RRB: From a physician perspective, the big problem in Pennsylvania is that costs for liability coverage have increased markedly, very quickly. The state has had among the highest rates of increase in the country. Traditionally, Pennsylvania was not a high premium state. Pennsylvania premiums in the mid to late 90’s were almost exactly at the national average. But Pennsylvania has stored up problems for itself from the past by relying so heavily on the CAT Fund, now MCARE. Big ticket cases that ordinary coverage would have funded at the time of care were instead left to be funded after the fact by this pay-as-you go social fund for catastrophic cases. The CAT Fund has grown to be about as large as all private coverage combined, and that’s a major reason for the difficulties. The immediate cause of higher private premiums has been a sharp decrease in the number of insurers willing to sell in Pennsylvania, partly because of the failures of some companies. The underlying issue is whether liability results in Pennsylvania are sufficiently predictable to make insurers willing to market there; particularly in southeast Pennsylvania where there are indications of unusually high payouts compared with the rest of the country.

Other factors include general insurance industry dynamics. Lawyers argue, "Well, this is all caused by the insurance cycle," and there certainly is an insurance cycle that is driven by competition. Like other financial markets where participants make bets on the future, the market tends to overshoot and then undershoot. This is exacerbated the long tail of liability: insurers have to predict pretty far into the future because it takes a long time to resolve malpractice cases, especially the expensive ones. Liability insurers offset their cost of paying claims with the earnings they can make on the money they hold - and they have to hold a lot of money to pay expected claims along with an extra cushion of surplus to cover themselves and policyholders in case they have projected wrong. Over time, changes in investment income can be significant, but changes in claims payouts are even more volatile. The rate that claims are brought may be up somewhat, but the payments for claims are up more markedly.

RRB: That’s not truly known. Much of awards consist of allowances for intangible losses, like pain and suffering, and changes in jury attitudes could rapidly affect that. Some say that recent years’ publicity about medical errors has increased desires to "make someone pay." However, increased payouts are affected by the increased capabilities of medicine to keep people alive despite serious injury, and who can then get an awful lot of very expensive care. Also, medical price inflation has jumped just lately, and when you project increases out over a lifetime of injury, the numbers get pretty big. Jurors, claims adjusters and lawyers have to decide today how much it will cost to take care of a quadriplegic in 2030. How much of the uptick in payouts is from intangible losses and how much from estimated future bills deserves isn’t known. The issue deserves study.

RRB: Caps work, in the sense that they’re supposed to work: they help defendants at the expense of plaintiffs, particularly seriously injured plaintiffs. It’s a zero-sum game: every dollar that the doctors and their insurers save is a dollar that the plaintiffs and their lawyers don’t get. Evidence is pretty solid that caps reduce payouts. That’s what they’re supposed to do and they do it. The evidence is slightly less solid that caps reduce premiums. It’s hard to analyze premiums. Just estimating "the" rate of change in premium is hard, given that underwriting standards and discounting change too. And lots of other things affect premiums, especially extent of competition and investment earnings. But I think that most serious analysts believe that, in the long run, premiums are held down by caps. Trial lawyers and some consumer groups may say caps have no effect, but I think they’re just wrong. In the medium- to long-run a cap can be expected to save something like 30 to 40 percent on premiums.

RRB: The insurance market will, over time, fix itself. The real issue is performance of the liability system - the combination of judicial resolution of claims and financing through liability insurance. Is that a system that we like, that we think is delivering the goods for us in terms of what it’s supposed to do? If the problem in Pennsylvania is merely that liability insurance costs too much, then either the underlying costs have to be reduced - make there be fewer injuries, change jury attitudes, put on caps - or some other source of financing has to be found. Many people are asking for both.

But liability insurance is a temporary problem. The really big problem is medical injury, and most assessments of the degree of injury that results in medical care are quite high. That’s happening despite peer review, despite the disciplinary authority of Pa.’s medical board, and despite the trial lawyers’ threatening to sue doctors. The big problem of the current system is that it’s not doing what it says it will do to make medical care safer. It’s also not really compensating people very well because most people who have injuries don’t know it or aren’t able to sue, and payouts are somewhat haphazard. I think it’s a significant problem of justice that the system pays out different amounts in quite similar cases.

The fundamental goal of reform should be to make patients better off. Not to raise or lower lawyers’ fees, or doctors’ earnings, either. Today’s system is underperforming, but the reform battle is missing that entirely: the lawyers just want more of the current system, and the doctors want to keep it, too, just with lower payouts. Amazingly, doctors argue fiercely that the current system is broke, it causes defensive medicine, it doesn’t help patients - but they turn around and say it’s just fine if we cut it back with caps. That doesn’t make a lot of sense to me. The biggest problem is preventable injury, but the big battle is imposing or preventing caps. It’s a very narrow debate in the short run. In the long run, I suggest to your readers, caps will not be sustained if they are perceived as being unfair takeaways - part of that zero-sum, winners vs losers game. Judges and jurors will get around such caps, and eventually legislators will vote them out. I think that a better system would focus on preventing injury and making payments more fair, predictable and fast. That is win-win for both patients and doctors, and that will be more successful in the long run.

