Allowing patients to waive the right to sue for medical malpractice: A response to thaler and sunstein

Northwestern University Law Review

Volumn 104, Issue 1, 2010, Pages 233-251

  Baker, Tom ^a   Lytton, Timothy D ^b  

^a UNIVERSITY OF PENNSYLVANIA LAW SCHOOL   (United States)

^b ALBANY LAW SCHOOL   (United States)

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[No Author keywords available]

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EID: 77951817092     PISSN: 00293571     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (127)

1. RICHARD H. Thaler & CASS R. Sunstein, NUDGE: IMPROVING DECISIONS ABOUT HEALTH, WEALTH, AND HAPPINESS 4-6 (2008).
2. Id. at 17-80.
3. Id. at 5-6.
4. Id. at 207.
5. Id. at 208-09.
6. See, e.g., Marc Galanter, Real World Torts: An Antidote to Anecdote, 55 MD. L. REV. 1093 (1994).
7. THALER & SUNSTEIN, supra note 1, at 209, 211-12.
8. See Tom Baker, Herbert M. Kritzer & Neil Vidmar, Jackpot Justice and the American Tort Sys-tem: Thinking Beyond Junk Science 9-11 (July 1, 2008) (unpublished manuscript, http://ssrn.com/abstract=1152306).
9. See, e.g., Allegra Stratton, 'Nudge' Economist Richard Thaler Joins Conversative Camp, GUARDIAN, Oct. 6, 2009, http://www.guardian.co.uk/politics/2009/oct/06/richard-thaler-conservative-party (noting that Thaler is "close to Obama's economic team").
10. Noam Scheiber, The Audacity of Data, NEW REPUBLIC, March 12, 2008, http://www.tnr.com/article/the-audacity-data ("Thaler is revered by the leading wonks on Barack Obama's presidential campaign. Though he has no formal role, Thaler presides as a kind of in-house intellectual guru.").
11. See Sheryl Gay Stolberg & Robert Pear, Obama Open to Reining in Medical Suits, N.Y. TIMES, June 15, 2009, at A1 ("Mr. Obama has been making the case that reducing malpractice lawsuits. can help drive down health care costs, and should be considered as part of any health care overhaul.").
12. THALER & SUNSTEIN, supra note 1, at 33.
13. Id. at 32-33.
14. See TOM BAKER, THE MEDICAL MALPRACTICE MYTH 2, 22-24 (2005).
15. See THALER & SUNSTEIN, supra note 1, at 44.
16. Id. at 49.
17. Id. at 25.
18. See BAKER, supra note 14, at 99-105 (reviewing egregious medical malpractice cases reported in the news media).
19. WILLIAM HALTOM & MICHAEL MCCANN, DISTORTING THE LAW: POLITICS, MEDIA, AND THE LITIGATION CRISIS 155-56 (2004) (documenting that media reporting is biased in favor of out-lier cases).
20. David A. Hyman & Charles M. Silver, The Poor State of Health Care Quality in the U.S.: Is Malpractice Part of the Problem or Part of the Solution?, 90 CORNELL L. REV. 893, 942-47 (2005) (summarizing research showing that medical providers do not disclose errors).
21. Of course, media outlets perhaps understandably only take interest in unusual cases, as there is no news value in ordinary cases.
22. HALTOM & MCCANN, supra note 19, at 174-78.
23. THALER & SUNSTEIN, supra note 1, at 26-27.
24. Id. at 211-12.
25. Id. at 77.
26. Id. at 72-76.
27. Id. at 213.
28. Id. at 212.
29. We suspect that employers would generally favor waivers to an extent that may not be in the best interest of their employees. Ths is because employers would not receive the benefits that their em-ployees receive from liability, but employers would have to pay part of the cost of higher premiums.
30. Recent work by Michael Barr and his colleagues extends this insight. They explain how some markets help consumers compensate for behavioral biases while other markets exploit those biases. The difference lies in the degree to which the biased decisionmaking produces profits or other benefits for the organizations with the power to shape consumers'decisions. For example, the immediate gratifica-tion bias leads consumers to underestimate the power of compound interest, with the result that they fail to appreciate the benefits of saving and the costs of borrowing. Banks, insurance companies, mutual funds, and other organizations that benefit from consumer saving have developed lots of ways to help consumers overcome this bias. Credit card companies, on the other hand, benefit from consumer bor-rowing and, thus, tend to exploit this bias, such that too many consumers are over their heads with credit card debt.
