Suing the Chart: How the Patients' Bill of Rights Legislation WillIncrease Doctors' Medical Malpractice Exposure

Report Health Care Reform

Suing the Chart: How the Patients' Bill of Rights Legislation WillIncrease Doctors' Medical Malpractice Exposure

December 6, 2001 12 min read
Robert E. Moffit
Senior Research Fellow, Center for Health and Welfare Policy
Moffit specializes in health care and entitlement programs, especially Medicare.

INTRODUCTION

Under the terms of the pending federal "patients' bill of rights" legislation, new avenues for persons to sue health plans would be created and medical malpractice exposure for physicians would increase. The reason: Because there are likely to be legislative caps on the damages that can be recovered from health insurers, doctors become targets of opportunity in states where there are no caps on the liability of doctors. Moreover, the caps on the liability of doctors in some states are higher than those proposed for health insurers in the House version of the legislation.

In the meantime, doctors' medical malpractice costs are rising rapidly. While House and Senate sponsors have focused on providing for the equivalent of medical malpractice suits against HMOs and other health plans, the same congressional sponsors have refused to address the long-unresolved issue of medical malpractice suits against physicians, once a major policy concern of health policy analysts and representatives of professional medical organizations. If this latest piece of congressional handiwork is enacted into law, the plight of doctors would actually become worse.

Impasse.
While health care policy, like most other major domestic policy issues, has understandably receded to a secondary importance on the national agenda as a result of the September 11 terrorist attacks and the subsequent war, the bills creating a patients' bill of rights, including new avenues for litigation, are still pending in Congress. The Senate bill (S. 1052) was passed on June 29, 2001. It was deemed veto bait by the Bush Administration for inviting far too much litigation. The House Bill (H.R. 2653), amended as a result of successful negotiations between the White House and Representative Charles Norwood (R-GA), was passed just before the beginning of the August recess.

The Senate bill provides for unlimited punitive damages in state courts. The House bill provides for caps on noneconomic and punitive damages in federal and state courts. While the Norwood compromise, including the caps on damages, was viewed as a breakthrough by the White House, Senator Edward M. Kennedy (D-MA), the chief Senate sponsor of the patients' bill of rights legislation, as well as House Democrats and Representative Greg Ganske (R-IA), a chief sponsor of the legislation, strongly denounced the agreement. Thus far, there has been no agreement between the House and the Senate.

Both bills represent an aggressive regulatory approach to the problems of the health care system. Both bills also represent a major expansion of the role of lawyers and judges in health care decision-making, a development in health care policy directly related to the stubborn refusal of Members of Congress to address the longstanding legal and regulatory barriers to patient choice that would make resort to lawsuits largely unnecessary. In fact, as a direct result of certain provisions of these complex bills, doctors could very well end up being exposed to more, not less, medical malpractice litigation. This would not only increase the frustration of physicians who are wrestling with an increasingly bureaucratic health care system dominated by third-party payment arrangements, but also contribute to an increase in already rising health care costs. In the final analysis, American workers and their families end up paying 100 percent of all health care costs.

Instead of moving toward a new system of patient choice and market competition, House and Senate members seem intent on adopting a policy that would rely on increased litigation and regulation. While separate bills have been enacted in both bodies, Congress has not yet reconciled these competing versions of the patients' bill of rights legislation. If such legislation were to be enacted, it would surely increase the already massive complexity of an over-regulated health care system, aggravate already rising health care costs, and contribute to the loss of health coverage by millions of Americans.

The Best Policy.
The best option for Congress and the Bush Administration is to end deliberations on counterproductive or flawed health care legislation and go back to the drawing board to develop a comprehensive and effective health care policy that enables individual Americans to make their own key health care decisions. A new policy would enable workers and their families to decide for themselves which plans and benefits they want in the first place, rendering a resort to lawyers and litigation largely unnecessary.

HOW THE COMPETING BILLS DEFINE THE SCOPE OF LITIGATION AND DAMAGES

Under current state law, patients can sue health insurers on the well-established ground of "substandard" care. Moreover, Arizona, California, Georgia, Louisiana, Maine, Oklahoma, Texas, and Washington State have enacted HMO liability laws providing for a right of legal action by patients and their attorneys against health plans for damages from injury to patients under "assorted liability theories."

Both the House and Senate versions of the proposed patients' bill of rights legislation provide for suits in state courts against health plans for what amount to coverage decisions by self-insured plans that are currently governed by federal, not state, law. This is a wholly new avenue for suits in state courts on the grounds of alleged malpractice by health insurance plans.

Similarities and Differences.
There are crucial similarities between the House and Senate bills. For example, both bills create a federal cause of action for "non-medically reviewable" coverage decisions. These kinds of decisions are based on contractual agreements between a health plan and an employer.