RRB: All the first generation solutions that are talked about now just try to rein in the same old tort system, not to increase safety and fairness for injured patients. I think the more fundamental problem is to create a system to encourage patient safety and to pay people fairly. That calls for changing how the system works.

There are somewhat more basic changes that I call second generation reform. They focus on ways to resolve cases more consistently, resolve them faster, make the doctors believe in them better to improve the chance that tort liability will actually encourage productive behavior. These reforms include alternative dispute resolution, better guidelines to remind people what appropriate care is, good risk management to study quickly what happened and be able to resolve cases faster. Rather than capping all awards the same, you could try to systematize awards to make them more consistent at all levels of injury. You could introduce incentives for practitioners and insurers to make early offers of settlement, so as to resolve cases faster and with much less cost of disputation.

Another idea, which the AMA and the medical specialty societies had at the end of the 80’s and was really quite promising, is to stay with the fault system but to operate through a more expert decision maker. They proposed administrative agencies that would bring expertise to determining appropriate standards of care and applying the rules consistently. Others suggest special medical courts for the same reason. The old AMA approach had caps, too, but with different limits for different severities of injury, and would have had the same agency apply its expertise as the disciplinary authority, too.

A third generation of reform goes beyond the simple world view of finding an individual to blame after the fact, simply assuming that fear will make people better informed and more careful. The third generation really taps into a completely different world view, namely, the systems approach or patient safety approach that says individual human error is a problem, but there are great limits how much individuals can fix it. The more effective fix is a systems solution that moves away from hunting down individuals to blame. It says instead, let’s look forward to how to prevent injury. Let’s pay for preventable injuries, generate better information, and focus responsibility more on capable institutions. A major weakness in the tort system is, while it scares doctors like crazy, it doesn’t really tell them what to do to make things better, certainly not in a timely way or in a fashion likely to encourage constructive change rather than defensiveness. So let’s move to a system that would have more scientific credibility and would make people feel more fairly treated, both patients and providers.

RRB: It would probably be one of two types, as recognized last fall by an Institute of Medicine panel. One would be a non-judicial insurance system covering preventable injuries. Some call this no-fault, but that’s misleading: Full no-fault means covering any injury, just compensating the needy. But this idea is to cover only preventable injury because you want to focus incentives on safety - that’s the whole point. Reform would entail something like workers’ compensation, with a public agency to decide cases after the fact. Statutory enactment is needed.

A second approach uses avoidable classes of events or ACEs. These are lists of injuries that experts agree in advance are generally preventable, and they can be used in various ways as the basis of finding and paying for injuries through an insurance process rather than a courtroom process. Identifying injuries is not easy. For a lot of things that happen in medicine, only an expert knows that something went wrong rather than nature taking its course. This facilitates a culture of secrecy about injuries. Secrecy doesn’t help a patient already injured and it doesn’t help medical systems learn to perform better. I think it’s very important to have a safety-and-compensation system that shows people that cases are being found and fairly dealt with. That’s why I like the idea of listing events in advance, and then agreeing to pay those automatically.

Allegations of unlisted injuries would go into arbitration or some other non-courtroom system. I think that it is a mistake to have a partial alternative to tort, such as has been tried in Florida and Virginia for severely neurologically impaired infants. There, only a few very bad injuries are in administrative compensation, and all other cases are left in conventional courts. That split leads to all kinds of gaming about whether it is better to be in system A or system B. All clinically coherent groups of events should be under the same system, so that you create a consistent set of incentives and reduce game playing. You want to have something that simplifies decision making, that makes things predictable, and that is consistent with a systems approach to patient safety.

RRB: Avoidable events could be implemented through a workers’ comp-like state agency, which would simplify determining compensability of claims. Like straight workers comp, this would require legislation, and when you put in a legislative proposal, you never know what, if anything, will come out at the end. Avoidable events could also be implemented privately, by contracts between caregivers and those they serve. Essentially, medical groups that are reasonable operational systems, such as a hospital, an integrated medical delivery system or a large physician group practice, would agree to run an alternate safety-compensation system. A promising wrinkle is to go beyond provider-patient contracts to involve health plans, too, and perhaps even employer groups that buy coverage. At the time a patient signs up for a health care plan and the time the providers agree to be in the plan, that contract would include a better safety-compensation system. The ACE-based alternative could be exclusive. Or, patients could have the type of choice at the time of service that they have under preferred provider organizations. When in need of care, you could decide whether to stay with a preferred provider (and here the provider would be preferred on safety-compensation grounds), or you could go elsewhere and get the conventional legal system, with its costs and benefits. A private alternative has only partly been tried - through the arbitration agreements used by large prepaid group practices in California and elsewhere. Kaiser is the best known. There are many details, but this is the basic idea.

