Workers’ Compensation “Phantom Wage” Argument Put to Rest

By Robert J. MacDonald

The Supreme Court has denied defendant’s application for leave to appeal in the much watched workers’ compensation case of Vrooman v Ford Motor Company (After Remand) (Docket No. 147952 1/31/14), where the plaintiff was awarded full unreduced wage-loss benefits. Previously, the Court had remanded the case to the Board of Magistrates, for additional findings of fact and conclusions of law, citing Lofton v AutoZone, Inc, 482 Mich 1005; 756 NW 2d 85 (2008), and Harder v Castle Bluff Apartments, 489 Mich 951; 798 NW2d 26 (2011). Vrooman v Ford Motor Co, 489 Mich 978; 799 NW2d 17 (2011). Following the remand and a renewed award of full benefits, 2012 ACO #90, the Court had initially denied a “bypass” appeal (Docket No. 146368 3/4/13). The Court of Appeals also denied leave to appeal.

In this case (involving an injury governed by the law in effect before the 2011 amendments to the Worker’s Disability Compensation Act), the defendant argued that the injured worker’s benefits should be reduced by the worker’s theoretical wage earning capacity, even though the evidentiary record did not include proof of job offers or actual job opportunities available to the plaintiff. The defendant, like many employers and carriers around the state, had been insisting that the Supreme Court’s vague orders in Lofton and Harder must be interpreted to permit reduction of benefits for a mere wage earning capacity regardless of actual job opportunities reasonably available to a worker.

The Supreme Court orders in Lofton and Harder had remanded for consideration and application of MCL 418.361 which provides that a partially disabled worker “shall be paid weekly compensation equal to 80% of the difference between the injured employee’s after-tax weekly wage before the personal injury and the after tax weekly wage which the employee is able to earn after the personal injury.” Defendants have been arguing that these orders somehow intended to overturn longstanding doctrine established and reiterated in Hood v Wyandotte Oil & Fat Co, 272 Mich 190; 261 NW 295 (1935), Langkill v Robins Conveying Belt Co, 279 Mich 81; 271 NW 560 (1937), Tulk v Murray Corp of America, 276 Mich 630; 268 NW 761 (1936), Kurz v Mich Wheel Corp, 236 Mich App 508; 601 NW2d 130 (1999), lv den 462 Mich 861; 613 NW2d 719 (2000). They have argued that magistrates should rely on the testimony of vocational consultants hired by the defendants regarding an injured workers’ theoretical wage-earning capacity and use that testimony to determine what a worker is “able to earn” despite the absence of actual job opportunities reasonably available to the plaintiff.

On remand, the magistrate in Vrooman, like the magistrates in Lofton and Harder, rejected that approach. The magistrate recognized that the claimant had the physical capacity to do work that pays $9.00 an hour, but that Harder “made it clear that it is not a theoretical ability to work alone that gives rise to the right to reduce a claimant’s benefits, but instead such an ability coupled with an opportunity to exercise that ability to earn wages.” The magistrate recognized that the claimant had made a reasonable search for suitable work within her qualifications and training but could not obtain any such employment. A panel of the Michigan Compensation Appellate Commission affirmed the Magistrate’s award of unreduced benefits–and now both the Court of Appeals and the Supreme Court have left the award of full unreduced benefits undisturbed.

The outcome in the Vrooman case should make it clear that the Supreme Court–contrary to insurance carrier and defense bar hype– did not intend to overturn 80 years of precedent with its Lofton and Harder orders so as to radically rewrite the formula for determining the amount of benefits payable to injured workers. Injured workers who have some capacity for work who cannot obtain suitable work should continue to receive full benefits. For those injured after December 19, 2011, the effective date of the 2011 amendments, similar language is written right into the statute at MCL 418.301(4)(c).

__________________________

MAJ Executive Board Member Robert J. MacDonald practices in Flint, where he specializes in workers’ compensation. He is the Chair of the MAJ Workers’ Compensation Committee. MAJ Member Daryl Royal represented plaintiff Kimberly Vrooman on appeal.

Medicare Liens: There’s a New Contractor in Town and Other Updates

By Donna M. MacKenzie, Esq.

Olsman Mueller Wallace & MacKenzie

As of February 5, 2014, the Coordination of Benefits Contractor (COBC) and the Medicare Secondary Payer Recovery Contractor are no longer handling Medicare’s recovery activities. Instead, all recovery activities are now being handled by the new Benefits Coordination & Recovery Center (BCRC).

