TORT REFORM: Debate Still Thrives Over Limit on Damages in Texas Malpractice Suits

By Eric Torbenson and Jason Roberson, The Dallas Morning News
http://insurancenewsnet.com

Four years ago, Texas limited how much patients could win in a medical malpractice lawsuit. Since then, doctors, patients and lawyers have seen many of the changes predicted by both sides in that bitter debate come to pass.

Doctors have seen their costs fall for liability insurance as malpractice insurance companies return to the state and to profitability. There is no evidence of savings to Texas consumers, however.

The number of doctors applying to practice in Texas every year has increased more than 50 percent, relieving desperate shortages in some rural areas.

The number of lawyers representing injured patients has fallen, however, as the $250,000 cap on noneconomic damages makes most claims unprofitable to pursue. Statewide, malpractice lawsuits have fallen by half.

To counteract the loss of oversight by the courts, the state gave more money and power to the Texas Medical Board, which is charged with policing the medical profession. The board’s data shows it is investigating and disciplining more doctors, but it’s impossible to know whether the state is attracting higher-quality doctors because the board won’t provide the histories of doctors coming into Texas since the malpractice limits were put into place.

Debate continues on the overall effect of the bill. For every story that trial lawyers tell about a victim of medical malpractice who’s been unable to seek damages in a lawsuit, the medical lobby can point to a patient who got treatment from a hard-to-find specialist who came to Texas because of the lawsuit limits.

The influx of doctors is clearly good for Texas, said Joe Nixon, a Houston attorney who wrote the law, known as Proposition 12, when he served in the state House.

“We are getting physicians from places such as the Mayo Clinic, and we’re getting a lot of excellent specialists that we just didn’t have before,” he said. “A lot of them have told me they came specifically because we passed Prop 12.”

But Dallas attorney Gary Sibley, who used to defend doctors and hospitals against malpractice suits, says he believes some patients suffer from a reduced quality of care as a result of the law.

“I would say just simply the specter of being sued for malpractice made health care better,” he said. “Now I know a lot of doctors who just aren’t that concerned about quality, because they’re not getting sued at all.”

Four years ago

The 2003 debate was fierce, with doctors and lawyers both seeing their livelihoods threatened.

Supporters — including business leaders and doctors — argued that a surge in frivolous lawsuits had sent malpractice insurance premiums soaring. Big verdicts from Texas juries, they said, chased insurers out of the state and led doctors, especially in specialties such as obstetrics, to shy away from riskier procedures and patients in order to limit liability.

Opponents — generally, trial lawyers and consumer advocates — countered that cracking down on bad doctors was a better way to lower malpractice rates while still protecting patients. The law’s main beneficiaries, they predicted, would be the insurance firms.

The bill calling for a statewide referendum passed the Legislature and was signed by Gov. Rick Perry on June 11, 2003.

The two sides spent a combined $18 million to sway voters, the most ever spent on a statewide proposition race. Voters approved the constitutional amendment in September 2003 by just 33,005 votes out of 1.5 million cast.

What had been the big-ticket items in malpractice awards — noneconomic damages like pain and suffering and loss of companionship — are now limited to $250,000 per defendant. Lawyers can still press for punitive damages, though winning them in a medical case is difficult.

The law has cut the average malpractice award by one-fourth, according to research by Bernard Black, a law and finance professor at the University of Texas. Before the caps, the average award was $1.21 million; it’s been $880,000 since. “That’s a real effect from the caps,” Mr. Black said.

More to the point, the law has made it economically unfeasible for lawyers to pursue many of the cases brought in by injured patients. Too often, lawyers say, even the best possible outcome in an open-and-shut case won’t cover their costs, let alone provide anything for plaintiffs.

That’s particularly true for elderly patients and the working poor, who lose little or no earnings as a result of their injuries or death, leaving the limited pain-and-suffering damages as the bulk of any potential award.

Court statistics tell the story. There were 1,108 medical liability suits filed in Dallas County in 2003. That dropped to 142 in 2004, after the caps were in place. Last year, 184 cases were filed.

Jon Opelt of the Texas Alliance for Patient Access, which represented insurers in the Proposition 12 debate, said his survey of the top medical liability insurers suggests the number of lawsuits against Texas doctors has dropped by half since the caps were put in place.

Texas wasn’t the first state to limit noneconomic damages; California set a $250,000 cap in 1975. But such caps are hardly universal.

