Major Reforms Needed in the Medical Liability Tort System

By Brenda C. Fitzgerald, Albert S. Hanser and David H. Hovey

Our medical system is out of control. Costs are rising so rapidly and unpredictably that no busi­ness or individual can sensibly plan for the future. Physicians are limiting services and insurance costs are skyrocketing. Neither government pro­grams nor private insur­ance carriers seem to be able to regain control.

One segment of the system most clearly out of control is that which deals with bad medical outcomes. The impact of our inability to control this area is disproportionately greater than the actual number of cases involved and greatly affects cost and the entire health care system.

One of the most alarming results has been the decrease in availability of physicians’ services to the general public. In Georgia alone, for example, 10 years ago there were 1,500 physicians deliver­ing babies. There are now 650. There is no obstetric care in 96 of Georgia’s 159 counties. The increase in malpractice cases has also caused the widespread use of defensive medicine, which increases patient costs and ultimately the cost of health care in the United States. The American Medical Association estimates that this is probably 10 percent of our total increase. The burden of increased insurance rates and the unpredictability of costs has reduced autonomy and control of major medical costs by business, which underwrites most of our health care delivery system. Indirect costs in terms of strained employee relations and a declining productivity result in our industrial organizations not being able to compete in the global markets.

Traditionally, Americans have turned to the legal liability tort system for resolution of bad medical outcome problems. Although the system is intended to award financial compensa­tion where it is deserved and to provide incentives for physicians to deliver the highest quality of medical care possible, there is overwhelming evidence that our present tort system is failing patients, health care providers and society.

Tort System Fails Patients

The Harvard Medical Practice Study is an in-depth retrospective evaluation of adverse medical outcomes in the state of New York in 1984.1 It shows that four percent of all hospital admissions resulted in an adverse event and one percent of the admissions had an adverse event due to negligence. However, of that one percent, eight times as many patients suffer an injury but do not file a malpractice claim in New York state and 16 times as many do not receive com­pensation from the tort liability system. TheMinnesota Law Review reports that as little as 28 cents of each dollar spent for malpractice actually makes it to the patient and in those cases where an award is made the tort system does not provide the needed dollars to cover medical and family obligations quickly.2 Obstetric cases for example take an average of three and one-half to five and one-half years to resolve depending on the nature of the damages.

In the courtroom, technical evalua­tion to gauge the quality of medical care is typically performed by paid consult­ants, chosen for their ability to enhance the position of either the plaintiff or the defendant, rather than to discover the truth. Under the current tort system, patients’ interests are often subverted and an adversarial relationship between patient and doctor is created.

Tort System Fails Physicians

In the past the relationship between doctors and their patients was built on trust and patient advocacy. Many physicians believe the current liability system has destroyed that trust and now threatens the very foundation of this valuable therapeutic interaction.

Nowhere can the problems with the tort liability system be seen more directly than in the field of obstetrics. A 1986 survey of obstetricians indicated that 30 percent of them had either stopped delivering babies or planned to do so in the very near future. The overwhelming problem cited was the tort liability system. In fact, a new obstetrician today can expect to endure the ordeal of a costly, lengthy trial six times during his or her career. A full one-third of the obstetricians in the United States currently have liability suits pending.

Total professional liability premiums paid by physicians in 1985 totaled $3.7 billion. The total value of physicians’ time spent in court was estimated at $100 million. Further, physicians during that same year estimated that $11.7 billion was spent on defensive medicine practices, bringing the total cost of -professional liability to an estimated $15.4 billion during that year.

Responding to a recent survey by the American Medical Association, a full 40 percent of doctors surveyed said they definitely would not pursue the same profession if they could go back and choose their careers again.

Tort System Fails American Society

Since the early 1970s, the medical liability element of the tort system has grown significantly. Both claim fre­quency and compensation have doubled. Physician liability insurance has tripled as has hospital liability rates. These costs for the increased liability portion of medicine have been borne by the general public through both increased taxes and higher insurance premiums.

The American Medical Association maintains that the increase in tort interactions has been a major factor in the soaring medical costs this country has experienced over the past two decades. Medicare in 1970 cost the American taxpayer $6.9 billion; in 1986 the price tag was $41 billion. Total health care now consumes more than 11 percent of this country’s gross national product, and the continued aging of our population promises to accelerate and exacerbate the increase in health care spending and its attendant problems for public policy.

