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Harmony Miller
Harmony Miller
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Real Lessons from Texas

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“Tort reform” has become a rallying cry of insurance companies as healthcare costs rise. They blame runaway juries and excessive awards as the reason that health costs are rising, as well as the cause of increasing medical malpractice premiums and lowered insurance profits.

As Mary Alice McLarty noted in a recent article on CNN.com, in 2003, Texas became one of the worst states for victims of serious injury caused negligent or reckless health care providers. Since Texas enacted tort reform, those supporting a cap (maximum) on damages, regardless how catastrophic the injury or loss, and those against caps have found evidence to support their position. The evidence appears to go both ways depending on the measure of success used to judge Texas liability reform.

If the goal was to reduce liability insurance costs for insurance companies, then their tort reform program worked.

If the goal was to actually improve patient access to physicians through cost containment or insurance coverage, then tort reform failed.

Here’s what we can learn from the Texas experiment.

Medical malpractice claims are intricate, convoluted, and complex. The 2003 Texas legislation placed caps of $250,000 for all non-economic damages from all doctors and other individuals. These caps apply to all persons seeking damages as a result of the malpractice, regardless of the number of causes of action asserted – and how many doctors or nurses were liable for the injury. Noneconomic damages are also limited in recovery from hospitals or institutions to $250,000 each, maxing out at $500,000 from all hospitals or institutions. These amounts do not adjust for inflation. Thus, the most an injured person could ever recover, no matter how egregious the negligence suffered, is $750,000. This sum is not insignificant, but relative to healthcare costs and considering the plaintiff may have been rendered paralyzed, without a limb, unable to bear children, or brain damaged during birth, this amount of money may be insufficient to truly compensate for the damage caused by negligence.

The issues of rising healthcare costs and rising malpractice insurance rates for physicians helped drive this legislation through in 2003. Then-Governor Rick Perry urged voters to “help make healthcare more affordable and accessible for Texas families and employers”. He blamed “questionable lawsuits and excessive non-economic damages” for “increasing the cost of medical liability insurance” and claimed Proposition 12 would “hold down the cost of liability insurance” to “allow more doctors to remain in practice”. Governor Perry’s open letter to Texas voters did not actually provide any data to support these claims, but his encouragement certainly may have contributed to the culture of fear surrounding civil litigation.

Medical liability began as part of an overall regulatory strategy to help control for quality by providing costly disincentives to physicians, hospitals, and insurers for poor quality care. Tort reform groups seek to reduce liability premiums by limiting insurers’ exposure to large claims. That is, tort “caps reduce uncertainty” for insurers.

However, tort caps may penalize the neediest cases unnecessarily and any “reductions in malpractice premiums [that are] unaccompanied by lower rates of injury are not savings to society, but rather, transfer payments from injured patients to healthcare providers” (William M. Sage).

Unfortunately there is little nationwide data on the true number of claims against physicians and hospitals, and state reporting requirements vary. Instead, the public sees the few, rare cases where a jury awarded a seemingly exorbitant amount of money for someone’s injuries and losses. Physicians may not be forthcoming about mistakes or errors that may lead to negligence claims. Thus, the true impact of litigation on insurance premiums often cannot be substantiated. However, liability costs have been estimated to be only 1% of all national healthcare spending, which does not comport with the arguments in favor of caps as a way to rein in rising healthcare costs.

In the years following these caps, the evidence is mixed on whether health costs fell, there were more physicians in underserved areas, or whether liability premiums were significantly reduced.

Contrary to the supporter’s claims, evidence also shows that the Texas caps did little to improve the healthcare system for patients generally in terms of access and cost. Instead, evidence suggests the caps tended to serve the interests of insurers and physicians.

Those in favor of tort reform measures, including the Texas Civil Justice League (TCJL), claimed that the 1990s brought an exodus of liability insurers from Texas. TCJL cites studies in support: a 2000 National Association of Insurance Commissioners study finding that Texas was the least profitable state for insurers and lagged behind others in insurer net worth and underwriting profits. They offered anecdotal testimony of hospitals that lost specialists and physicians forced out of specialty practice – but most stories were from specific geographic regions that could account more for physician departure than rising premiums. There was no mention of the economic insurance cycle or other market forces that could have contributed to reduced insurance profits or rising premiums though.

How does Texas reform impact Oregon and the nation?

Supporters of reform point to the “success” in Texas as reason to implement federal reform, but it has remained a state issue. Many state legislatures have looked at Texas as a model for curbing costs and improving the climate for practicing medicine. Oregon currently has caps on the recovery from state governmental agencies, which includes OHSU. In the 2012 special session, S.B. 1580, which concerned Oregon Health Plan (OHP) coordinated care organizations (CCOs), was hotly debated after Republicans demanded that it include damage caps for OHP participating physicians. Rationale behind this was that limiting physician liability would provide incentive for physicians to participate in OHP CCOs. As the post-cap evaluation in Texas suggests, it is unlikely that caps on damages would lead to reduced risk for physicians participating in OHP CCOs. The quality of care provided by a physician should have less to do with evaluation of liability risk and more to do with providing care to Oregon’s neediest.

Overall, public policy aimed at improving healthcare by reducing costs, increasing access, and helping keep physicians in practice is generally a good thing. As the evidence from Texas suggests, however, placing caps on malpractice awards may not be the best way to achieve these ends.

Arguably, the Texas tort reform experience has shown that the judiciary is better suited to evaluate merits of claims and awards than are policy makers. Despite this, people on both sides of this issue will continue to point to the evidence that supports their claims and dismiss that against them. Hopefully, future state legislatures, including Oregon, will consider the true impact on patient safety, access, quality and cost when considering further legislation.