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

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