31. ELDAR SHAFIR, MICHAEL S. BARR & SENDHIL MULLAINATHAN, NEW AM. FOUND., BEHAVIORALLY INFORMED FINANCIAL SERVICES REGULATION, 3-5, 12-13 (2008), available at http://www.newamerica.net/publications/policy/behaviorally_informed_financial_services_regulation.
32. THALER & SUNSTEIN, supra note 1, at 213.
33. See BAKER, supra note 14, at 1 (discussing popular misconceptions of the medical malpractice system).
34. See generally HALTOM & MCCANN, supra note 19 (discussing the way media, reform groups, and individualistic values have led to popular misconceptions of the tort system).
35. One case in point comes from the American Medical Association's response to a landmark medi-cal malpractice closed claim study published in the New England Journal of Medicine in May 2006.
36. See David M. Studdert, Michelle M. Mello, Atul A. Gawande, Tejal K. Gandhi, Allen Dachalia, Catherine Yoon, Ann Louise Puopolo & Troyen A. Brennan, Claims, Errors and Compensation Payments in Med-ical Malpractice Litigation, 354 NEW ENG. J. MED. 2024 (2006).
37. The study concluded: "Claims that lack evidence are not uncommon, but most are denied compensation. The vast majority of expenditures go toward litigation over errors and payment of them." Id. at 2024.
38. In other words, the tort system weeds out the meritorious claims so that most of the claim payment dollars go to people who deserve them. The AMA press release responding to the study ignored this result (which was consistent with prior studies) and seized upon the one statistic in the article that supported the AMA's tort reform agen-da. The press release led with a headline stating that forty percent of medical malpractice claims are meritless and included a statement from an AMA board member.
39. Dr. Cecil Wilson, that drew an entirely unsupported conclusion: "The costs of these meritless lawsuits are borne by patients who have decreased access to care as physicians are forced to spend significant time and money defending against meritless lawsuits." Press Release, AMA, Harvard Study Shows 40 Percent of Medical Liabilty Claims Filed Without Merit (May 10, 2006) (copy on file with authors).
40. The AMA "line" on the study and Dr. Wil-son's quote was picked up in newspapers across the country, obscuring the study's true findings. See, e.g., Associated Press, Many Medical Malpractice Cases Groundless, MSNBC.COM, May 10, 2006, http://www.msnbc.msn.com/id/12723303.
41. Welfarism is the view that rules should be evaluated on the basis of their social utility and conse-quences for human welfare.
42. THALER & SUNSTEIN, supra note 1, at 207.
43. Id. at 213.
44. Compulsory no-fault compensation schemes such as worker's compensation or the New Zealand accident system are odd policies for libertarians to advocate since such systems are classic examples of command and control administrative regulation that limit individual choice in the service of social welfare.
45. There is scholarly disagreement about the effect of damage caps on healthcare costs. Com-pare Ronen Avraham & Max M. Schanzenbach, Impact of Tort Reform on Private Health Insurance Coverage (Northwestern Pub. Law Research Paper No. 07-16, Dec. 17, 2007), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=995270 (finding that some tort reforms are effective in reducing healthcare costs, though not to a substantial extent).
46. with Michael A. Morrisey, Meredith L. Kilgore & Leonard (Jack) Nelson, Medical Malpractice Reform and Employer-Sponsored Health Insur-ance Premiums, 43 HEALTH SERVICE RES. 2124 (2008) (finding no evidence that damage caps reduce the cost of employer-sponsored health insurance).
47. THALER & SUNSTEIN, supra note 1, at 209.
48. The term "defensive medicine" is used in two different ways. It can mean any change in re-sponse to concern about liability, in which case, like "defensive driving" some of the changes may be beneficial. Or it can mean only wasteful responses to concerns about liability. Our sense is that Thaler and Sunstein are referring to the latter.
49. Id. at 211.
50. Id. at 210.
51. "Experience rating" refers to the practice of adjusting insurance premiums according to the experience of the person or entity insured. In theory, this could include adjusting premiums up or down according to observations of the level of care. But, in practice, the level of care cannot be ob-served, so "experience rating" in the liability insurance context means adjusting premiums up or down according to the number and severity of claims or, possibly, complaints made against the insured.
52. Id. at 211.
53. For an example of research reaching contrary conclusions, see Patricia Danzon, Liability for Mal-practice, in 1 HANDBOOK OF HEALTH ECONOMICS 1339, 1341 (A.J. Culyers & J.P. Newhouse eds., 2000).
54. Danzon concludes that "[t]he limited empirical evidence of provider response to liability and the deterrent effect of claims suggests-but cannot prove-that the net benefits of the medical malpractice system may plausibly be positive." Id.