Private, self-insured health plans are subject to federal law, the Employees Retirement Income Security Act of 1974 (ERISA), and related federal regulation. But both bills, either directly or indirectly, would eliminate the federal preemption, established under ERISA, of any state legal authority, or subsequent litigation in state courts, over the crucial question of whether or not a self-insured health plan's coverage decision in any given instance is or is not a decision involving "medically necessary" coverage. As noted, this is a major change in law and constitutes the elimination of a crucial federal preemption of state authority in the area of insurance law and regulation over self-insured health plans. It opens a whole new range of issues for adjudication in state courts.

Government Definitions of Medical Necessity.
Members of the medical profession are seriously mistaken if they imagine that eliminating the federal pre-emption in this area would automatically result in a return to an idyllic professional autonomy in determining what is or is not a medically necessary service for a patient. Ideally, of course, that should be the case; and in a patient driven system in which patients could literally hire and fire health care plans on the basis of the desirability of their benefits or quality or service, it certainly would be the case. Patients invariably would want their doctors, not corporate benefits managers, to make decisions about what medical treatments or procedures are medically necessary. Moreover, under a patient-driven system that allowed patients to own their health insurance policy, health plans that denied agreed upon services, or that interfered with physicians' provision of an agreed upon service, could held liable for breach of contract in a court of law.

But because Congress so far has refused to take even modest steps to create a patient-centered, patient-driven health care system based on patient choice and market competition, these issues are left to third-party executives and insurance regulators. Under today's conditions, states are aggressive regulators. Several states have already enacted laws that require health plans to use a standard definition of "medical necessity." Hawaii, Maine, New Mexico, Montana, North Carolina, and North Dakota impose a uniform "medical necessity" standard for use in a plan's internal review process when claims are being disputed. Georgia, Massachusetts, Minnesota, Montana, Texas, and Vermont apply a statutory definition of medical necessity for determinations in cases of an external review of disputed claims.

Recovery and Capping of Damages.
Both the House and Senate bills provide for recovery of damages in a court of law for patients injured as a result of plan decisions. Both also provide for caps on these damages. These caps are very different.

For the Senate bill, there are no caps on economic damages, such as lost wages. There also are no caps on non-economic damages, such as pain and suffering. Non-economic damages in malpractice cases (and the patients' bill of rights legislation creates the equivalent of medical malpractice for health insurance plans) can be enormous. The Senate bill does impose a cap of $5 million on civil fines in federal courts, the imposition of the legal equivalent of a punitive damages award against the defendant health plan.

In the House bill, there is no cap on economic damages resulting from an injury to a patient. But there are caps on non-economic damages of $1.5 million, and there are caps on punitive damages of $1.5 million. These caps would apply in federal and state courts.

These caps will surely contribute to increased litigation against doctors, not just health insurers. This is likely because in many states there are no limitations on damages that can be recovered for medical malpractice. In those cases, where there is a limitation on the amount that plaintiffs can recover from health plans, the doctors will become the "deepest pockets," and that is where the litigation will be targeted.

SUING THE PATIENT'S CHART: APPLYING THE LAW OF UNINTENDED CONSEQUENCES

For many members of the medical profession, the new congressional application of liability provisions against HMOs and other health insurance plans amounts to redress of an imbalance that should have been corrected long ago. If doctors can be sued for injuring patients, then it would be only fair for health insurance plans, which can also injure patients, to be sued as well.

But it is not that simple. In the Senate bill, as noted, there are no caps at all on economic and non-economic damages. The caps are whatever the state law may impose, particularly in the area of pain and suffering. The Senate bill (S. 1052) was amended to carve out doctors and other health care providers from liability for injuries from "non-reviewable" medical decisions. But this is only limited protection.

In the House bill, as noted, there is not only a $1.5 million cap on the legal recovery of economic damages, but also a $1.5 million cap on the recovery of non-economic damages, such as pain and suffering. But it is in the crucial area of pain and suffering that trial attorneys and their clients make the big money--millions of dollars--in medical malpractice cases. Under the terms of the House bill, the very caps on non-economic and punitive damages alike would encourage the plaintiffs' attorneys to seek relief by naming the attending physician as a defendant in the case.

Suing the Chart.
Trial lawyers may be unhappy about limitations on punitive damages in the House Bill, but the legislation nonetheless gives them yet another avenue for lawsuits against doctors. As former HHS Deputy General Counsel Robert Charrow, now a partner in Crowell and Moring L.L.P, recently told an audience at The Heritage Foundation, while the legislation allows suits in state courts against HMOs, many states do not cap damages for medical malpractice. And in those particular states, lawyers for the injured plaintiffs would certainly see the treating doctors as the "deep pockets" and go after them. As Counselor Charrow observes, given the incentives established under the House bill limiting caps on economic and non-economic damages, aggrieved patients and their lawyers will simply sue the names on the injured patients' charts: doctors, nurses, hospital officials--defendants all. In other words, says Charrow, the unintended effect of the legislation would be to create a new avenue for litigation that would increase physicians' medical malpractice exposure.