Reporting your claim to Medicare

Whenever you have a tort liability, no-fault or worker’s compensation case, you will now provide the BCRC, not the COBC, with the following information:

• Beneficiary Information: Name, Health Insurance Claim Number (HICN), gender, date of birth, address and phone number.
• Case Information: Date of injury/accident, date of first exposure, ingestion or implant; description of alleged injury or illness or harm; type of claim (liability insurance, no-fault, worker’s compensation); insurer / worker’s compensation carrier’s (or self-insured employer’s) name and address.
• Representative Information: Representative / attorney’s name, law firm name if the representative is an attorney, address and phone number.

To contact the BCRC by phone, call 1-855-798-2627. The BCRC is available Monday through Friday from 8 a.m. to 8 p.m. The address for the BCRC is:

Benefits Coordination & Recovery Center (BCRC)

NGHP

P.O. Box 1138832

Oklahoma City, OK 73113

FAX: 405-869-3309

As usual, Medicare does not surf court dockets to find cases where Medicare’s reimbursement rights are at stake; it is entirely up to the beneficiary and/or the beneficiary’s attorney to report the claim to Medicare. This obligation is even more ominous since the passage of Section 111 of the Medicare, Medicaid and State Children’s Health Insurance Program (SCHIP) Extension Act of 2007 (MMSEA), which added mandatory reporting requirements for insurers. PL 110-173, §111, 121 Stat 2497-2500, 42 USC 1395y(b)(7) and (8). Because insurers are now reporting any payment to a Medicare beneficiary, Medicare now has a built in security system that will alert it anytime a beneficiary receives payment.

Section 111 originally called for a mandatory $1,000 per day penalty for an insurer’s failure to report; however, that penalty is now discretionary and “up to” $1,000 per day. PL 112-242, §203(1), 126 Stat 2380, 42 USC 1395y(b)(8)(E)(i), effective 1/10/13. Although the penalties have been reduced significantly, insurers are regularly reporting to Medicare.

In the event that an insurer reports a claim that was not reported by a beneficiary, in practice, Medicare will seek recovery from the beneficiary and/or the beneficiary’s attorney first. Under the Medicare Secondary Payer Act, Medicare can recover twice the amount of an unpaid Medicare lien. 42 USC 1395y(b)(2)(B)(iii).

Liability Settlement Threshold

Effective February 18, 2014 (as “clarified” February 28, 2014), Centers for Medicare & Medicaid Services (CMS) increased its reimbursement threshold; as a result, claims with total settlement value of $1,000 or less do not need to be reported or reimbursed.

Rights and Responsibilities Letter

Once your case is established with the BCRC you will receive a Rights and Responsibilities (RAR) letter.   In the past, this letter was sent by the MSPRC; this is now being handled by the BCRC.

The RAR letter provides confirmation that your claim is in the BCRC’s system. Once your claim is in the BCRC’s system, it will take approximately eight weeks for all medical claims that are related to your case to be retrieved by the BCRC.

The RAR letter will also request a Proof of Representation form.

 

Proof of Representation

Medicare will not communicate with anyone without an executed Proof of Representation. If your Retainer Agreement contains the following elements, it will serve as satisfactory proof of your representation:

• The name of the law firm in the body of the Retainer Agreement, on the law firm’s letterhead, or on a coversheet on the law firm’s letterhead.
• The attorney’s name, printed so the BCRC can read it.
• The attorney’s signature and the date of the signature.
• The beneficiary’s Medicare Number.
• The attorney’s signature and date the attorney signed added to the bottom of the Retainer Agreement.

However, you may also use the Proof of Representation form created by CMS. You can have this Proof of Representation form executed by your client in advance. Either a compliant Retainer Agreement or the Proof of Representation will give you authority to act on the beneficiary’s behalf.

Conditional Payment Letter

A conditional payment is a payment that Medicare makes for services where another payer may be responsible. This conditional payment is made so that the beneficiary won’t have to use his/her own money to pay the bill. The payment is “conditional” because it must be repaid to Medicare when a settlement, judgment, award or other payment is secured.

Assuming that you have timely provided proper Proof of Representation, you will automatically receive a Conditional Payment Letter (CPL) within 65 days of receiving the RAR letter.

The CPL will contain an interim amount of the total claims that Medicare believes are related to your case. The CPL is not a request for payment. In addition, Medicare may continue to make conditional payments while a matter is pending. Consequently, the BCRC cannot provide a final conditional payment amount until there is a settlement or other final resolution of your case.

CMS’ systems retrieve additional paid claims for each established case once every 90 days. Therefore, updated CPL amounts are generally unavailable until at least 90 days after the initial CPL is issued.

Future Medical Care

In 2012, regulations were promulgated that covered the provision of medical care in the future in claims involving liability insurance. Despite being promulgated almost two years ago, these regulations have yet to be implemented. 77 FR 35917. Moreover, there exists no mechanism for the creation, maintenance, or even approval of any liability Medicare Set Asides by CMS.