55. Also see Janet Currrie & W. Bentley MacLeod, First Do No Harm? Tort Reform and Birth Outcomes 22-23 (Nat'l Bureau of Econ. Research, Working Paper No. 12478, 2006), for research finding a correlation between caps on damages and birth-related complica-tions consistent with the hypothesis that liability serves a deterrence function.
56. THALER & SUNSTEIN, supra note 1, at 211.
57. citing Michelle M. Mello & Troyen A. Brennan, De-terrence of Medical Errors: Theory and Evidence for Malpractice Reform, 80 TEX. L. REV. 1595, 1619-20 (2002).
58. BAKER, supra note 14, at 98-105, 108-10.
59. See Tom Baker, Medical Malpractice Insurance Reform: 'Enterprise Insurance'and Some Alter-natives, in MEDICAL MALPRACTICE AND THE U.S. HEALTH CARE SYSTEM 267, 278-79 (William M. Sage & Rogan Kersh eds., 2006).
60. See Allen Kachalia, Tejal K. Gandhi, Ann Louise Puopolo, Catherine Yoon, Eric J. Thomas, Ri-chard Griffey, Troyan A. Brennan & David M. Studdert, Missed and Delayed Diagnoses in the Emer-gency Department: A Study of Closed Malpractice Claims from 4 Liability Insurers, 49 ANNALS EMERGENCY MED. 196 (2007).
61. Selwyn O. Rogers, Atul A. Gawande, Mary Kwaan, Ann Louise Puopo-lo, Catherine Yoon, Troyen A. Brennan & David M. Studdert, Analysis of Surgical Errors in Closed Malpractice Claims at 4 Liability Insurers, 140 SURGERY 25 (2006).
62. Hardeep Singh, Eric J. Thomas, Laura A. Petersen & David M. Studdert, Medical Errors Involving Trainees: A Study of Closed Malpractice Claims from 5 Insurers, 167 ARCHIVES INTERNAL MED. 2030 (2007).
63. See RMF Strategies, http://www.rmfstrategies.com (last visited March 17, 2010) (website of RMF Strategies, a division of Risk Management Foundation of the Harvard Medical Institutions, Inc.).
64. See, e.g., TIMOTHY D. LYTTON, HOLDING BISHOPS ACCOUNTABLE: HOW LAWSUITS HELPED THE CATHOLIC CHURCH CONFRONT CLERGY SEXUAL ABUSE 182-84 (2008) (discussing plaintiffs'desire for public accountability and apology in clergy sexual abuse litigation).
65. See Jennifer K. Robbenalt, Attorneys, Apologies, and Settlement Negotiations, 13 HARV. NEGOT. L. REV. 349, 352-63 (2008) (presenting the most recent review of the literature on the role and impact of apologies in litigation).
66. see also Lee Taft, Apology Subverted: The Commodification of Apology, 109 YALE L.J. 1135, 1146-54 (2000) (suggesting that laws protecting apologies turn these sincere expres-sions into strategic commodities for civil mediations).
67. See, e.g., BARRY WERTH, DAMAGES 201, 207-09 (1998) (reporting the difficulty that an obstetri-cian had obtaining insurance because of her claims history).
68. See Michelle M. Mello, Understanding Medical Malpractice Insurance: A Primer, 8 SYNTHESIS PROJECT 1, 1 (2006), available at http://www.rwjf.org/pr/product.jsp?id=15091 (last visited March 18, 2010) (reporting that hospital liability insurance is experience-rated).
69. e-mail from medical malpractice insurance broker to author (Oct. 6, 2009) (on file with the author) (stating that a hospital's deductibles, known as self-insured retentions (SIRs), are "generally linear to size of facility" with hospitals of less than 200 beds carrying SIRs from $10,000 to $100,000 and large hospitals carrying SIRs from $1 mil-lion up to $5 million or more).
70. See generally Baker, supra note 49, at 268-69 (applauding this trend and advocating that such "enterprise liability insurance" be made available to all doctors practicing in hospitals or other large or-ganizations).
71. see also Mello, supra note 55, at 3 (reporting a trend toward hospitals buying insurance for doctors).
72. See, e.g., Philip G. Peters, What We Know About Medical Malpractice Settlements, 92 IOWA L. REV. 1783, 1831-33 (2007).
73. The only study that reports a contrary finding was poorly constructed to assess the accuracy of medical malpractice claims and could easily be reinterpreted to support what is otherwise the consensus view.
