Reduction of medical liability claim frequency:
The Texas experience

by
Kim Ross, Austin, Texas
Michael S. McArthur, MD, FACS, Tyler, TX

The legislature directed the Texas Department of Insurance (TDI) to ensure that the resulting savings to insurers would be passed through to consumers in the form of premium reductions. Consequently, TDI makes annual rate reduction recommendations, based on their analysis of the current and future savings to insurers. Based on the very limited data that were available at the time, TDI set the initial rate rollbacks for physicians at 11.5 percent. They are currently reevaluating those rates, based on more recent data that is available on closed claims. Department staff has made an initial recommendation to increase the rollback to 15 percent and they will soon publish a proposed rule for comment, with the hope of finalizing the numbers in time to be effective in January of 1998.

TMA staff analyzed currently available data, focusing on the claims data from the Texas State Board of Medical Examiners (TSBME). These data revealed the following facts that would tend to support decreaseseven larger than those
currently recommended:

The number of reported claims in 1996 is approximately 40 percent less than the number reported in 1995 (see Figure 1, p. 27).

Following a brief surge in claims filing frequency prior to the 1995 effective date, filing frequency dropped to a level that is more than 30 percent below 1994 levels, and that lower frequency has been sustained through the first part of 1997.

The lower overall frequency of claims is paired with an increased frequency of claims closed with no indemnity paid, as nearly 30 percent of 1996 claims were already settled without indemnity by April of the subsequent year (see Figure 2, p. 27).

The number of 1996 claims closed with indemnity paid was 25 percent below 1995 numbers.

The total indemnity paid on prior year claims in 1996 reached the lowest level in more than five years (see Figure 3, p. 28).

The number of 1996 claims that remained open after the first quarter of the subsequent year showed a 44 percent decline over comparable numbers for 1995, reaching the lowest level since 1991.

Action at the state level

In the last five years, the frequency of malpractice claims against Texas physicians has dropped significantly, prompting inquiries as to its causes. The answer is equivocal, due to the dynamic nature of medical liability trends. Courts shift in composition and philosophy, as do legislatures, responding after-the-fact to those trends.

It is arguably premature to assess the revolutionary changes in Texas' medical liability climate, given the long tail of claims resolution (a median of roughly four years) and the cyclical nature of underwriting practices in response to litigation trends. If frequency is stabilized, then claim severity may rise.Attorneys creatively adapt to statutory restrictions. Changes in medical practice shift the liability stream. For example, managed care has increased pressures on primary care, and all too often places physicians between their duty to their patients and the contractual power of insurers and hospital corporations.

At the risk of over-simplifying, exposing trade secrets, and telling war stories, the following describes the multifaceted approach that the TMA launched in 1988 to, over time, reverse a decade-long trend and to attempt to stabilize Texas' system of civil justice.

Any long-term legislative/political strategy must start with explicit, rebuttable assumptions:

1. Tort law is not fixed in stone. It evolves through judicial interpretation, legal maneuvering, market adaptations, and shifts in legislative and judicial philosophy.

2. Consequently, there are no final battles that ultimately resolve the issue of balancing plaintiff and defendant rights to achieve a just result when a patient has been negligently injured.

3. Legislative proposals must be preceded by demonstrable evidence of inequities in the system, and a reasonable linkage made between the problem and the proposed solution. This is especially crucial to assure the efficacy of enacted proposals, since several legislative cycles may expire before there is sufficient experience to measure their results, and each enacted bill will inevitably need refining.

4. Trial lawyers are not uniformly mercenary and unethical, any more than the medical profession is impeccable and beyond reproach. The debate over legislative proposals should refrain from references to canine ancestry or other scatological phrases. It is demeaning to both professions and serves no constructive public policy purpose.

5. To be credible, medicine must demonstrate good faith regarding self-policing. The state licensure board must have the proper legal tools and infrastructure, and the medical association forthcoming in supporting those efforts.

6. As obvious as it may sound, physicians must be consistently active in the political process. Medicine's adversaries in these debates are not plagued by self-doubt, and can be found in almost any state legislative or judicial race. As long as the public officials who write and interpret tort laws are elected, politics will be an integral part of the debate. A medical presence is essential, not optional.