Some might argue the deterioration of the patient/doctor relationship, our soaring health care costs, lengthy trials and the number of people who go without compensation for adverse medical outcomes are necessary sacri­fices for our nation to make in the interest of improving the quality of medical care. However, there is evidence that the $15 billion price tag placed on liability cost (in 1985) has not purchased $15 billion worth of better care, or for that matter, any improvement in quality of care whatsoever.

To date, there have been only two large-scale studies of adverse events occurring during hospital care. In 1974, Don Harper Mills, M.D., J.D., a clinical professor at the University of Southern California School of Medicine in Los Angeles, and his team reviewed inpatient charts from 23 representative California hospitals for patients discharged in 1974. The Mills study identified and classified potentially compensable medical interventions and disabilities caused by health care management in 1974. Adverse events occurred in 4.65 percent of the entire sample with 1 percent due to negligence.3

A second study, commissioned by the state of New York under legislation enacted to make some revisions of the present medical malpractice liability insurance system, examined patients discharged from hospitals in the state of New York in 1984 – ten years after the first study. Developed by the Harvard Medical Practice Study Group, this project also examined the incidents of adverse medical outcomes and rated the severity of resulting disabilities. The report suggests an overall adverse event rate of 3.7 percent with 1 percent due to negligence. Although there are some methodological differences between the two studies, the results obtained are so similar that comparisons between them yield useful insights into the true value to medical practice of tort interactions. The rate of adverse medical outcomes has remained essentially unchanged in the 10 years between the two studies despite the fact that the medical liability portion of the tort system has grown significantly.

The conclusion? We have an increasingly costly system for dealing with adverse medical events which is both inappropriate and ineffective. The increased medical dollars we, as a nation, are spending for medical liability are simply not buying better medical care.

Alternatives to our present policies for addressing adverse medical outcomes should not focus on whether patients or their families receive needed financial compensation. Of course they should. The patient’s needs are based not on whose fault the outcome was but on the existence of the medical problem itself. The central questions which need to be addressed are:

1. What types of adverse medical outcomes merit financial compensation?

2. How can this compensation be delivered in a timely fashion so the financial burden of the adverse outcome does not threaten financial stability for patient or family?

3. How can it be determined whether the adverse outcome was a result of poor medical care provided by the physician or a no-fault situation?

4. How can we develop a system which supports and fosters advocative physician/patient relationships while weeding out incompetent and non­current physicians?

5. How can we ensure that opportuni­ties for patient access to the tort system are not jeopardized?

Forming a More Equitable System

The solution to the problem lies in developing a reimbursement system, which is designed for patients and not for medical providers; a system which encourages better health care for patients, not a system which effectively limits the availability of that medical care. The system must address issues from the standpoint of the two principle participants – patients and physicians.

The accompanying chart graphically depicts an alternative we propose which incorporates solutions to the five questions posed above. (See Figure 1) There is an identification of adverse versus normal outcomes of a medical intervention. Medical costs for medically unacceptable events are immediately reimbursed to preserve family financial stability although the reimbursement does not prohibit access to the legal system to resolve disputes. Adverse outcomes are examined by qualified people without the added burden of deciding legal fault. Quality health care is enhanced by the identification of training needs for physicians and perhaps more impor­tantly the doctor/patient advocacy relationship is strengthened.

The first step in the proposed system is the identification of an adverse outcome as medically acceptable or unacceptable. If it is determined to be unacceptable, funding for medical care is approved. Medical reimbursement for adverse medical outcomes would be available for patients or their families at once since the financial compensation would be with a locally administered program of early reimbursement based solely on the presence of the adverse event without regard to establishing legal fault. A carefully researched list of compensable events should automati­cally be entered into the system by a local program administrator. Application for entry into the medical reimburse­ment system can be initiated by the patient, the patient’s family or the patient’s doctor, acting as advocate for the patient.

To equitably handle medically adverse situations which do not have a predescribed eligibility, a district board would be named to make decisions regarding eligibility for reimbursement. Appeals of district board decisions would be heard by a state board.