74. See Tom Baker, Reconsidering the Harvard Medical Practice Study Conclusions About the Validity of Medical Malpractice Claims, 33 J.L. MED. & ETHICS 501, 502-06 (2005).
75. See Steven P. Croley, Civil Justice Reconsidered 80-116 (Oct. 10, 2008) (unpublished manu-script, on file with the authors) (cataloguing the procedural hurdles and financial costs of bringing tort claims).
76. See Daniel Kessler & Mark McClellan, Do Doctors Practice Defensive Medicine?, 111 Q.J. ECON. 353 (1996).
77. Daniel Kessler & Mark McClellan, Malpractice Law and Health Care Reform: Optimal Liability Policy in an Era of Managed Care, 84 J. PUB. ECON. 175 (2002).
78. see also BAKER, supra note 14, at 126-32 (explaining that, taken together, the two Kessler and McClellan articles point toward managed care as a more promising approach to reducing wasteful defensive medicine).
79. See, e.g., David Klingman, A. Russell Localio, Jeremy Sugarman, Judith L. Wagner, Philip T. Polishuk, Leah Wolfe & Jacqueline A. Corrigan, Measuring Defensive Medicine Using Clinical Scena-rios, 21 J. HEALTH POL. POL'Y & L. 185, 188 (1996).
80. see also Mello, supra note 55, at 4 ("There are no reliable estimates of the national costs of defensive medicine.").
81. Laurence R. Tancredi & Jeremiah A. Barondess, The Problem of Defensive Medicine, 200 SCIENCE 879, 881 (1978).
82. BAKER, supra note 14, at 120-22.
83. See Hyman & Silver, supra note 19, at 909-47.
84. Id. at 893.
85. See Baker, supra note 49, at 278-79.
86. See BAKER, supra note 14, at 107.
87. Margo Schlanger, Operationalizing Deterrence: Claims Man-agement (In Hospitals, a Large Retailer, and Jails and Prisons), 2 J. TORT L. 1, 24-40 (2008).
88. Richard Moorhead & Peter Hurst, Contingency Fees: A Study of Their Operation in the United States of America 36 (Nov. 17, 2008) (unpublished manuscript, http://ssrn.com/abstract=1302843).
89. We should note that others have also criticized the high fees earned by some contingency fee lawyers. See Lester Brickman, Effective Hourly Rates of Contingency-Fee Lawyers: Competing Data and Non-Competitive Fees, 81 WASH. U. L.Q. 653 (2003).
90. Whether the contingency fee lawyer market is competitive is open to debate. Compare id. (arguing that returns from contingency fee practice are inordinately high and that the current system suffers from collusion among contingency fee attorneys to prevent competition).
91. Whether the contingency fee lawyer market is competitive is open to debate. Compare id. (arguing that returns from contingency fee practice are inordinately high and that the current system suffers from collusion among contingency fee attorneys to prevent competition).
92. with Herbert M. Kritzer, The Wages of Risk: The Returns of Contingency Fee Le-gal Practice, 47 DEPAUL L. REV. 267 (1998) (surveying they contingency fee system and arguing that the returns from contingency work are only slightly better than hourly work, and that this system bene-fits potential clients by offering eased access to the justice system).
93. In this debate no one has claimed that eliminating contingency fees would improve access to the tort system for medical malpractice plain-tiffs.
94. THALER & SUNSTEIN, supra note 1, at 211.
95. Jennifer Arlen, Contracting over Malpractice Liability (N.Y.U. Law & Econ. Research Paper Se-ries, Working Paper No. 08-12, 2008), available at http://ssrn.com/abstract=1105368.
96. Id. at 21.
97. See also Jennifer Arlen & W. Bentley MacLeod, Malpractice Liability for Physicians and Ma-naged Care Organizations, 78 N.Y.U. L. REV. 1929, 2000-04 (2003) (first suggesting this point).
98. cf. Abraham L. Wickelgren, The Inefficiency of Contractually-Based Liability with Rational Consumers, 22 J. L. ECON. & ORG. 168 (2005) (presenting a formal economics model to make a similar point in the products liability context).
99. It is worth noting that, as required by her formal economic approach, Arlen assumes that individuals are rational and that medical providers will not frame the decision in a way that takes advantage of cognitive limitations. Considering the behavioral economic insights addressed in the first part of this Essay makes her conclusions even stronger.
100. THALER & SUNSTEIN, supra note 1, at 214.
101. Id. at 209.
102. For a similarly polemical analogy, see Thaler and Sunstein's discussion of holding university professors liable for teaching "something that turned out to be wrong." Id. at 208.