7. Insofar as medical liability is concerned, the action is in the states, not the Congress. There are compelling arguments against federal preemption of state-derived common law rights. Congress, where the insincere gesture is an art form, tends to move at glacial speed.

8. Coalitions with business and trade groups work well in the election cycle, especially in judicial elections, but have mixed results legislatively, due to the unique differences between medical liability and other kinds of personal injury and product liability litigation.

9. At some point, medicine must find its own way in setting legislative priorities. Advice from the defense bar and claims experts from the carriers are instructive but only partially represent physician interests. If given a choice, defense attorneys have no incentive to reduce billable hours, and carriers tend to prefer absolute limits on claim severity over procedural reforms aimed at groundless suits.

Three-part strategy

There are at least three ways tort law evolves and the tactics to pursue tort law remedies must be employed along all three fronts: (1) local lawsuit abuse, (2) judicial activity, and (3) the legislature.

Each approach has its own peculiarities:

Anti-lawsuit abuse groups. Texas has a series of locally-owned-and-operated grass roots, not-for-profit organizations under a state umbrella called Texans Against Lawsuit Abuse (TALA). Physicians frequently form the financial backbone and membership of the local TALA in their communities, which tend to develop around the local chamber of commerce and include area retailers, bankers, realtors, and other professionals and businesses. These groups sponsor billboard and television anti-lawsuit abuse ads, highlight examples of legal abuses in their community, and conduct public relations campaigns. Texas has ``war zones''—jurisdictions that are disproportionately more litigious—where local grassroots efforts have been formed to protest the social and economic consequences to their communities when predatory legal tactics shut down businesses and compromise medical staffs' efforts to recruit and retain physicians who practice in the high-risk specialties. Their ongoing efforts succeed where legislative activity is not effective.

Judicial elections. By now anyone even remotely interested in tort reform understands that the final arbiters in these matters are the courts in general and the appellate courts in particular. Texas, along with a handful of mostly southern states, still elects district and appellate judges, reflecting a post-Reconstruction, constitutionally reinforced fear of the carpetbagger government and its appointees. This system is not necessarily bad, since proponents of either point of view can avail themselves to the electorate and make their case for their preferred judicial candidates. In the late 1970s and early 1980s, a handful of the country's wealthiest and most influential personal injury lawyers exploited the public's widespread ignorance of the judiciary and elected over a mere two election cycles an activist, trial-lawyer court that, for nearly a decade, systematically dismantled Texas' medical liability statutes and invented several new theories of recovery.

It is axiomatic in politics that aircraft safety is not fully realized until after the plane crashes. The liability crisis spawned by the trial lawyer court of the 1980s galvanized physicians and eventually other trade, business, and professional groups. The TMA organized a coalition of these groups to identify, screen, and endorse qualified challengers to the Texas Supreme Court, the state's highest civil court. The strategy was simple and laborious. Ballot analysis of voting trends, statewide polling, and focus group research strongly suggested that (1) a significant percentage of voters skip over the judicial races, and (2) those voters would tend to support judicial candidates endorsed by medical and other nonattorney organizations. Through the coalition members, over one million slate cards and a variety of other kinds of peer-to-peer communications (company newsletters, pay envelope stuffers, letters to shareholders, patients, and employees) were distributed, with spectacular results. From that first comprehensive effort in 1988, and sustained since, the Court's balance shifted dramatically, with the almost overnight stabilization of judicial interpretation. This stabilization set the stage for a systematic legislative effort that would be more likely to be constitutionally sustained.

Legislature. Sooner or later, the state legislature will become the tort arena, and eventually, the pendulum swings in the direction of the defendant. If one makes this assumption and that one or more legislative sessions will pass before a legislative result can be fairly assessed, then it follows that one must be careful what one asks for, and must reserve the right to return to the statehouse to make the necessary adjustments.

This strategy, in our experience, is not achieved by running over people on the way to the Governor's desk. There is a logical stepwise progression that we recommend: First, document the nature and severity of the problems with the current state of tort law as a matter of statistical patterns and their measurable consequences to the cost and availability of medical care. Hard cases make bad law, to borrow a shopworn legislative bromide. Trial lawyers can match our hard cases story for story. We carefully compiled the statistical data—from industry sources and the Texas State Board of Medical Examiners—to determine that the best predictors of a lawsuit were (a) specialty and (b) geography, both clearly irrelevant to issues of negligence and civil justice. The data also strongly implied that, because over two-thirds of all claims were dismissed or settled without indemnity, most of these were either without merit or filed frivolously or maliciously. Finally we determined that the severity of claims tended to be geographic- or specialty-specific, and not uniform.