A second arm of the program must address physician competency if we are to improve the quality of medical care and reduce the number of adverse medical outcomes in this country. All cases of adverse events in the local system would be automatically reviewed by a state or regional board qualified to evaluate the quality of care provided. That board should be comprised of three physicians, one legal expert and one consumer advocate. The evaluations and conclusions of the review board would have direct impact on state licensing renewal for physicians. Under this innovative medical reimbursement system, the review board could return one of three judgments for each adverse medical outcome case:

1. If the board determines that acceptable medical care was provided although there was a medically adverse event, the patient or family would be so notified.

2. If the board deems that the quality of care was questionable, or not in keeping with current medical practices, the physician would be required to complete relevant review courses before being considered for medical license renewal the following year.

3. When an “unsatisfactory practice” ruling is rendered by the review board, the state licensing board and a separate specialty board would be automatically notified under the medical reimburse­ment system. Such a ruling would mandate substantial retraining followed by a probation period of one year. At the end of that time period, the review board would re-examine the physician’s records and make recommendations concerning licensing renewal.

Under this system, unlike the current medical liability system, poor or mar­ginal physicians would be either re­trained or removed from the system altogether, while competent physicians would no longer be penalized for the actions of a small fraction of their colleagues. Over time, general health care costs would stabilize and health care would improve.

Access is Critical

For the integrity of this medical reim­bursement system to be maintained, it is critical that access to that current court system be maintained for settlement of those serious grievances, which are bound to occur. To ensure fairness is maintained, all previous awards, reim­bursements and judgments – including monetary awards and medical quality review decisions – would be admissible as evidence in any subsequent court cases. To reserve the legal system for those few cases in which it is clearly indicated, the system should stipulate that the loser of any medical case taken to court is responsible for all court costs including legal fees for both sides.

The proposed new medical reimburse­ment system would have clear, tangible benefits to all parties concerned and to American society.

Many Benefits

Under the new system, patients who suffer disabilities as a result of health care management would be treated automatically without the time-consum­ing and costly burden of legally proving fault in the court system. Such compen­sation would be delivered in a timely fashion so personal financial resources would not be decimated to the detriment of family stability. The motivation to seek damages from physicians to pay for past and future health care costs would be considerably reduced.

Good physicians would be encouraged to keep up with current medical research and practice, while poor physicians would no longer be permitted to practice medicine. Marginal physicians could be identified before their practices resulted in adverse medical outcomes, and these physicians would be channeled through updated training programs before being allowed to continue practicing medicine.

For American society, the system represents a viable means of bringing health care spending under control. The system’s scheduled, standardized benefits would stabilize compensation, keeping costs predictable and control­lable. Administrative costs would not even approach the 60 percent level of the current system thus allowing more of our health care dollars to be applied to the person who needs it most – the patient.

The American tort system has proved to be grievously lacking, both in its ability to disperse needed medical dollars to victims of adverse medical outcomes and in its underlying mission of improv­ing the quality of medical care for the citizens of this country. The medical reimbursement system proposed here would not only be more equitable and compassionate, but more affordable, efficient and effective. The medical dollars supporting this system would address specific medical problems rather than perpetuate an ineffective and inappropriate system as the current system unquestionably does. The new system would encourage improved medical quality and responsibility by reinforcing and rewarding competence in medical providers. Finally, the system would begin to mend the all-important healing relationship between physicians and their patients, moving away from relationships which are adversarial and defensive, toward more productive relationships of compassion, advocacy and trust.

[Editor’s note: This article was originally published in 1991; however, the challenges and issues continue to be present today. We believe that the reforms proposed are, therefore, still timely.]


1. “Patients, Doctors and Lawyers: Medical Injury, Malpractice Litigation, and Patient Compensation in New York, A Report to the State of New York”, Harvard Medical Practice Study, (Harvard College), March 1990.

2. Jeffrey O’Connell, “An Alternative to Abandoning Tort Liability,” Minnesota Law

Review 60 (1976): 501-565.

3. Don Harper Mills, “Medical Insurance Feasibility Study,” Western Journal of Medicine, (1978), 360.

This article is reprinted with permission from the 1991 Winter Special edition of the Business Forum magazine. At that time, Brenda C. Fitzgerald, M.D. was president of the National Health Alliance, Albert S. Hanser, Ph.D. was the chair and professor of history at West Georgia College and David H. Hovey, Ph.D. was the dean of the School of Business at West Georgia College.

The Georgia Public Policy Foundation is an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.