MyMSP Online Portal

Once your CPL has been sent, you can view up-to-date conditional payment summaries on the MyMSP tab of the Medicare website, which can be found at www.mymedicare.gov. The beneficiary must register on the website in order to obtain this access. An attorney or representative can register the beneficiary and as long as the attorney has the sign-in ID and password, the attorney can access the beneficiary’s information on this website.

Dispute Process

One you receive the CPL, you should review it thoroughly to make sure that only case related claims are included. If there are any unrelated claims, you can submit documentation supporting that position to the BCRC. Within 45 days, the BCRC will review the submitted disputes and remove any unrelated charges. During the review process, if the BCRC identifies additional payments that are related to the case, those charges will be included in the recalculated CPL.

Pre-settlement demand

As of February 21, 2002, beneficiaries have been able to receive a final conditional payment amount prior to settlement, but only where the settlement is being paid for physical trauma and does not exceed $25,000. In addition, the incident must have occurred at least six months before the proposed conditional payment amount is submitted to Medicare, the beneficiary must have completed treatment for at least 90 days before submitting the amount, and further treatment cannot be expected. Under this process, a request for a final conditional payment amount is submitted to Medicare and Medicare will respond within 60 days.

These requirements significantly limit the number of cases in which a final demand can be obtained pre-settlement. In January 2013, however, President Obama signed the Strengthening Medicare and Repaying Taxpayers (SMART) Act into law. PL 112-242, 126 Stat 2373. Under the SMART Act, §201, 26 Stat 2375-2378, 42 USC 1395y(b)(2)(B)(vii), settling parties can notify Medicare of an anticipated settlement, judgment or other payment within 120 days of an anticipated settlement. Medicare would then have 65 days (with the ability to request an additional 30 days) to determine its lien amount. If the settlement occurs within 3 days of Medicare’s decision, the lien will be considered final. This entire process would take place through a specific password protected website created by Medicare. Unfortunately, over one year has passed since the Act was signed into law and the final regulations have not yet been implemented. It is unknown when that will happen.

Demand Letter

When you report your settlement, judgment, award or other payment, the BCRC can take steps to expedite a final demand amount.

To request a final demand from Medicare, you need to provide Medicare with the following information:

• Total amount of the settlement
• Total amount of med-pay or PIP
• Attorney Fee Amount Paid by the Beneficiary
• Additional Procurement Expenses Paid by the Beneficiary
• Date the Case was Settled

The final demand that you receive from Medicare will include a reduction for your procurement costs. Medicare typically calculates the ratio of costs and expenses to the final settlement amount, and reduces its lien using that same ratio.

Statute of Limitations

The new statute of limitations, effective as of July 10, 2013, provides that Medicare has three years from the date of reporting to file suit for recovery under the Medicare Secondary Payer Act. 42 USC 1395y(b)(2)(B)(iii).

Judicial Estoppel: Another hurdle in employment discrimination cases

 

By: Heidi T. Sharp

Heidi T. Sharp practices in the areas of Civil Rights, Real Estate, Small Business Formation and Representation, with focus and specialization on Employment and Labor. She is a partner at the law firm of Burgess & Sharp, PLLC located in Clinton Township, Michigan.

The doctrine of judicial estoppel can be a deadly sword against a debtor who has an employment discrimination claim but does not list it on their petition in bankruptcy, and a complete shield to the employer, who avoids liability for potentially discriminatory conduct. Inronically, the debtor’s bankruptcy is often necessitated by the financial condition they are placed in by a defendant’s discriminatory conduct.

History of Judicial Estoppel

Judicial estoppel was recently invoked and upheld by the Supreme Court in New Hampshire v Maine[1] as “an equitable doctrine invoked by a court at its discretion.”[2] Justice Ginsburg explained, “‘[W]here a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position, especially if it be to the prejudice of the party who has acquiesced in the position formerly taken by him.’ Davis v Wakelee, 156 US 680, 689 (1895).'” 532 US at 749. The purpose of the doctrine is “to protect the integrity of the judicial process by prohibiting parties from deliberately changing positions according to the exigencies of the moment.”[3] In the “unusual circumstances” presented by the New Hampshire case, the Court used the doctrine against the State of New Hampshire, which had clearly and unequivocally argued a different interpretation of the phrase “middle of the [Piscataqua] river” in a separate 1977 consent judgment concerning border rights with Maine.