RRB: I think that should be done as objectively as possible by specialty societies or by prestigious medical institutions. Of course, under any contract, the parties to that contract will have some say in tinkering with it. It’s important that ACEs be as scientific and objective as possible. I don’t think you want medical group X making up its own standards and saying, "Here, take it or leave it." I think their interests and their patients’ interests are better served if they say, "These are from ACOG, or Johns Hopkins, or the University of Pennsylvania Medical School," or somebody perceived to be pretty authoritative. "They have, without any economic interest in it, come up with this set of events and that’s what we’re going to use."

RRB: The determination would be made in the first instance by the patient or anybody that the patient wanted to represent them, a family member or an attorney, and whoever was administrating the alternative system. There has to be a dispute resolution mechanism such as arbitration, and I think it would be best if that were a private dispute mechanism. Having employer groups involved could help protect against unfairness in design or operations of the system.

RRB: The three that have been studied the most are obstetrics and gynecology, orthopedic surgery and general surgery. We got furthest in testing the system against actual events in obstetrics, applying the list to a large body of data from a hospital chain about obstetrical events, and calculated that about half of the cases that were in the conventional legal system or the risk management claims settlement system would have qualified as events, and that was about two thirds of serious cases and three quarters of the money. I think the system would work best for big ticket specialties where there are discrete episodes of care, and least well for the least technical or dangerous branch of care, such as preventive care. In principle it should work in all of them, and I think it’s worth quite a lot of effort to try this. It’s a positive reform that creates new rights and better incentives, not just a takeaway.

RRB: Almost all of the funding for today’s system of paying for medical injuries comes from health insurance, disability insurance and public programs. A relatively small amount comes through liability insurance because so few cases are brought, relative to the number of actual problems and because so few of those are actually paid. An alternative system could save a lot by reducing the huge overhead cost of courtroom-based process. But any system, to make a viable transition, is going to have to continue to rely on funding at least in part from the same people who are paying now, namely Blue Cross, Medicaid and all the rest of them. One reason for having an alternative system involve the health plan is because they’re the ones who are really going to benefit from it. One of the problems with the current system is, if you’re the risk manager in a hospital and you improve safety and save a lot of money by reducing the need for remedial care, that money is not captured by the hospital. The funds just stay with Blue Cross because they don’t have to pay for all that extra care.

RRB: Even workers’ comp relies on private insurance, and private contracts definitely would. But making preventable injury or ACEs the compensable event would fundamentally shift the nature of the risk insurers are underwriting. The actuaries would be upset because they don’t have any data on preventability. But over time insurers can shift from one type of risk to another. And a lot of the same skills in insurance will be needed under avoidable event or preventive injury insurance. Health insurance plans should be involved in the contracting and it could be that they should be the insurer. Right now, the money is flowing through health insurance, disability insurance and all the rest.

RRB: They could worry about doing the right thing for their patients and not be looking over their shoulder and thinking about lawyers. They would need to think more about safety and work with safety systems, which some might not like.

RRB: Tort lawyering will always be a crucial safety valve for anger about individual medical actions that are truly egregious or patterns of conduct that cause multiple injuries. For such cases, affected individuals and citizens will probably always want a jury trial or something like it. And for most cases under a safety-compensation alternative, a different sort of lawyering will play a role, as it does for workers’ comp and disputes over contracts. Less legal process should be needed where responsibility is clearer and payment is more routine, but it will involve lawyers, who will earn a decent living. There just won’t be a role for high-stakes trials or a let’s-roll-the-dice role for lawyers on both sides.

RRB: The workers’ comp type of reform should be done on a state-by-state experimental basis. The ACE-based contracts should be thoroughly tested on what I call a virtual demonstration basis. One would study for a couple of years what would be likely to happen within an organization by looking at existing information in the same way that you do market testing of a new product. Feasibility of contract depends on private willingness to do better, but doesn’t face the obstacles of legislation. Either way, there would no doubt be a challenge in court, saying that traditional rights were abridged. So it’s important to be clear that the system is going to make people better off - providing new benefits of easier compensation, more consistent decisions, less overhead cost, and more safety systems improvement than is possible today.

RRB: Foundation funding is being sought to do a virtual demonstration - to work with an entire hospital or integrated medical system to design a new system for obstetrics or surgery, to test the ease of identifying avoidable events, to estimate the cost of resolving them, to compare with current liability costs, to see what likely safety improvements could help, and to estimate potential offsetting savings from improved safety. Kaiser Permanente held a conference in January in San Francisco where they talked about creating a compensation system that was more patient-friendly and focused more on patient safety. Pa.’s Luzerne County Medical Society had me and others talking with them in April about their leadership’s idea that what we need is not tort reform, but tort replacement.