Online Extra: "Our Patient Is Bleeding"

A medical malpractice insurer's CEO talks about the rise of a legal system of vigilante justice and what needs to be done

Call it the battle of the BMWs. Doctors are taking on the trial bar in a high-stakes showdown over soaring medical malpractice insurance premiums, which are eating 20% to 50% of practitioners' paychecks and putting many out of business. Doctors blame the problem on greedy trial lawyers, who they say are blanketing health-care providers with malpractice lawsuits, winning unreasonably large jury awards, and forcing premiums up.

The lab coats and pinstripes have clashed before. Back in the 1970s, physicians marched on California's statehouse demanding relief from soaring premiums. They got it in 1975, when the state put a $250,000 limit on what plaintiffs could win for pain and suffering in medical malpractice cases. Now doctors are appealing to Congress to follow California's lead, and lawmakers are listening.

In coming months, the Senate will weigh California-style reform legislation. The prognosis for passage isn't good -- a cap on damage awards has riled patient-advocacy groups as well as trial lawyers -- but the health-care industry holds out hope. Richard E. Anderson, CEO of The Doctors Co., one of the nation's largest medical malpractice insurers, recently talked with BusinessWeek's Lorraine Woellert about the problem and why change is needed now. Edited excerpts of their conversation follow:

Q: How did we get to this point?


In the 1970s, lawyers stumbled onto the fact that they could turn out a high volume of medical malpractice litigation and afford to lose most of the cases, which they have consistently done. It's a parasitic form of venture capitalism.... The average medical malpractice insurer wins 7 out of 10 cases. If you had a district attorney who prosecuted 7 out of 10 innocent people, that person would be behind bars. But if you have an attorney who does it, nobody cares.

Q: Are trial lawyers solely to blame for the increase in claims and payouts, or are other factors at play?


Our whole society has become extremely litigious. Our society is such that people who don't sue in the face of adversity -- it's as though they're somehow leaving money on the table.

Q: You point to California's 1975 Medical Injury Compensation Reform Act -- MICRA -- as a model of effective reform. The law limits noneconomic damages to $250,000, among other things. Malpractice insurance premiums have seen slower growth in California than elsewhere, but some states without caps also have relatively stable premiums.


One distortion made by people is to compare apples and oranges. Iowa doesn't have caps, but Iowa is not California. Iowa has a moderate medical malpractice environment. Rates are not going up any faster in Iowa than in California. The number of lawyers per capita is an exceptionally good index. More lawyers, more cost in the system.

Ultimately, is Iowa going to have a medical malpractice crisis if it remains uncapped? My answer is yes, it's just a matter of time.

Q: Why is the industry so focused on damage caps and not looking at ways to improve the system, say with specialized health courts or prescreening panels to weed out frivolous suits?


What we're saying is right now our patient, the health-care system, is bleeding, and we have got to stop the bleeding. Then we can go on to do a more comprehensive fix. Reforms like MICRA, are they a perfect solution? No, certainly. But they are a very good, proven solution. Are they an important first step? Yes. Do we need better comprehensive solutions over time? Yes.

Q: In a perfect world, would you eliminate pain-and-suffering damages altogether, or do they play some reasonable role in the system?


If we're going to compensate for pain and suffering, we have to decide what appropriate compensation is. In an unlimited liability system, the potential compensation for every injury is infinity.... Those kinds of unlimited verdicts have the ability to blow up the system.

Q: No one knows for sure what portion of payouts are made for noneconomic damages, but some studies put the number at about 50%. Shouldn't people be compensated if their quality of life is diminished due to a medical error?


What is the logic of noneconomic damages? Most noneconomic damages go to pay attorney contingency fees. That's why we have this battleground. Even in a perfect world, what is the value of a lost child? What is the value of a lost limb? In a perfect world there is still no number for those types of things.

Q: So why aren't you pushing for elimination of noneconomic damages altogether?


In our monetized society such a thing seems unthinkable. Juries -- and it's not just juries -- regularly confuse noneconomic and punitive damages. Punitive damages are meant to punish the offender. To the extent that they are meant to serve as punishment, they shouldn't be insurable, should they? In the majority of states, punitive damages per se are uninsurable by law.

Certainly one can debate whether medical malpractice courts are the best place to discipline errant physicians. How is it punishing the perpetrator to have their insurance company write a check on their behalf? It punishes the system.

Q: Wouldn't injecting some transparency into the health-care system help? I'm thinking of things such as allowing the public to know when a physician has been sanctioned by a medical board or what a hospital's error rate is as a way to improve the quality of care and reduce errors.


We're 20 years into the managed-care revolution, and it's still very, very difficult to come up with a definition of medical quality. We know it when we see it.... It's difficult to get adequate metrics.

The things that make doctors crazy is that the doctors or the hospitals that take care of the sickest patients have the worst outcomes. How are people supposed to correct for that? I don't think anybody argues that neurosurgeons are worse than other doctors, they just deal with the sickest patients.

Q: Is the tort system completely broken?


Right now, to some frightening degree, the law is whatever the last jury said it is. The law is supposed to be a bright line. It's not supposed to be made up as we go along. We almost have a system of vigilante justice in the U.S. We don't have systematic justice. We're not clear on what the legal boundaries are.

Q: Why is it so difficult to get tort reform through Congress? Is the trial bar 100% to blame, or do concerns about federalism, about legislating things that are better left to the states, also cost you votes?


I really do believe the elephant in the room is the trial bar. A handful of senators are genuinely troubled by the federalism argument, and in a very close vote those things can be the difference between victory and defeat. But were it not for the opposition of the trial bar, we could get things through.... As for federalism, we have to recognize that 45% of all health care is paid for by the federal government.

Q: Don't some class-action and personal injury cases serve a larger social purpose, that is, making wrongdoers accountable or forcing improvements in corporate behavior?


One of the tragedies of the last 10 years is that the patient-safety movement has to some degree been hijacked by the plaintiffs' bar. The malpractice system is based on blaming individuals. Patient safety is based on blaming systems and making systems more error-proof.

Q: It's interesting that the frequency of lawsuits has picked up as medicine advances.


It's a funny thing about medical miracles. People forget the miracle part. We're not really entitled to expect a miracle. But people do.

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