Sunday, February 14, 2010

Tort Reform

The argument for "tort reform" generally runs along several familiar narratives:

1) Businesses are going bankrupt because of greedy lawyers convincing people who aren't hurt to sue businesses because it's an easy way to make a lot of money. Plus, defending against a lawsuit is expensive, thus it leads to legal blackmail.

2) Doctors spend too much time and money running unnecessary tests because they're afraid of being sued for making a mistake.

3) Frivolous lawsuits are making healthcare costs rise, because we as hard working individuals are paying for trial lawyers and lazy people to get rich. The money has to come from someplace, thus it ultimately comes from individual workers and is an unfair forced redistribution of wealth.

4) Liability insurance is expensive for doctors, which means they have to bring in a lot of money to stay in business. Therefore it's not fiscally feasible for a doctor to work in remote or poor areas where they wouldn't make much money - whether or not they want to. Therefore, reducing the cost of liability insurance increases access to doctors and is a good thing.

5) Juries are being unfairly influenced by slick trial lawyers, thus the jury system is systematically unfair and should be corrected by the legislature.

Some of these arguments have more merit than others, some are based in facts but have been perverted, and some are more a matter for personal judgement than objective fact. Of course if there are other main arguments, or if I've misrepresented any of them, etc, I'm open to revision.

The notion of capping limits for frivolous lawsuits sounds a little hinky on its face. Who is better suited to determine whether a lawsuit is frivolous? The plaintiff who was - allegedly - injured, the attorney (or attorneys) with years of experience making a living out of earning a commission from solely successful lawsuits, the judge with a career of interpreting the law, the jury system that is the bedrock of our justice system? Or, should we rely on congressmen with an eye towards the next election passing a law trying to cover every possible contingency? It's interesting to me that the majority of people who claim to make a principled stand in favor of smaller government make an exception for the legislature to insert itself into the courtroom in the very specific role of deciding damages. I digress, the point is that if a lawsuit is frivolous then it follows that no damages will be awarded then it follows that there is no point in capping 0 dollars. So, the only reason to cap lawsuits is to cap damages on legitimate lawsuits since frivolous lawsuits are already capped at 0$ (or negative dollars, since if the lawsuit is declared frivolous the plaintiff has to pay the defendants fees and in some cases their own lawyers as well).

To address question 1: It is factually correct to claim that not being held responsible increases profit. But there are two points to be made: 1, is it morally acceptable? 2, putting aside morality, is it pragmatic? Jeffrey Pfeffer writing for CNN Money said it clearly "The next time you want to complain about "frivolous" lawsuits, picture doing business in a world where promises can't be relied on and you can only deal with people and organizations you already know well. There are undoubtedly abuses and problems in our current system, but the cost of punishing malfeasance is a necessary and small price to pay for running a modern economy." Holding people and businesses responsible to do what they promise, and to some degree not injuring others, is necessary. We don't have a perfect enforcement system, but it can't be solved by the legislature limiting non-economic damages.

To address question 2: the definition of "unnecessary" tests (defensive medicine) is so vague that it is impossible to come to an objective conclusion. There are studies showing that a lot of money is wasted, and there are equally valid studies showing that little if any money is wasted. So, if the problem with healthcare in the US is that we are too healthy then this is the argument for you.

To address question 3: the most generous study, in terms of lawsuits are driving up healthcare costs, that I'm aware of every being conducted was the recent CBO study that said tort reform accounted for 0.5% of healthcare costs. The other less recent studies all claimed less of a percentage. 0.5% of healthcare costs is a lot of money, but it should be noted that as fast as healthcare costs are rising 0.5% is hardly the driving factor.

Additionally, the premise for tort reform advocates in this argument is that medical malpractice costs are unnecessary and wasteful. This is not entirely true. Enforcing a standard of care from a hospital shouldn't be left up to the conscience of the Board of Directors or a huge government beaurocracy. They have their roles in preventing medical malpractice certainly, but so does an individual using the free market via a courtroom to influence the behavior of a hospital or doctor.

To address question 4: the real situation is more nuanced than they make it out to be. It is true that doctors and hospitals that are expected to do wrong (their chance of committing malpractice as displayed by the price of individual malpractice insurance premiums) will pay less for insurance when the insurance company knows it won't be held accountable. Not penalizing someone or some business for malfeasance is hardly a cut and dry issue. There are arguments for and against less liability under certain conditions, but the result of capping non-economic damages at 250,000$ often results in no liability not less liability as I'll show at the end.

To address question 5: Two points. First, the jury system has served the nation well since its creation precisely because it's as close to fair as we can get. The opinion that when a plaintiff and defendant present their case to a jury it constitutes inequity is ridiculous. A person doesn't get to take advantage of the rule of law only when it applies to everyone else. Second, the legislature is not very nimble. Attempting to impose a non-economic damages limit on every personal injury case anyone has ever is clearly not the most effective way to create a fair system of assessing damages.

In summation: non-economic damages includes pain and suffering and punitive damages. Punitive damages are the free market way to change businesses behavior. When a business or individuals sole obligation is profit, the only way to influence their behavior is monetary. Therefore, a large award amount isn't always because the individual deserves the money, it is often as a way of punishing the offenders behavior and preventing the offender from repeating their reckless behavior and continuing to put the public at more risk.

Pain and suffering as opposed to economic damages: if someone has no income then their economic worth is little if any. Therefore: a child is worth less than a stay at home mom, is worth less than a middle class worker, is worth less than a rich person. Most people don't think that one's actual worth is determined by their income, but in the narrow meaning of economic worth in terms of a lawsuit it is. Lawsuits are prohibitively expensive, particularly suing over personal injury. If the defendant is an insurance company then they have virtually unlimited pockets with which to hire the best lawyers, the best medical experts, and drag the case out as long as possible. An individual with a disability represented by a small firm is hardly being unfair to a corporation that makes 500 million dollars per quarter. That's one argument for pain and suffering damages, it's a way of giving people worth as a person regardless of their paycheck. For, if medical malfeasance causes the death of an infant then the price of a lawsuit will have to be less than 250,000 dollars in order to be financially feasible. After the cost of an attorney, a law firm, medical experts to counter the experts of the defendant, months of time and effort, it's rarely feasible. The same goes for smaller mistakes if someone doesn't earn much money. For example, if a hospital makes a mistake causing a a minimum wage earner to spend a month in the hospital. Economic damages will be negligible, and the cost of years of suing and battling the other side most likely will be more than 250,000$. Thus, there is no equality.

So, tort reform as proposed (capping non-economic damages at 250K) will result in immunity for large corporations making large mistakes at the expense of the injured or disabled individual - as long as they don't injure a person with great economic earnings.

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