In New Hampshire, the Supreme Court noted that it had not previously had occasion to “discuss the doctrine elaborately”. 532 US at 749. Reviewing the existing case law, the Court held that the three factors that “typically inform the decision whether to apply the doctrine (of judicial estoppel) in a particular case” are: (1) “a party’s later position must be ‘clearly inconsistent’ with its earlier position”; (2) “whether the party has succeeded in persuading a court to accept that party’s earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create ‘the perception that either the first or the second court was misled’”; and (3) “whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.”[4]

The Sixth Circuit first applied the Supreme Court’s test in the bankruptcy context in Browning v Levy.[5] The court posited the test as follows: “The doctrine of judicial estoppel bars a party from (1) asserting a position that is contrary to one that the party has asserted under oath in a prior proceeding, where (2) the prior court adopted the contrary position “either as a preliminary matter or as part of a final disposition.” The court explained later that the doctrine is “utilized in order to preserve the integrity of the courts by preventing a party from abusing the judicial process through cynical gamesmanship.””[6] In Browning, the court declined to apply the doctrine, reasoning that omission of a claim on the bankruptcy petition was, in that case, consistent with inadvertence.[7]

The Sixth Circuit next examined the doctrine in 2004 in Eubanks v CBSK Financial Group, Inc,[8] which cited Browning to the effect that mere inadvertent omission of a claim in the original petition does not trigger application of the doctrine, stating it “should be applied with caution to “avoid impinging on the truth-seeking function of the court, because the doctrine precludes a contradictory position without examining the truth of either statement.”[9]

Most recently, in 2010, the Sixth Circuit again discussed the doctrine of judicial estoppel in White v Wyndham Vacation Ownership, Inc,[10] which is often relied upon by defendants in bringing motions to dismiss based on judicial estoppel. In White, long before she declared bankruptcy, the plaintiff had made an EEOC claim and had a right to sue letter, which she received about a month before her bankruptcy petition. The court found that she was clearly a party to an administrative proceeding that she should have disclosed under Section 4 of her Statement of Financial Affairs and question 21 of Schedule B.[11] However, the plaintiff did not disclose her claim at all. The court could not find any possible excuse for her not having done so, reasoning that she clearly knew of the harassment claim and had a motive for concealment.[12] The court then stated that summary judgment would be granted unless plaintiff could provide sufficient facts to show “an absence of bad faith” (in particular, through her attempts to correct her initial omission) and that her omission resulted from inadvertence or mistake and was not intentional. Citing the previous Sixth Circuit cases, the court noted, two circumstances in which a debtor’s failure to disclose might be deemed inadvertent are: (1) “where the debtor lacks knowledge of the factual basis of the undisclosed claims,” and (2) where “the debtor has no motive for concealment”.[13]

The holding of White and the established tests were followed in the unpublished case Finney v The Free Enterprise System, Inc,[14] where the Court declined to apply judicial estoppel to several plaintiffs in a collective action. In Finney, Theodore Jackson worked for Free Enterprise from October 20, 2003 to October 17, 2005. Jackson joined the action in question by filing an opt-in form with the court on June 12, 2009. With the assistance of counsel, Jackson filed for Chapter 13 bankruptcy on September 30, 2009, but did not disclose the claim on his schedule which accompanied the petition, and his plan was confirmed on December 10, 2009. On August 19, 2010, approximately three weeks after the defendants filed the motion for summary judgment to dismiss the plaintiff’s claim on judicial estoppel, the plaintiff amended his bankruptcy petition to reflect his claim in the action.   Jackson stated in an affidavit to the court that he did not know until receiving notice of the defendants’ motion that he was required to list his claim in his bankruptcy schedule. Jackson has stated that he “did not intentionally omit reference to the lawsuit or try to hide it,” but “simply did not know it was supposed to have been listed” and his bankruptcy attorney did not tell him otherwise.[15]

The Court in Finney found that the record did not reflect bad faith on Jackson’s part when the facts were reviewed because he did not know that the needed to include the action on his bankruptcy filings and acted quickly to amend his bankruptcy filings once the problem was brought to his attention:

On the other hand, Jackson’s swift amendment of his bankruptcy petition after the defendants’ motion was filed tips the scales strongly in his favor. The defendants, citing White, argue that Jackson’s amendments were “too little, too late.” The defendants note that the Sixth Circuit in White did “not consider favorably the fact that White updated her initial filings after the motion to dismiss was filed,” because to do so would “encourage gamesmanship.” White, 617 F3d at 481. White, however, is distinguishable from this case for two reasons. First, the Sixth Circuit’s finding of bad faith in White was bolstered by other factors—such as White’s decision to file her lawsuit only after her bankruptcy plan was confirmed—that led to a conclusion that White’s omission was not due to inadvertence or mistake. See id. at 480–483. Second, even when the plaintiff in White amended her bankruptcy filings after the defendants filed their motion to dismiss, the amendment still did not reflect the estimated amount of her claim or whether White was the plaintiff or defendant in the lawsuit, which further indicated White’s apparent desire to conceal the claim from the bankruptcy court. Id. at 481. The defendants do not argue, nor does the court find, evidence of such behavior here.