103. Id. at 209.
104. See, e.g., Neil Vidmar, Paul Lee, Kara MacKillop, Kieran McCarthy & Gerald McGwin, Unco-vering the "Invisible" Profile of Medical Malpractice Litigation: Insights from Florida, 54 DEPAUL L. REV. 315, 339-42 (2005) (presenting data that over fifty percent of paid claims in Florida from 1990 to 2003 involved permanent injuries).
105. See Rachel Lehmann-Haupt, The $800 Haircut, MSN MONEY, June 14, 2007, http://articles.moneycentral.msn.com/Investing/HomeMortgageSavings/haircut.aspx (stating that the av-erage cost of a haircut in America is $21).
106. This figure is obtained by dividing the $30 billion medical malpractice tort costs for 2007 re-ported in the 2008 Update on U.S. Tort Cost Trends from Towers Perrin into the $2.2 trillion total U.S. health care expenditures estimated by the Centers for Medicare and Medicaid Services for 2007.
107. See TOWERS PERRIN, 2008 UPDATE ON U.S. TORT COST TRENDS 15, available at http://www.towersperrin.com/tp/getwebcachedoc?webc=USA/2008/200811/2008_tort_costs_trends.pdf (last visited March 17, 2010).
108. CENTERS FOR MEDICARE & MEDICAID SERVICES, NATIONAL HEALTH EXPENDITURE PROJECTIONS 2007-2017, at 3 tbl.1 (2007).
109. For an explanation of why the Towers Perrin number may be exaggerated, see Baker et al., supra note 9, at 4.
110. See THOMAS H. COHEN & KRISTEN A. HUGHES, U.S. DEP'T OF JUSTICE, MEDICAL MALPRACTICE INSURANCE CLAIMS IN SEVEN STATES, 2000-2004, at 1, 4-6 (2007), available at http://bjs.ojp.usdoj.gov/content/pub/pdf/mmicss04.pdf (last visited March 18, 2010) (reporting that "few medical malpractice insurance claims resulted in payouts of $1 million or more" and reporting a correla-tion between the severity of the injury and the size of the payment).
111. see also Vidmar et al., supra note 77, at 338, 346 (reporting a median payment of $150,000 in 2003, that only 3.8% of paid claims from 1990-2003 were $1 million dollars or greater, and that over 80% of those million dollar payments were made in cases involving a permanent major injury or worse).
112. See, e.g., HALTOM & MCCANN, supra note 19, at 212-13.
113. See David A. Hyman, Bernard Black, Kathryn Zeiler, Charles Silver & William M. Sage, Do De-fendants Pay What Juries Award? Post-Verdict Haircuts in Texas Medical Malpractice Cases, 1988-2003, 4 J. EMPIRICAL LEGAL STUD. 3, 5-6 (2007) (reporting that 75% of plaintiffs in medical malprac-tice cases received a payout of less than the jury verdict amount, and that 98% of plaintiffs with a verdict of $2.5 million or more received a reduced payout with a mean reduction of 56%).
114. Of note, Vidmar et al., supra note 77, at 348, reports that from 1991 through 2003 the maximum paid medical malpractice award in Florida-a medical liability tort crisis state according to the Ameri-can Medical Association-exceeded $17 million in only one year, 2000.
115. THALER & SUNSTEIN, supra note 1, at 211-12.
116. BAKER, supra note 14, at 77-92.
117. Posting of Ted Frank to Pointoflaw, http://www.pointoflaw.com/archives/001307.php (July 11, 2005, 18:31 EST).
118. Of course, one could criticize the outcome of a lottery on the basis that it was not random-for example, where the lottery is "fixed"-but that would render it no longer a lottery.
119. see also BAKER, supra note 14, at 83-92.
120. For the distinction between humans and "econs," see THALER & SUNSTEIN, supra note 1, at 6-8.
121. See 2 MELVIN I. UROFSKY & PAUL FINKLEMAN, A MARCH OF LIBERTY: A CONSTITUTIONAL HISTORY OF THE UNITED STATES 509-11, 518, 545-71 (2002).
122. Id. at 252.
123. See, e.g., FED. R. CIV. P. 68.
124. For discussions of offer of judgment rules, see BAKER, supra note 14, at 162-63, 169-72.
125. and Croley, supra note 58, at 218-24.
126. See Croley, supra note 58, at 230-52.
127. See, e.g., BAKER, supra note 14, at 168-72 (proposing disclosure and enforcement regime and a liability limiting incentive for apologies).