Since Texas capped its damages, similar legislation on the federal level and in other states has been rejected — most recently in Oklahoma, where in April the governor vetoed damage caps, fearing they were unconstitutional and wouldn’t solve the problem of frivolous lawsuits.

Today, only California, Texas, Montana, Alaska, Kansas and Ohio have caps as low as $250,000, according to the National Conference of State Legislatures. Some other states — including Idaho, Michigan and West Virginia — have limits that rise with inflation.

Twenty states have no limits on damages for pain and suffering.

Doubting the benefits

The changes all but ended lawyers’ ability to police hospitals and doctors for shoddy care, opponents of the limits say.

Plus, any savings aren’t going into patients’ pockets, they say, and hospitals have little incentive to improve services.

“It’s the insurance companies that are profiting here,” said Paula Sweeney, a Dallas attorney whose sole practice is medical liability.

In fact, insurers are profiting, after years of losses from malpractice policies in Texas.

In 2004, as a result of having fewer claims to pay out, the state’s insurers reported their first profit directly from malpractice premiums since the Texas Department of Insurance began tracking the information in 1992.

Before 2004, underwriting losses fluctuated between $59 million and $189 million.

Those numbers do not include investment income, which insurance companies typically rely on to turn profits. (They also don’t include results from the Texas Medical Liability Trust, which insures a third of the state’s doctors and reports its results differently.)

The insurance companies reported a profit from malpractice premiums of $156 million in 2004 and $83 million in 2005.

Some experts think there was never a crisis in malpractice premiums to begin with, saying the problem was manufactured by insurers, doctors and hospitals.

Bob Hunter, Texas’ insurance commissioner under Gov. Ann Richards, tracked three decades of national malpractice payments. Over the past 22 years, insurers’ payouts to patients have been flat once they’re adjusted for inflation, he said.

Malpractice premiums rose, in part, because insurance companies were trying to make up for shrunken investment income during the queasy stock market after the Sept. 11 terrorist attacks, said Mr. Hunter, director of insurance issues for the Consumer Federation of America.

“There was no explosion in claims at all,” he said, adding that the premium increases were also part of a normal industry cycle. “They raised premiums because they had been lowering them so much in the previous years that they started losing money.”

Separately, four university professors studying Texas jury verdicts between 1998 and 2002, including UT’s Mr. Black, have also concluded there was no crisis that forced insurers to raise rates. Average jury verdicts, if anything, were stable or even dropping in Texas during that time, they found.

“The reason you’re not seeing more tort reform efforts today is that there’s no so-called crisis with rates,” Mr. Hunter said. “All this talk of reform isn’t going anywhere.”

However, a 2003 study of malpractice premiums in five states by the U.S. General Accounting Office — now the Government Accountability Office — concluded that lawsuit damages were the primary reason for rising premiums.

And Mr. Opelt of Texas Alliance for Patient Access said the academics’ research doesn’t take into account insurers’ legal costs to defend frivolous cases that result in no payouts.

Theories about a manufactured crisis don’t explain why the number of insurers writing malpractice policies in Texas fell to four from 17 before the caps were put in place, Mr. Opelt said.

Today, 33 companies write malpractice insurance policies in Texas, he said, reflecting healthy competition in a healthy market.

A nightmare

Healthy doesn’t describe 32-year-old Lori Wilson of Fort Worth, who was hospitalized and in therapy for months after having antibiotics pumped into her heart to treat a deadly staph infection at a local hospital.

Mrs. Wilson said she got the infection in January 2005 while getting an epidural anesthetic for the birth of her third child. The infection ate away two vertebrae in her back, preventing her from receiving the painkilling procedure again for the birth of her fourth child last month.

The hospital now says she never had a staph infection, she said.

“That’s odd, because they told my husband when I was at the hospital that if the staph infection reached my central nervous system, it would be over for me,” she said.

Mrs. Wilson said she contacted 20 lawyers, but even with a hospital bill in hand proving she was treated for a staph infection, none would take her case because of the damage caps. Ms. Wilson had just started a Mary Kay cosmetics business and wasn’t taking home much yet, limiting the economic damages she could claim.

A life saved

While Mrs. Wilson hates the malpractice caps, Ruby Collier, 71, credits them with saving her life. She says they attracted “a marvelous doctor” to her hometown of Brownwood, in Brown County between Fort Worth and San Angelo.

Ms. Collier plans to throw a party this September to celebrate the anniversary of her successful kidney surgery. Her urologist, Dr. Daniel Altstatt, had been in Brownwood only two weeks when he found Ms. Collier’s kidney cancer last year.