Because judicial estoppel, as previously noted, should be “applied with caution,” Eubanks, 385 F3d at 897, the court will decline to apply the doctrine here. The defendants’ motion for summary judgment with respect to Jackson’s claims will be denied.[16]

How to avoid the Judicial Estoppel Trap

The best way to avoid judicial estoppel is by conducting a very thorough first interview with any potential client. On your list of required questions should always be “have you filed bankruptcy in the last seven years?” If so, even if the bankruptcy has been closed for some time the plaintiff should petition the bankruptcy court to re-open their action and add the proposed defendant(s) as possible assets from potential litigation under the inquiry regarding “contingent and liquidated claims of every nature”. By re-opening the bankruptcy before beginning any litigation, the plaintiff will be able to demonstrate that they did not conceal any potential assets from their debtors and any failure to list the claim at the time of the bankruptcy was because it had (a) not yet become ripe or was (b) inadvertent. The key to whether or not a prior bankruptcy needs to be re-opened depends on how long the person was employed with the defendant and when their prior bankruptcy occurred. For example, if someone had been employed with the defendant for five years before bringing a claim, their bankruptcy was three years ago, and they claim ongoing discrimination up to the point of their termination, the bankruptcy must be amended to add the claim against the defendant because the cause of action accrued during the time of the bankruptcy. On the other hand, if someone filed bankruptcy five years prior and did not begin employment with the defendant until two years after the close of the bankruptcy then there is no need to re-open the bankruptcy. When a person was employed with the defendant throughout their bankruptcy but their claim is a discrete action at the time of termination, re-opening a bankruptcy may not be necessary but advisable based on the current state of the courts.

For those clients who are still employed, and elect to file bankruptcy after termination or during a period of lay-off, they should be counseled to list even a potential claim if they have sought legal advice or filed with the EEOC or other agency regarding the situation with their employer.

If you do face a judicial estoppel motion, the best way to oppose it is to demonstrate to the court that your client inadvertently failed to list the potential asset and had no intention of concealing it. Your client’s educational background, whether they used an attorney to file the bankruptcy, what information they provided to the bankruptcy attorney and the proximity in time between the bankruptcy filing and the adverse action alleged in your case will all be important in taking such a stance.

Like many of the other judge-made doctrines judicial estoppel is here to stay.[17] Along with the other many hurdles to a jury, plaintiffs’ attorneys should continue to be wary of a bankruptcy filing by their clients or a bankruptcy trustee taking over their case.

End Notes

[1]. New Hampshire v Maine, 532 US 742; 121 S Ct 1808; 149 L Ed 2d 968 (2001).

[2]. Id.

[3]. Id. at 749-750.

[4]. Id. at 750-751.

[5]. 283 F3d 761, 775 (6th Cir 2002).

[6]. Id. at 776.

[7]. Id.

[8]. 385 F3d at 897.

[9]. Id.

[10]. 617 F3d 472 (6th Cir 2010).

[11]. Id. at 474.

[12]. Id. at 478-479.

[13]. Id. at 479.

[14]. 2011 WL 1157696 (WD Ky March 29, 2011 No. 3:08-cv-383-S).

[15]. Id at *2.

[16]. Id.

[17]. Concerns about a client’s bankruptcy history and failure to disclose a claim are not limited to employment cases or Federal jurisdiction. See, e.g., Miller v Chapman Contracting, 477 Mich 102; 730 NW2d 462 (2007) (affirming the trial court’s decision that amending the complaint in an action for auto negligence to substitute plaintiff’s bankruptcy trustee as plaintiff after the expiration of the period of limitations would be futile); Szyszlo v Akowitz, 296 Mich 40; 818 NW2d 424 (2012), lv den (reversing the trial court’s conclusion that plaintiff was not a proper party in interest to a medical malpractice claim, which his bankruptcy petition schedule of assets listed as exempt under 11 USC 522[11][D], and affirming the trial court’s conclusion that plaintiff was not judicially estopped by listing the his “current market value” of his interest in the claim at $15,000 from seeking damages in excess of the circuit court’s $25,000 jurisdictional minimum), and Spohn v Van Dyke Public Schools, 296 Mich App 470; 822 NW2d 239 (2012) (holding that judicial estoppel applied because, by failing to disclose her potential Elliott-Larsen Civil Rights Act sexual harassment claim in her bankruptcy, plaintiff assumed a position that was contrary to the one in the lawsuit; the bankruptcy court adopted the contrary position by confirming plaintiff’s Chapter 13 plan, and plaintiff’s omission did not result from mistake or inadvertence).

