Jury Still Out on Tort Reform: Malpractice Insurance Remains Elusive

Arkansas tort law revisions have been in force since March 25, but the debate continues on whether the changes will affect malpractice insurance rates.r

“We think that we are already seeing some stabilization because we passed tort reform,” said David Wroten, assistant executive vice president of the Arkansas Medical Society. “We never went into this expecting decreases, what we want to avoid is the 150 percent over 24 months increases [in rates].”r

Five insurance companies offer medical malpractice insurance in the state, but only two are actively writing new policies. Others are simply renewing existing policies and adding new physicians for clinics or hospitals they already insure. And of the two insurers handling new malpractice policies, one has rates that are so high they aren’t competitive.r

The state’s biggest malpractice insurance company, St. Paul Insurance, withdrew from the medical malpractice insurance business last year.r

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Halting the Frivolousr

Proponents of tort reform believe changes in state law requiring proof of a case’s validity will help reduce the number of frivolous malpractice cases filed.r

Seventy percent of the medical malpractice cases filed over a 10-year period were dismissed before they went to court, but not before an average of $10,000-$15,000 was spent defending each one or before the cases were noted on the named physician’s permanent record, according to information compiled by the Arkansas Medical Society.r

Nick Thompson, a medical malpractice defense lawyer with Mitchell Williams Selig Gates Woodyard PLLC in Little Rock, said it costs an average of $14,000 to simply get a case thrown out in a judge’s summary judgment. Thompson served as the general counsel to the Committee to Save Arkansas Jobs, which endorsed and lobbied on behalf of Arkansas’ new tort reform law.r

The new law should stop the filing of frivolous cases because it requires that such lawsuits include an affidavit from a medical expert verifying the case’s merit, Wroten said.r

Don R. Elliott Jr., a Fayetteville lawyer who handles malpractice cases, said that part of the reform is just another hoop in the new law designed to make malpractice cases more difficult for the person who has been injured.r

“The problem is that it’s hard for an expert to swear to anything without all the facts,” Elliott said.r

The needed information often isn’t available until after depositions and other information is gathered during the discovery period, he said. Elliott said he’s confident the case can be proven if he files it, but that doesn’t mean an expert witness will swear to it before all the facts are available.r

Malpractice claims are difficult to prove, and Elliott said his firm, Odom & Elliott, turns down about 49 out of 50 proposed cases because they either can’t be proven or they’re simply “a bad result” — not malpractice.r

Nationwide, only 23 percent of malpractice cases are successful at trial.r

Most cases cost $35,000-$75,000 in expenses and expert witness fees that the firm doesn’t recover if the case isn’t successful, Elliott said. Typically, he said, Odom & Elliott takes medical malpractice cases on a 40 percent contingency fee basis. Changes in the law will only increase expenses involved in such cases, making it more difficult for the injured to get representation or at least 60 percent of the damages, he said.r

“If we have a case and the expected damages are less than $200,000, we don’t take it now,” Elliott said. “It just breaks my heart to turn down a case in which someone has damages that they should collect on.”r

Most “good attorneys” have been verifying the merits of a case before filing it anyway, but more attorneys need to be diligent, Wroten said.r

“Now we’re going to get the others,” he said. “Now they’ll have to stop and say ‘do we really have a case.'”r

Elliott is more opposed to part of the new law that requires the expert witness be in the same specific field as the physician accused in the case. It’s hard to get expert witnesses anyway, he said, but this requirement may make it impossible in some cases. r

If, for example, an emergency room doctor who specializes in obstetrics caused the injury, it may be difficult to find another emergency-room doctor with the same specialty who will agree to testify.r

As long as an expert witness can prove his own credibility, the court should accept the testimony, Elliott said.r

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Payouts or Investments?r

Many trial lawyers, including Elliott, believe insurance rate hikes have had more to do with the downturn in interest rates and the stock market than malpractice losses.r

The United States General Accounting Office issued a report in June concluding that malpractice payouts are “a primary driver” of increased premium rates in the long run, but multiple factors, including investment losses and competition, also affect premium rates.r

The GAO report cites a cyclical pattern in the insurance industry with causes and results that are difficult to track because of a lack of documentation. The cycles include periods of stable premiums followed by periods of severe rate increases. The report suggests that Congress may want to consider taking steps to ensure that better data is collected.r

The latest cycle in insurance started in the late 1980s when anticipated losses did not materialize and insurers entered the 1990s with reserves and premium rates well more than actual losses. On top of that, insurers earned high returns on their investments for about a decade.r

During that time, they also kept premiums stable while malpractice losses increased, according to the GAO report. By the late 1990s profits dropped dramatically because reserves were gone and investment income had fallen off. Some insurance companies became insolvent or dropped higher risk coverage, such as malpractice.r

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Limiting Liabilityr

Arkansas’ tort reform includes a new limit on punitive damages of $250,000 or triple the amount of compensatory damages up to $1 million. But punitive damages are rarely awarded in malpractice cases. Such awards are more common in personal injury and product liability cases.r

However, a 2001 case against a Mena nursing home resulted in a verdict of $63 million in punitive damages that was later reduced to $21 million.r

“Until the nursing home case, we all forgot that punitive damages can be an issue in medical malpractice,” said Debby Thetford Nye, another partner with Mitchell Williams who specializes in health care regulatory law. Nye is based in the firm’s Northwest Arkansas office.r

She’s pleased with the tort reform and hopes it will help nursing homes keep or obtain coverage. Nye estimates that about half of Arkansas’ nursing homes are without malpractice insurance.r

None of the limited number of insurance companies still writing malpractice policies in the state is writing new policies for nursing homes.r

That problem, she said, isn’t good for the nursing homes, their doctors or their patients. Those with real claims have no recourse if the nursing home isn’t covered.r

Another element of the state’s tort reform limits liability payouts based on the proven percentage of fault for each defendant. Thompson believes that part of the new law is good for all Arkansas businesses.r

“This is not an insurance issue, per se. It is an economic development issue for the state,” Thompson said.r

Arkansas was one of few states without such restrictions, so cases could be filed with long lists of defendants. Businesses, he said, don’t want to locate in a state where they may have to pay for someone else’s action.r

“There’s a huge financial implication in that because every time a case is filed against you, your first call is to your attorney,” he noted.r

Elliott said the revision will hurt the plaintiffs who “still have 100 percent of the injury” but may not be able to collect all the damages they are due if the defendant with the most fault has the least insurance coverage. Previously, each defendant could be held responsible for the entire claim if others couldn’t pay.r

Wroten believes it might be two to three years before the state realizes the effect of tort reform. But one malpractice insurer, State Volunteer Mutual Insurance Co., has already stopped requesting rate increases every quarter and plans to go back to annual increases.r

It will still take time for the rates to adjust because cases under the old tort laws will be pending for several years, he said.r

The state’s insurance commissioner, Mike Pickens, has demanded that insurers take the new tort laws into consideration when requesting rate increases, and that should help stabilize rates, Wroten said.r

“We certainly don’t expect any big decreases,” he added.