Wide Range of Damages Against Doctors.
If, under the patients' bill of rights, lawyers seek doctors with deep pockets in these new cases, much will depend on where they are practicing. The range of medical malpractice laws is broad and varies from state to state. Likewise, there is a wide variety of limits on the recovery of damages from state to state in malpractice cases, including limits on attorneys fees, limits on contingency fees, and--very important--limits on compensatory and punitive damages in these cases. And in many states, there are no limits at all.

For example, there are no caps on compensatory damages in medical malpractice cases in such states as Alabama, Connecticut, Kentucky, Minnesota, New Jersey, New York, Pennsylvania, Vermont, and Washington State. And lawyers for plaintiffs can secure unlimited punitive damages in medical malpractice cases in Arizona, Arkansas, California, the District of Columbia, Delaware, Hawaii, Idaho, Illinois, Iowa, Kentucky, Maine, Maryland , Massachusetts, Minnesota, Mississippi, Missouri, Montana, New Mexico, New York, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming.

Back to State Legislators.
In the event that some version of the patients' bill of rights legislation is enacted, the debate over liability for health plans and doctors will not end. It will merely shift from Congress back again to volatile state legislatures. State legislators will doubtless become the object of intense lobbying, reflecting the different and desperate competing interests of employers, health insurers, and representatives of organized medicine and various provider groups. Some states may limit economic and non-economic damages against health plans and against physicians; or they may limit damages against physicians but not against health plans; or they may limit damages against health plans but not physicians.

The outcome in any given state would doubtless reflect the political culture, the degree of difficulty these interests claim as a cause for legislative relief, or the correlative lobbying clout of corporate representatives, insurers, or doctors in the state. In any case, patients will be relatively powerless in this political environment and will pay more.

THE WORSENING ENVIRONMENT FOR DOCTORS AND PATIENTS

While Congress is paralyzed over the complex provisions of the patients' bill of rights legislation, the environment for doctors and their patients is worsening.

Rising Costs and Reduced Coverage.
Health care costs are rising rapidly. Premium increases are projected to be in double digits next year, running anywhere between 13 percent and 16 percent. Such sharp and rapidly rising premium increases can be expected to price more and more American families our of their private health care coverage. Making matters worse, in the wake of the September 11 terrorist attacks, large numbers of Americans have already lost their jobs; and because, for so many, access to health insurance is tied to their place of work by law and regulation, these workers and their families also have lost their health care coverage.

Rising Malpractice Costs.
Meanwhile, one component of rising health care costs is the sharp increase in medical malpractice costs. Medical malpractice costs are rising dramatically, reflecting a rise in jury awards now averaging $3.49 million, according to a recent New York Times report. Doctors are getting sticker shock: Some of the medical malpractice insurers are raising their rates more than 30 percent.

Consider the irony. Under the House version of the patients' bill of rights legislation, which is intended to expand recovery of damages against health plans, there is a simultaneous expansion of the right to sue plans in state courts and a limit on the amount of funds that can be recovered in those state courts. The Bush Administration favors the House bill because it is perceived as creating less litigation. Yet, if there is a federal cap on non-economic and punitive damages, but it is lower than state caps on medical malpractice, or the states have no caps on medical malpractice, then the doctors, already facing rising medical malpractice premiums, become the natural target for litigation.

In subjecting the health insurance plans to state law, the House bill would provide them some federal protections with the caps on damages, but under state laws, doctors would not enjoy similar protections in many of these states. In the Senate bill, as stated, there is no limit on the recovery of damages in state courts, punitive or otherwise. Instead of addressing the pressing need for medical malpractice reform, Congress has chosen simply to expand the reach of medical malpractice to health insurance companies, which, as noted, will surely increase the medical malpractice exposure for doctors.

CONCLUSION

Complex health care legislation is often fraught with unintended consequences. Members of Congress intently focused on solving one problem often end up taking discrete steps that create other problems, often more damaging in their overall impact than the original problem they intended to resolve. Sadly, there are a large variety of examples of this in virtually every area of health care policy.

This is evidently true with the large and complex bills enacted by the House and Senate to establish a patients' bill of rights. They are highly prescriptive, with regulatory provisions that not only govern the numerous operations of managed care plans, but also encompass fee-for-service plans. Why House and Senate sponsors have seen fit to include fee-for-service health plans within the regulatory framework to reform managed care plans has never been satisfactorily explained.

While Heritage Foundation analysts and others have argued since the inception of the debate on the patients' bill of rights that the bills' prescriptive regulation, rather than their expansive litigation, would have the greatest impact on the character of the health care system, the bills' litigation provisions also appear to have gone far beyond the intention of congressional sponsors. Remarkably, these provisions also appear to have consequences far beyond those envisioned by the bills' supporters within the medical profession.

Robert E. Moffit is Director of Domestic Policy Studies at The Heritage Foundation.

Authors

Robert E. Moffit
Robert Moffit

Senior Research Fellow, Center for Health and Welfare Policy