Michigan’s Medical Malpractice Tort Reform “The Juice Isn’t Worth the Squeeze”

BY: Norman D. Tucker

Some still proclaim there is a medical malpractice crisis, or too many cases being filed. There is a crisis to be sure, and it’s not too many claims being filed, but too few. Most meritorious claims can no longer be filed. The so-called Michigan “malpractice tort reform” of 1994 gave health care providers de facto economic immunity. The question is: was this an unintended consequence, or clever planning? While some may debate the motivation behind this legislation, no one debates the results. Today, Michigan attorneys decline to pursue the vast majority of meritorious cases. The potential recovery, plus the risk, simply does not justify the substantial investment of time and money. When attorneys cannot economically take and pursue meritorious cases, wrongfully injured Michigan citizens are barred from the courts; their rights have been taken away.

To appreciate the numbers that follow, one must understand how the malpractice tort law changed, effective April 1, 1994. Malpractice cases now have caps on noneconomic injuries.[1] While there are two tiers, an upper and lower cap, 95% of all cases fall in the lower cap definition. The lower cap started at $280,000, increasing yearly by the Consumer Price Index, and is $440,200 for 2014. Unless there are lost wages or large medical bills, the lower cap sets the ceiling for potential recovery. So, the first effect of the 1994 legislation is that recoveries have been drastically lowered.

On the other side of the equation, litigation costs were driven up. Before 1994, if one had a post-operative cardiology case and the defendants happened to be an internist, a cardiologist, a nurse, and a thoracic surgeon, one could pursue the case with one expert. Today, one is required to have 4 experts, one for each defendant, and with identically matching qualifications.[2] The cost of litigation just quadrupled. These are just two examples, but the total effect is 6th grade math; the potential recovery has been drastically reduced and the cost of litigation has been drastically increased. In economic terms, the net profit margin has been so squeezed that very fewer cases can be economically pursued – resulting in economic immunity.

The new filing numbers confirm the above effect on cases that one can pursue. In 1986, eight years before the 1994 legislation, over 3600 medical malpractice cases were filed. Today, malpractice filings have plummeted by over 80%.[3] By 2009 there were 707 new malpractice cases filed;[4] 808 in 2010; 798 in 2011; and 797 in 2012.[5]

Between 1991 and 2006 indemnity payments fell 60%. The only things that went up during this same time were the cost of defense, and insurance company profits. Defense litigation costs rose 109%.[6] Why would defense costs go up when filings are drastically down? More cases were being tried as the defendant’s losses are “capped”. Caps on noneconomic injuries encourage defendants to gamble in the courtroom; even if they lose, the judge takes away any award over the cap. MCL 600.1483 and MCL 600.6304(5).

It did not take defendants long to learn that caps removed the risk of trial. In 2000, about 5% of malpractice claims were resolved by trial; by 2007 that figure had almost quadrupled to 18%.[7] In cases without substantial economic damages, the plaintiff would be offered far less than the lower cap. If patients wanted full value for their injury, they would have to try the case. Many patients and their attorneys accepted these low offers to avoid the risk and substantial expense of trial. It should be no surprise that Michigan ranks dead last in the nation in payouts. Per information that has now been removed from the Kaiser Foundation web site, but documented elsewhere, “The national average [payout per claim in 2006] was $308,600…. the state with the lowest average malpractice payout was Michigan at $132,380 with 389 claims paid.”[8]

With reduced recoveries, and the increased costs with more experts and more trials, a plaintiff’s attorney has to think long and hard about taking a case limited to the lower cap. Because an affidavit of merit against each defendant must be filed with the complaint, costs in an average case can be $20,000 before one gets into court. By the time the case gets to trial, it is not uncommon to have invested $70,000 to $100,000 in costs, not to mention the 2-3 years of work. And, what happens if the plaintiff wins; there is invariably an appeal. For persons injured by medical malpractice, plaintiff’s attorneys are the gatekeepers to the courthouse. Once plaintiff’s attorneys learned that most low cap cases were an unreasonably, high risk investment, most of these plaintiffs were barred from the courthouse.

