The True Cost of Tort Reform

According to Forbes, tort reform very broadly refers to any attempt on the part of state or federal lawmakers to:

• Make it more difficult for injured victims to file lawsuits against those who hurt them
• Limit the amount of compensation victims can recover when they do file a lawsuit

Tort reform changed the traditional common law rules that gave victims broad rights to pursue legal claims against defendants who allegedly caused them damage. Tort reform aims to reduce the number of medical malpractice lawsuits, medical liability insurance premiums, and the overall cost of healthcare. A majority of U.S. states have passed at least some tort reform laws. In Texas, the most impactful tort reform that has been in effect since 2003 is the capping of non-economic damages to $250,000.

The tort reforms that were taking shape in Texas in the late 90s and early 2000s were supported by a few main arguments about the quality and quantity of medical liability cases being filed, the impacts of high medical liability insurance premiums, and the overall cost of healthcare.

Let’s do a quick analysis of the case for tort reform, and where it falls short.

#1: Noneconomic damage caps reduce the amount of “frivolous” lawsuits being filed and protect patients from “greedy” personal injury attorneys.

Across much of the literature in support of tort reform, we find references to the need to combat frivolous lawsuits being filed. Texas Medical Association President C. Bruce Malone, MD stated: "Tort reform at the national level would allow hospitals and clinics to direct more money toward patient care and away from defending frivolous lawsuits". In addition to characterizing malpractice lawsuits as frivolous, both patients and attorneys are often painted as profiteers. 

In reality, medical malpractice lawsuits are too expensive for frivolity. 

In an interview with Austin American Statesmen, attorneys from Archuleta, Alsaffar & Higginbotham Law Firm in Austin outline why:

• Plaintiffs’ lawyers work on a contingency basis, paying upfront for costs and don’t get anything back unless they win. Malpractice defense attorneys, on the other hand, are typically paid hourly by financially well-equipped insurance companies.
• Plaintiffs’ attorneys also carry the burden of proof, meaning they have to take on the cost of investigative work to build an affirmative case, while defense attorneys can utilize a variety of standard defenses.
• Medical malpractice suits can cost a minimum of $50,000 to $100,000 to pursue. The more complicated the case, the more expensive.
• Medical experts, a required component of the plaintiffs’ case, often charge $400 or more per hour to review a case and testify. 

#2: Capping damages reduces medical liability premiums, keeping and attracting doctors to Texas, and improving patient access.

Proponents of tort reforms place a huge emphasis on the medical liability insurance premiums paid by physicians. They argue that the mitigation of costs associated with malpractice claims via the capping of damages greatly reduces premiums. 

In the 2011 edition of Texas Medicine, researchers cite “Texas’ growth rate for newly licensed physicians in the past three years is 62 percent greater than in the three years preceding tort reform.” They go on to highlight the resulting improvement of healthcare access in rural Texas.

This argument is built on the flawed premise that the rise of medical malpractice premiums in the early 2000s resulted from an increase in malpractice claims.

A 2006 report authored by Dr. Mello of the Harvard School of Public Health explains that the cost of claims on insurers did not spike around the time premiums increased in 1999-2000. In fact, “The Data Bank study found no significant nationwide increase in the number of paid claims between 1991 and 2003. Texas study found that per-physician claims frequency actually declined from 1999 to 2002.” 

The report concludes that in addition to claims costs, “inadvised insurer business decisions, decreased investment returns, and other insurance-market dynamics have all contributed”. 

More recently, Forbes reported that the mitigation and relative stabilization of market premiums are “largely a function of changing broader healthcare fundamentals…Consolidation of hospitals and healthcare practices has shifted physician employment toward larger groups, which are more likely to self-insure and use captive or alternative risk programs, reducing demand for primary MPLI coverage.”

Both of the above reports are in alignment with the historical record of ebbs and flows in the liability insurance market. While the cost of malpractice claims can not be ignored, focusing reform so narrowly on litigation practices demonstrates a failure to address the issue holistically.

Additionally, proponents of tort reform proudly tout the legislation’s success in addressing physician shortages, ignoring the inflation of the data caused by Texas’ massive population growth.

According to a 2015 study published in the International Review of Law and Economics, “There is no evidence that the number of active Texas physicians per capita is larger than it would have been without tort reform.” Furthermore, they find no evidence of relative increase in high-risk specialties, primary care physicians, or rural physicians.

#3: Capping damages reduces the overall cost of healthcare due to relieving the need for practicing defensive medicine. 

In the 2011 edition of Texas Medicine, US Rep Burgess, MD (R-Texas) attributes the rising cost of health care in our country to medical litigation and high liability insurance premiums. He states that “Physicians must practice defensive medicine in fear of being second-guessed by trial lawyers, resulting in millions of dollars in unnecessary tests, procedures, and imaging.”

In 2017, The Congressional Budget Office estimated that the bill [HR 1215, including provision to cap noneconomic damages at 250K] would lower healthcare costs, lead to lower spending on federal healthcare programs, and likely reduce deficits by nearly $50 billion over 10 years.

The tort reforms implemented in Texas in 2003 have not reduced the cost of healthcare.

A 2012 study published in the Journal of Empirical Legal Studies looked at Medicare spending in Texas after the adoption of tort reform in 2003 and found no evidence of a decline in spending. They go on to explain, “We also compare spending trends in Texas to national trends, and find no evidence of reduced spending in Texas post-reform, and some evidence that physician spending rose in Texas relative to control states.”

Later, a 2017 Study published in the Health Economics Review concluded that “medical malpractice reforms [in Texas] had little influence on reducing the cost of medical care paid for by private health insurers.”