Second, set explicit priorities and carefully research the possible remedies. Texas physicians preferred reforms that would keep them out of the courthouse by reducing the probability of being named in a suit, and if named to resolve the case quickly. We thoroughly evaluated existing legislative remedies across the country and compared thoseproposals and creative adaptations to those of other states, leading defense counsel, and claims experts from the industry. Severity-related proposals—caps on noneconomic damages, and so forth—were set as a second-tier priority because of the inability to document severity trends (that is, establish the pattern and magnitude of noneconomic awards by kind of case, thereby providing a rational basis for setting the cap at specific limits) and link a demonstrable, and constitutionally defensible, approach that would deter and sanction frivolous or groundless claims. Moreover, Texas' state constitution affords its citizens broader rights than the U.S. Constitution, making global restrictions on plaintiffs vulnerable to legal challenges. (Texas' cap was declared unconstitutional in 1988.)

Next, we took a highly controversial, but by far our most prudent,step. We approached the leadership of the Texas Trial Lawyers Association to offer to resolve our differences in the interim preceding a legislative session. This strategy is not as naive as it seems. The most competent and skilled of the plaintiffs' bar who specialize in medical liability claims should in theory share the same objectives of avoiding the time and expense of nonmeritorious claims, and want that question resolved expeditiously. And, they should share physicians' frustration with the unscrupulous tactics of some of their colleagues, such as ambulance chasing and deceptive advertising. Their shrewder view was that, if left unchecked, those categorical abuses could swing the pendulum further from the center, giving the trial lawyers ultimately a cure worse than the disease.

Politically, our respective legislative strengths approached a stalemate, with perhaps a slight edge favoring medicine's position. When both sides have second-strike capability, the optimal strategy is to invoke the doctrine of equal risk and to seek detente. Texas was fortunate in that the leadership of the Trial Lawyers Association at that time (and continuing today) was comprised of some of the most ethical and highly regarded (by their defense counterparts and leading medical malpractice underwriters) plaintiff attorneys in this field. To spare the details, lengthy but always civil negotiations resulted in measures requiring a cost bond per defendant and qualified expert report, the toughest sanctions and restrictions on barratry and deceptive attorney advertising in the country, and a range of other technical/procedural reforms. These and still other reforms were subsequently enacted over the last two legislative cycles without a single dissenting vote. Equally important, fine-tuning and adjustments have been executed cordially in successive legislative sessions. Needless to say, state legislators were grateful for our mutual efforts to avoid trying to write complex legislation in the heat of battle on the floors of their respective chambers.

There is an epilogue to this saga. As mentioned previously, in 1995 the legislature imposed by amendment to a Department of Insurance regulatory bill a mandatory rate rollback review process as part of the enacted tort reform windfalls. We fondly refer to it as the Mongo Amendent. As the amendment's author noted, ``Everyone said our tort system was out of whack. Well, we've removed all the whack, so there ought to be some savings.'' After public rate hearings, the Commissioner of Insurance has twice ordered double digit rate rollbacks from Texas' medical liability insurers. Successful tort efforts should as a matter of course include some formal consideration by a regulatory body for the prospective savings that result when the frequency and or severity of claims, and the ensuant costs, are reduced.

Conclusion

Reducing medical liability claims frequency requires a three-pronged effort—fighting lawsuit abuses at the local level, supporting judges who refrain from plaintiff-oriented judicial activism, and pursuing carefully constructed legislative priorities, ideally with collaboration from both defense and plaintiff attorney representatives. The common ground with medicine's adversaries is the high ground—the pursuit of remedies that do not harm a negligently injured patient's legitimate right to a fair and expedited process. Medicine's positions must be thoroughly researched. The problems must be well documented and proposed solutions carefully prepared. These results are not achievable unless pursued from a position of political strength.

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Mr. Ross is vice-president for public policy, Texas Medical Association, Austin.

Dr. McArthur is a current member of the ACS Regents Committee on Professional Liability.
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Bulletin of the American College of Surgeons
Vol.83, No.1, January 1998

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