Stephen Daniels, at the American Bar Foundation, summed up the problem of high litigation costs and capped recoveries: 95% of patients who seek an attorney for harm suffered during medical treatment will be shut out of the legal system, primarily for economic reasons. The bottom line per Daniels, “the juice isn’t worth the squeeze”. “Lawyers are the gatekeepers to the law,” Daniels said. “You can have all the rights in the world, but if no one will take your case, then those rights mean absolutely nothing.”[9]

What was the alleged justification for barring injured Michigan citizens from the courthouse? One justification, and used again in 2012 with another round of malpractice bills, is that doctors are leaving the state for fear of being sued. Some even suggested doctors were going to Texas, which is said to have the most restrictive malpractice laws in the U.S. Unfortunately, the justification for malpractice tort reform has always been anecdotal, but as a wise physician once said, “The plural of anecdotal is not science”. As of 2009, the Center for Health Workforce Studies ranked Michigan 15th in the nation for actively practicing physicians per 100,000 citizens, well ahead of Texas, which was ranked as 42nd.[10] In 2012 the Kaiser Foundation ranked Michigan 8th in the U.S. in total number of practicing physicians.[11] More importantly, David Hyman,M.D., J.D., the H. Ross and Helen Workman Chair in Law and Professor of Medicine at the University of Illinois, who has seriously studied the issue, found no correlation between a state’s tort laws and the physician supply; not even in Texas.[12]

Some claim more tort reform would reduce the cost of health care by removing doctors’ fears of being sued and the unnecessary testing that this fear allegedly produces; commonly referred to as defensive medicine. The evidence for this assertion is published surveys of physicians, or more anecdotal evidence. Arnold Relman, M.D., Professor of Medicine at the Harvard Medical School, and one of the nation’s preeminent experts on health care, suggests the real reason for the survey’s answers blaming lawsuits for the high cost of medicine is simply to justify physicians’ overutilization of services – which makes them more money.[13]

Expenditures are largely driven by the supply of services… doctors and other providers have a vested interest in continually increasing the amount of medical services they provide… savings would be about 30 to 40 percent of the total now being spent on health care services.

It does not take a Harvard Professor to tell us that the promised results did not happen. After 20 years of the nation’s most severe tort reform, has anyone noticed any reduction in their medical bills or insurance premiums?

Some claim fewer lawsuits has little effect on the larger population so a few less lawsuits costs the average Michigan citizen very little. That would only be true if all the bills from medical injuries also disappeared with the lawsuits, but the medical bills don’t go away, and these are substantial. The cost of preventable medical errors per year in 2006 was $17 billion;[14] that figure is estimated to be over $22-25 billion today. The social costs are estimated to be between $393 billion and $958 billion, amounts equivalent to 18 percent and 45 percent of total U.S. health care spending in 2006.[15] When the lawsuits go away, the bills do not – these are still paid by the injured patients, or passed on to the taxpayers through Medicaid, Medicare[16] or higher insurance premiums.

A good recent example of “the bills don’t go away if there is no lawsuit, but are just passed on to Michigan citizens” is the dismissal of the Michigan Attorney General’s action against Merck to collect Michigan’s Medicaid payments for Vioxx.[17] In 1996, Michigan also gave drug companies immunity from product liability for the production and selling of defective prescription drugs. MCL 600.2946(5), 1995 PA 249, eff. 3/28/96. In 2008, the Michigan Attorney General, Michael Cox, sued Merck under the Medicaid False Claims Act, MCL 400.601 et seq., for fraud based on misrepresentations of efficacy and safety and sought reimbursement to the State of Michigan for Medicaid payments made between 1999 and 2004. In March 2011, the case was dismissed based on Michigan’s FDA immunity statute, MCL 600.2946(5). One case of immunity cost Michigan taxpayers $20 million.

When new cases dropped by 80% and indemnity payments fell by 60%, one would assume malpractice insurance premiums would fall by an equal ratio. Per the latest report of the Michigan Insurance Commissioner at the end of 2009,[18] annual average premium discounts averaged 19.8% for the 5 years of 2003 to 2007; less than on-third of the reduction in indemnity payments.

The list of rationalizations is long, but all the supporting evidence comes up short. If all this tort reform had nothing to do with solving legitimate problems, who could have benefited from such legislation? Perhaps this legislation did exactly what it was supposed to do, for those who paid for and promoted it; it drastically increased insurance profits. The real story is how this legislation was sold to the legislators, the medical profession and the public and, despite the facts, how they keep on selling it and how many continue to buy this bogus product. The real story is how injured patients and families subsidized profits, when there was no logical connection between malpractice claims and the promised savings, and how this carefully crafted legislation did nothing but eliminate thousands of the legitimate claims for which insurance was intended.

One does not have to be an economist to understand the road to profitability: increase revenues and decrease costs, or increase the squeeze to produce more juice. To avoid an avaricious insurance company image, all they had to do was disguise the solution as a “public service”; thereafter it would be easy to sell, and to keep on selling, and selling and selling. It worked in Michigan; malpractice tort reform legislation passed in 1975, 1986, 1994, and again in 2012.

