Do We Have a Winner?

How to reform the broken medical malpractice system.

For many doctors, the malpractice case against a family physician named Daniel Merenstein epitomized how the broken medical liability system drives up costs. In 1999, Merenstein, then a resident, saw a 53-year-old man for a routine checkup and discussed with him the dubious value of a blood test to screen for prostate cancer. Since the test leads to many false positives and pointless treatments that can cause impotence and other harm, neither the American Cancer Society nor U.S. Public Health Service support its routine use. Presented with the data, the patient chose not to get the test.

When the man later developed prostate cancer, he sued Merenstein and the residency training program and ultimately won $1 million. According to the plaintiff’s attorney, the doctor should have ignored the evidence-based national guidelines and not even have given the patient the choice to refuse the test.

Is there a better way for malpractice compensation to work?

These kinds of anecdotes fuel a siege mentality among physicians. A study in the Annals of Family Medicine showed that after the verdict, nervous family practitioners nationwide began to order the unproven and potentially harmful test more frequently. In a survey last year, one-quarter of doctors reported that liability concerns affected their practice “a lot.” For example, internists reported that 15 percent of their lab tests and hospital admissions were ordered for “defensive reasons.” As a result, many authorities consider malpractice reform a key way to reduce medical costs. Using a controversial report from the National Bureau of Economic Research, the U.S. Department of Health and Human Services proclaimed in 2003 that that limiting malpractice damages could save the health system up to $126 billion annually.

Many doctors firmly believe there’s an epidemic of frivolous malpractice suits. By limiting the money that patients can win (so-called “damage caps” on pain and suffering), goes the thinking, some bogus suits might go away. There may be some truth to that, since the number of malpractice suits in Texas reportedly dropped by half after damage caps were instituted in 2003 while the number of actual payments remained the same—implying the reform eliminated almost half of the lawsuits without merit. In early October, the Congressional Budget Office gave the nod to damage caps and estimated they’d save tens of billions of dollars.

But there’s a major problem with seeing malpractice reform as a quest to reduce bogus lawsuits: Doctors make huge, negligent mistakes quite regularly—and they usually get away with it. In a landmark 1991 study, Harvard researchers reviewed the hospital records of tens of thousands of New Yorkers and estimated that almost 27,000 patients were harmed by negligent medical care—yet only 3,500 actually filed claims. The system, the report concluded, “rarely holds providers accountable for substandard care.” In 2006, another Harvard study concluded that only about 15 percent of malpractice litigation costs involved claims without errors—and only 3 percent of all claims involved no patient injury. Further, about four in five claims were adjudicated properly. In 2006, a study in Health Affairs concluded there was no crisis in doctors’ malpractice costs, since inflation-adjusted premiums were lower in 2000 than in 1986; another study last year found most doctors in Massachusetts (declared a “crisis state” by the American Medical Association) paid lower premiums in 2005 than in 1990.

And while doctors hate to admit it, lawsuits can save lives. Motivated in part by liability suits, anesthesiologists dropped the risk of death in surgery from one in 5,000 to one in 250,000 over two decades, and their premiums have dropped from being the highest among doctors to some of the lowest. At the hospital where I trained in pediatric cardiology, a publicized malpractice case in which a child died led quickly to critical improvements in patient safety throughout the hospital.

So here’s the dilemma: On one hand, doctors believe—despite some evidence to the contrary—that there are too many frivolous lawsuits, and they respond by ordering a lot of unnecessary testing and treatment. It’s probably impossible to change their perception, which arises from some well-publicized, if uncommon, bad decisions. As a result, their solution is to make it harder for patients to sue. (That’s the general position taken by Republicans.) On the other hand, patients often get harmed by negligent medical care, and lawsuits are their only way to fight back. Doctors are already getting away with lots of negligence, so making it harder to sue seems unfair. (That’s the Democrats’ view.)

There’s a more constructive way to frame the debate about medical liability: How can we design a system in which more patients harmed by negligence get timely, reasonable compensation, but in a manner that also protects doctors and encourages them to learn from their mistakes? In this regard, the current system fails miserably and is best compared to a casino. A tiny number of injured patients win huge jackpots while the majority gets nothing, in a gaming process rife with outrageous overhead costs (roughly half of all malpractice costs go to lawyers, experts, and the court system).

Damage caps may protect doctors from lawsuits, but they do little to help patients. There are other, much better, ideas out there, and they deserve bipartisan support since they allow everyone—doctors, patients, and taxpayers—to win. Michelle Mello, a health law professor at the Harvard School of Public Health and a leading researcher on medical liability, outlines three examples: promoting “disclosure-and-offer” programs in which health providers are incentivized to fess up quickly to mistakes and offer prompt compensation; creating neutral tribunals that evaluate evidence and recommend damages; and proclaiming federal “safe harbors” where doctors are immunized from lawsuits if they adhere to evidence-based practices, as Dr. Merenstein did.

Take “disclosure-and-offer” programs. Back in 2006, a pair of freshman U.S. senators took to the pages of the New England Journal of Medicine to promote a federal program that would help balance patient safety and compensation. “At the time of disclosure, compensationfor the patient or family would be negotiated, and procedureswould be implemented to prevent a recurrence of the problemthat led to the patient’s injury,” they explained, pointing to pilot data in Michigan that showed big drops in subsequent lawsuits and time to complaint resolution. While Barack Obama and Hilary Clinton’s bill never became law, the current version of the House’s health reform bill does allow for state-based initiatives like the Michigan plan. The basic concept makes a lot of sense: Patients often want a prompt apology, some reasonable monetary compensation, and hope that others won’t experience the same mistakes.

The second model, essentially the same way Americans now deal with vaccine-related injuries, involves “no-fault” tribunals. More than 30 years ago, for example, New Zealand replaced its tort-based system with a government-funded program called the Accident Compensation Corp., which handles about 2,000 medical injury claims from a population of 4 million people a year and pays compensation to patients in roughly half of them. Today, the program’s overhead costs are less than 10 percent. On the back end, these claims can also lead to broad-based, systematic changes to prevent future errors.

Like almost one-third of all doctors, I have a family member who was injured by medical negligence. Some time after my father died because he was misdiagnosed initially, I called the responsible doctor—for what reason, I didn’t really know at the time—but never heard back from him. My family didn’t sue. But surely there’s something wrong when a lawsuit is the only way for patients to get someone to answer for mistakes.