of conventional economic theory regarding insurance. Indeed in recent years a fair amount of ground-breaking work has been done on the idea that insurance companies may have MORE information about your risk than you yourself have. (See e.g. Cowley and Phillipson's 1999 Paper). This overturns the conventional belief that adverse selection would cause high risk individuals to drive out low risk individuals. I will admit that med-mal is not my area of expertise, so it may be that insurance companies do differentiate more than is apparent from a laymens perspective. Anyone with more expertise have any thoughts on this. Do insurance companies have effective ways to distinguish high risk doctors from low risk doctors? If not, any thoughts on why not? This would be a particularly interesting example of "market-failure." If it is an example of market failure that circles back to the basic question in Judge Posner's essay, "Are caps the approrpiate or the most effective remedy."

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