By 2008, the average profit of the top ten malpractice insurers was higher than 99% of the Fortune 500.[19] And, no one should be surprised that one of Michigan’s largest professional liability carriers, Proassurance, had a 655% increase in net income between 2003 and 2011. In 2012, their CEO reported, “Financially, 2012 was among the best years in our history, with near record income.”[20]

Michigan citizens are getting squeezed and the insurance industry is getting the juice.

End Notes

[1]. MCL 600.1483, 1986 PA 178, as amended by 1993 PA 78, eff. April 1, 1994, and 2012 PA 608, eff. March 28, 2013.

[2]. MCL 600.2169, 1986 PA 178, as amended by 1993 PA 78, eff. April 1, 1994.

[3]. T. Berg, “Medical Malpractice Reform Analysis,” Michigan Medical Law Report, Fall 2007, Vol. 3, No. 3; Michigan Lawyers Weekly, July 2007.

[4]. Michigan Courts website, “Caseload Reports, Statistical Supplements, Statewide”, http://courts.mi.gov/education/stats/Caseload/Pages/statistical-supplements-archive.aspx (accessed January 23, 2014).

[5]. Michigan Courts website, “Caseload Reports, 2012 Statistical Supplements, Statewide”, http://courts.mi.gov/education/stats/Caseload/Pages/2012-Statistical-Supplement.aspx (accessed January 23, 2014).

[6]. Berg, supra.

[7]. Ken Ross, “Evaluation of the Michigan Medical Professional Liability Insurance Market”, State of Michigan, Office of Financial and Insurance Regulation, October 2009. Page 17, Figure 9.

[8]. Naples News 2007, “Florida below national average in amount of paid medical malpractice claims” http://www.naplesnews.com/news/2007/may/11/fla_below_national_average_amount_paid_medical_mal/?breaking_news (accessed January 25, 2014).

[9]. Allen, M., and Pierce, O., “Patient Harm: When an Attorney Won’t Take Your Case”, ProPublica, January 6, 2014. http://www.propublica.org/article/patient-harm-when-an-attorney-wont-take-your-case (accessed February 4, 2014).

[10]. Center for Health Workforce Studies, University of New York at Albany, 2011 State Physician Workforce Data Release, March 2011.

[11]. Kaiser Foundation website, “State Health Facts, Total Professionally Active Physicians”, http://kff.org/other/state-indicator/total-active-physicians/ (accessed January 26, 2014).

[12]. David A. Hyman, et al., “Does Tort Reform Affect Physician Supply?Evidence from Texas”, revised February 14, 2014, available online from the Social Science Research Network electronic library athttp://ssrn.com/abstract=2047433.

[13]. A. Relman M.D., “Health Care: The Disquieting Truth”, The New York Review of Books, September 2010.

[14]. J. Van Den Bos, “The $17.1 Billion Problem: The Annual Cost Of Measurable Medical Errors”, Health Affairs, 30, no. 4 (2011):596-603.

[15]. J. Goodman, “The Social Cost Of Adverse Medical Events, And What We Can Do About It”, Health Affairs, 30, no.4 (2011):590-595.

[16]. Section 2702 of the Patient Protection and Affordable Care Act, PL 111-148, however, is intended to “protect Medicaid beneficiaries and the Medicaid program by prohibiting payments by States for services related to provider-preventable conditions.” 42 CFR §447.46; 76 FR 32837, June 6, 2011. Similar provisions and regulations have been adopted for Medicare beneficiaries limiting payments for “hospital acquired conditions”. Affordable Care Act §3008. Under the Hospital-Acquired Condition Reduction Program, “payments to applicable hospitals are adjusted to provide an incentive to reduce hospital-acquired conditions, effective for discharges beginning on October 1, 2014.” 42 CFR §412.150(c). The rules for determining the payment adjustment under this program are specified in 42 CFR §§412.170 and 412.172, 78 FR 50967, August 19, 2013.

[17]. Attorney General v Merck Sharp & Dohme Corp, 292 Mich App 1; 807 NW2d 343 (2011), lev den 490 Mich 878 (2011).

[18]. Ken Ross, “Evaluation of the Michigan Medical Professional Liability Insurance Market,” State of Michigan, Office of Financial and Insurance Regulation, October 2009.

[19]. Tarricone, A., “Fool Me Once: The Insurance Industry Looks to Tort Reform to Pad Profits,” Huffington Post, September 30, 2009. http://www.huffingtonpost.com/anthony-tarricone/fool-me-once-the-insuranc_b_304594.html (accessed February 4, 2014).

[20]. Proassurance 2007 and 2012 Annual Reports.

Norman D. Tucker is an attorney-of-counsel at Sommers Schwartz PC located in Southfield, Michigan www.sommerspc.com