Dr. Altstatt, a Tennessee native, said he chose Brownwood for two reasons: He likes small towns, and Texas has medical malpractice caps.

Before his arrival, the town of 19,000 had no urologist; the closest was 67 miles away in Abilene.

This is the kind of case proponents point to as proof of the benefits of malpractice caps.

In addition, doctors say they feel more at liberty to trust their professional judgment rather than order unneeded tests and procedures.

Susan Dobbs Curling, an anesthesiologist in the Houston suburb of Spring, said she recently had to deal with two children who needed ear tubes. One showed possible signs of a rare condition that could be dangerous if the child was given anesthesia.

“In the past I would have felt obligated to be conservative,” she said, including ordering painful and expensive biopsies of muscle tissue for both children to rule out the small chance of a problem and ordering overnight hospital stays after the ear-tube surgery.

Instead, she trusted her gut belief that the children didn’t have the rare condition, and both were out the door in two hours without complications.

Where do savings go?

So some patients have benefited, and others have been hurt. But what about Texans in general?

In a fact sheet prepared before the 2003 referendum, the group Yes on 12 listed lower health care costs for consumers as one of the many reasons to vote for the proposition.

And there is the potential for lower costs.

The Texas Medical Liability Trust, the biggest insurer of Texas doctors, reports that it has dropped its malpractice rates 26.5 percent since 2003. The average general surgeon in Dallas, for example, is paying $35,417 for a policy that cost him $48,147 in 2003.

While Texas’ rates have fallen, malpractice premiums nationally continue to rise, although the growth rate has leveled off in the last couple of years.

In 2006, the state’s 26,497 commercially insured doctors saved roughly $49 million in premiums, an average of about $1,811 each, according to the Texas Alliance for Patient Access.

The caps have saved hospitals millions also. Texas Health Resources, the largest health system in D-FW, now pays $6.9 million in yearly malpractice premiums, down 41 percent from 2004, a spokeswoman said.

Baylor Health Care System, the area’s second-largest system, has seen its malpractice insurance premiums fall an average of 25 percent, said Paul Convery, Baylor’s chief medical officer.

But not one of the hospitals or doctors interviewed for this article said they are cutting the prices they charge to patients or health insurers. Instead, they’re reinvesting the savings in more and better health care.

For example, Denison-based Texoma Healthcare System, a 263-bed, five-facility system near the Oklahoma border, gave nurses a 17 percent raise, to $21 an hour from $18, chief executive Mackey Watkins said. This was to attract nurses during an ongoing national shortage.

For Texas patients, the cost of personal health care — from hospital stays to prescription drugs — continues to increase, according to data from the U.S. Bureau of Economic Analysis. From 2003 to 2004, the most recent data available, personal health care costs increased 7 percent, from $98.7 billion to $105.5 billion, the third-largest year-over-year increase since tracking began in 1980. The largest growth in spending occurred between 2000 and 2002.

Personal health care spending jumped from 10.6 percent of the state’s gross domestic product in 2000 to 11.7 percent in 2004, according to the bureau.

Mr. Black, the UT professor, was not surprised by the lack of savings for patients. The promise of lower prices was a red herring from the start, he said. Medical malpractice costs — both in defense and in payouts — account for at most 2 cents of the health care dollar, he said. Others peg the percentage slightly higher.

The score

Untangling tort reform’s winners and losers isn’t as simple as it seems.

Before 2003, the state’s shortage of specialists meant those here could demand top dollar for their skills. Now, those doctors face added competition for salaries.

“It’s great for consumers but may not be so great for doctors,” said Dr. Chris Conover, a Duke University health policy professor who has studied the effects of Texas’ law.

As for the lawyers who defend the doctors and hospitals being sued, many cheered the limits on damages because they benefited their clients. But the result has been less work for themselves.

Mr. Sibley, the Dallas attorney who used to defend malpractice suits, now advises hospitals on contracts. “It’s because there aren’t any more to defend,” he said.

And although he used to represent doctors, he’s not sure the decline in lawsuits is a good thing.

A flurry of malpractice suits in the 1980s helped hospitals identify where they were failing patients and fix problems, he said. Without the suits, doctors and hospitals have little incentive to improve, even with the Texas Medical Board’s increased supervision.

“It’s human nature — if there’s not a really compelling reason to perform at a high level, there won’t be high-level performance.”
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