The Limitations of Legislatively Imposed Damages Caps: Proposing a Better Way to Control the Costs of Medical Malpractice

• Publication year: 2006
• Citation: Vol. 30 No. 01

SEATTLE UNIVERSITY LAW REVIEWVolume 30, No. 1FALL 2006

The Limitations of Legislatively Imposed Damages Caps: Proposing a Better Way to Control the Costs of Medical Malpractice

Nancy L. Zisk(fn*)

I. Introduction

Health care providers believe their liability insurance premiums are too high because the judicial system is out of control. "The largely indiscriminate nature of the system-where anyone can file a lawsuit for any reason regardless of whether there is evidence that negligence occurred-has engendered a fear of liability in physicians that is harmful to individual patients and to the health care system as a whole."(fn1) Providers claim that because of high insurance premiums, physicians are retiring early, relocating to states with lower insurance rates, avoiding high-risk practice areas, and practicing defensive medicine by ordering unnecessary tests and limiting high-risk, perhaps necessary, procedures.(fn2) This situation has led both doctors and lawyers to declare that there is a "malpractice insurance crisis in the United States today.(fn3)

This crisis, or the claim that one exists, is not new. "Physicians have contended that since the early- to mid-nineteenth century there has been a medical malpractice crisis pitting physicians against injured patients and their attorneys."(fn4) The debate over how to respond to this crisis is not limited to physicians, their patients, and the attorneys representing them, however. Rather, it is a national debate among doctors, lawyers, Congress, state legislatures, and our judiciary about how to respond to calls for change.(fn5)

Health care providers and insurance companies are asking legislatures to limit damages awards to victims of medical negligence. As one court recently observed: "In the case of medical malpractice, interest groups representing every aspect of the delivery of health care are heavily involved in lobbying the legislature."(fn6) These lobbyists are seeking statutory control of jury verdicts in the form of damages caps.(fn7)

The argument for damages caps is premised upon an assumption that legislative limits will lead to lower insurance premiums, which will in turn ensure "quality health care by creating an environment that health care providers are likely to move into, or less likely to move out of."(fn8) Proponents also argue that caps will prevent the practice of defensive medicine.(fn9) The "underlying assertion" of the call for legislation, however, is "that the tort system is 'broke' or at least badly in need of repair."(fn10)

While this may be the call of some physicians and insurance companies looking for ways to reduce the high costs of medical malpractice insurance,(fn11) there is no agreement as to the best way to control these costs. Some commentators claim that it is "clear" that the "current problems are the result of a dramatic increase in the cost of litigation,"(fn12) but others are not so sure.(fn13) As discussed below, other explanations for the high cost of malpractice insurance include insurers' poor investment decisions and insurers' business decisions, such as offering low premiums to attract new customers.(fn14) At the very least, the evidence is anything but "clear," and, as one observer has stated: "The possible causes of the medical malpractice insurance increases are always subject to debate."(fn15) Despite compelling evidence that the current approach of limiting damages has not lowered malpractice premiums, however,(fn16) health care providers and their insurers continue to call for legislatively-imposed damages caps, and our state and federal legislatures are responding.(fn17)

Since 1986, more than forty-one states have passed legislation "to limit the liability of wrongdoers, restrict the amount of monetary damages injured consumers [can] receive in court, or make it more difficult for the injured to obtain attorneys to represent them against insurance companies."(fn18) Limitations include damages caps for both noneconomic and economic losses, shortened limitations periods for filing suit, and restrictions on where a suit may be brought.(fn19) Some of these statutes have been invalidated on constitutional grounds, but "[f]or the most part, these new 'tort limits' have remained on the books."(fn20)

Oliver Wendell Holmes once said: "The life of the law has not been logic: it has been experience."(fn21) Logic may not, however, be so easily separated from experience. Indeed, it is defined by experience, and judges "apply logic and experience" when reviewing the cases before them.(fn22) Based on logic and experience, it is now time to revisit the issue of how best to control medical malpractice premiums and preserve the health of the health care industry.

This Article considers whether state damages caps are constitutional and examines recent studies suggesting that damages caps are not achieving their intended goals. Given the mounting evidence against the effectiveness of damages caps and the questions about their constitutional validity, this Article proposes moving away from legislative caps on damages. Instead, this Article argues for a modified market model based on a combination of improved care, which would include improvements in service; better peer review; and, if necessary, legislation which would be designed to protect the confidentiality of peer review, reduce frivolous lawsuits, and regulate insurance rate increases.

Part II examines federal and state legislative responses to the call for damages caps. Part III addresses the constitutional issues raised by legislatively imposed limitations on damages awards. Part IV goes beyond these issues to ask whether, even if damages caps pass constitutional muster, these legislative limits offer any real solution to the issue that is really at the heart of the debate: premium rate increases. Part V proposes a solution that combines market forces and legislative controls to regulate insurance rate increases, enhance peer review, and reduce frivolous lawsuits.

II. The Legislative Response

Health care providers and insurers have turned to the legislative branch of our federal and state governments for a solution to increasing liability premiums, and the legislatures have responded. The U.S. House of Representatives has passed, and several state legislatures have enacted, various limitations on medical malpractice claims and the recovery of damages for such claims.(fn23)

A. Federal Legislation

In January 2005, President Bush challenged Congress to limit the manner in which a plaintiff injured by a negligent doctor can recover damages.(fn24) In response, the U.S. House of Representatives passed the Help Efficient, Accessible, Low-cost, Timely Healthcare Act (HEALTH Act).(fn25) The Act would limit noneconomic damages awards to $250,000, restrict where plaintiffs may file medical malpractice suits, shorten the limitations period in which such suits may be brought, restrict attorneys' contingency fees, and allow the introduction of collateral-source benefits.(fn26) The stated purpose of the HEALTH Act is "to implement reasonable, comprehensive, and effective health care liability reforms," which are designed to:(1) improve the availability of health care services in cases in which health care liability actions have been shown to be a factor in the decreased availability of services; (2) reduce the incidence of "defensive medicine" and lower the cost of health care liability insurance, all of which contribute to the escalation of health care costs; (3) ensure that persons with meritorious health care injury claims receive fair and adequate compensation, including reasonable non-economic damages; (4) improve the fairness and cost-effectiveness of our current health care liability system to resolve disputes over, and provide compensation for, health care liability by reducing uncertainty in the amount of compensation provided to injured individuals; and (5) provide an increased sharing of information in the health care system which will reduce unintended injury and improve patient care.(fn27)

The Senate is currently considering similar legislation, but has not yet passed a bill.(fn28) In President Bush's 2006 State of the Union address, he renewed his request for Congress "to pass medical liability reform this year."(fn29)

B. State Legislation

Many states have also enacted limitations on medical malpractice damages awards. "In 2003 alone, forty-one states introduced legislation that either proposed or changed caps on noneconomic damages for medical malpractice awards."(fn30) By late 2005, approximately twenty states had enacted caps on noneconomic damages.(fn31) Legislation from a few representative states is presented below by way of example only and is not intended to be an exhaustive list of what each state has done.

Typical statutory language can be found in South Carolina's recent enactment of a cap on noneconomic damages awarded against health care providers.(fn32) Noneconomic damages are limited to "an amount not to exceed three hundred fifty thousand dollars for each claimant."(fn33) If judgment is rendered against more than one health care provider, liability for each provider is limited to "an amount not to exceed three hundred fifty thousand dollars for each claimant, and the limit of civil liability for noneconomic damages for all health care institutions and health care providers is...