Is tort reform the answer?

Tort reform is not addressed in any of the Democrat-sponsored health care reform bills now before Congress. Former Democratic National Committee Chairman Howard Dean says it’s “too tough” to take on tort reform at the same time as health care due to the powerful lawyers lobby.

There’s evidence, however, that tort reform could shave billions of dollars off the nation’s health care bills and may be more effective in controlling costs than many of the cost-control provisions in those reform bills.

In recent years, a number of states have reformed their medical malpractice systems. Depending on the state, the reforms have been more or less successful in reining in the rising cost of medical malpractice insurance, and in reducing the loss of physicians in some specialties.

There’s also new evidence that tort reform can be effective in containing costs in the workers’ compensation system.

In 2002, according to the National Council on Compensation Insurance, Florida had the highest workers’ compensation premium rates of any state. Employers’ costs were rising much faster than either medical costs or wages.

In 2003, Florida passed tort reform to tackle the issue of excessive litigation. The workers’ compensation rates and costs declined 60.5 percent at a time when costs increased in the neighboring Gulf states.

Workers’ compensation systems are designed to avoid litigation. Injured workers automatically receive state-mandated benefits without the need to prove in court either negligence or liability by employers.

Nevertheless, the degree of attorney involvement and litigation is high and increasing in many states. In many Florida cases, lawyers’ fees were greater than the benefits received by the injured workers.

The new law required attorneys in most workers’ compensation cases to base their fees on the value of benefits they secured for their clients, measured by the amount ultimately awarded to the claimant above the initial offer by the employer or insurer to settle the claim.

This gave employers and insurers an incentive to make their best settlement offers at the start. It also discouraged attorneys from representing claimants when it was unlikely their work would add significantly to the final award.

Overall, analysis of the claims data shows that, from 2003 to 2008, limits on attorneys’ fees reduced Florida’s workers’ compensation system costs 28.6 percent. This accounts for a large component of the 60.5 percent decline in employers’ insurance premiums.

By 2009, Florida workers’ compensation rates were among the lowest in the country for similar occupations. The time required to resolve claims fell significantly, whether or not attorneys were involved. This reduced overall costs and it also reduced the average time before workers returned to gainful employment.

The reforms also included controls on treatment, which slowed the rise in medical costs. Before the reforms, for example, an injured worker could get second opinions from a variety of specialists.

The reforms limited them to one independent specialist. As a result of the changes, from 2003 to 2008, the rate of increase in medical costs in Florida’s workers’ compensation system was about a third less than in neighboring states.

Florida’s experience shows the ability of tort reform to reduce litigation costs without harm to the injured. Applied nationwide, such reforms could potentially shave billions of dollars off the nation’s health care bills while improving the quality of patient care.

N. Michael Helvacian is a senior fellow at the National Center for Policy Analysis.

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