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Read Making a Killing

home / healthcare / in the media

Multinational Monitor
Mar 01, 2003

by Jamie Court

The Medical Malpractice Insurance Crisis Hoax;

The Corporate Drive for Legal Immunity
Two year old Steven Olsen did not know how much his sight and cerebral functions were worth until he lost them.

The arbitrary price, $250,000, was set by the California legislature in 1975 for all victims of medical negligence. The law prevents a jury from awarding victims more for pain and suffering, and other "non-economic" losses.

In January, President Bush announced he wanted to adopt California's little known standard for the nation. A liability cap, he claimed, would address a supposed national crisis of escalating malpractice insurance premiums so severe that doctors in several states have gone on strike in protest.

"This problem will be solved by getting at the source of the problem, which are the frivolous lawsuits," President Bush announced to an audience of doctors in Scranton, Pennsylvania. "Look at states which have done a good job of helping the patient out. California is one example. More than 25 years ago, they passed a law that caps damages from malpractice suits, and the law has worked."

Two weeks later, in his State of the Union speech, Bush declared, "Because of excessive litigation, everybody pays more for health care, and many parts of America are losing fine doctors. No one has ever been healed by a frivolous lawsuit. I urge the Congress to pass medical liability reform."

President Bush never met Steven Olsen. But the president's critics say the Olsen case and the impact of California's legal restrictions on injured victims shows that taking power from juries to dispense justice for injured patients has resulted in greater victimization, higher health care costs and more insurance company abuse.

STEVEN OLSEN'S AVOIDABLE TRAGEDY

A San Diego jury determined that Steven Olsen would be healthy today had a doctor given him the $800 CAT scan that his parents repeatedly requested. Steven had been impaled with a stick and was rubbing his head, but was sent away with a growing brain abscess.

Ten years earlier, Steven Olsen would have received that CAT scan. But in 1992, the admitting doctor that treated him was operating under the new rules of managed care medicine: less is more. Steven's parents brought him back to the urgent care clinic and hospital three times. Steven was repeatedly refused the scan, but was pumped up with steroids. Finally, Steven returned comatose.

The jury provided $7.1 million for Steven's lifetime of darkness, suffering and cerebral palsy. Unbeknownst to the jury, however, the verdict was reduced to $250,000 by the legislature's cap on damages. That's about $4,000 for every year of his life if he lives only until sixty.

The jury foreman, Thomas Kearns, found out about the reduction reading of it in his local newspaper. Kearns expressed his dismay in a letter to the editors of the San Diego Union Tribune:

"We viewed video of Steven, age two, shortly before the accident. This beautiful child talked and shrieked with laughter as any other child at play.

Later, Steven was brought to the court and we watched as he groped, stumbled and felt his way along the front of the jury box. There was no chatter or happy laughter. Steven is doomed to a life of darkness, loneliness and pain. He is blind, brain damaged and physically retarded. He will never play sports, work or enjoy normal relationships with his peers. His will be a lifetime of treatment, therapy, prosthesis fitting and supervision around the clock."

"Our medical-care system has failed Steven Olsen, through inattention or pressure to avoid costly but necessary tests. Our legislative system has failed Steven, bowing to lobbyists of the powerful American Medical Association (AMA) and the insurance industry, by the legislature enacting an ill-conceived and wrongful law. Our judicial system has failed Steven, by acceding to this tilting
of the scales of justice by the legislature for the benefit of two special-interest groups...."

"I think the people of California place a higher value on life than this."

Steven is 13 years old now. In 2001, he had 74 doctor visits, 164 physician and speech-therapy appointments and three trips to the emergency room. His parents say that was a good year, because Steven was not hospitalized. His mother, Kathy, had to leave her job because caring for him is fulltime work.

It would have been far cheaper if Steven Olsen had received the $800 CAT scan. Unfortunately for the Olsens, California's limited liability for medical providers encouraged the very brand of careless mismanaged care that Bush and the Congress claimed they were trying to reform for the last two years. That is until the medical-insurance complex helped give the Republican control of the federal government in the 2002 elections. In 2003, limiting patients rights, not expanding them, has become the order of business.

OFFENSIVE INSURANCE COMPANIES

The lessened legal deterrence to medical malfeasance in California since 1975 led the state to become the pioneer of HMO medicine and its vices. One year after the restrictions on injured patients passed, California began licensing HMOs under a law authored by the same legislator behind limiting victims' recourse, Barry Keene. These first HMOs, including Kaiser Permanente, drove the national trend. Four of the nation's seven largest health plans are still based in the state.

The first drive-thru deliveries and outpatient mastectomies were instituted at California HMOs. Health plans in the state were also the first to pay doctors a lump sum for every patient in their care, regardless of how many visits they make to the doctor. Such "capitation" payments have remained dominant in California while the rest of the nation has shunned them because they lead to the questionable ethics of paying doctors more for providing less medicine.

Kaiser Permanente, the nation's largest HMO, defended about 900 medical malpractice lawsuits against its physicians, hospitals and system in 2001. The goliath HMO, which has 6 million members in California, has about 15 percent of all the doctors in the state but accounts for 30 percent of all malpractice judgments reported to the state medical board.

The "less is more" motto in California hospitals has led to such inadequate staffing and unsafe care that the state's largest nurses union, whose nurses can be sued for malpractice, switched its position on the 1975 malpractice restrictions. The California Nurses Association supported an attempted legislative repeal in the late 1990s because of its principled belief that unaccountable corporations were endangering patients. One indicator of diminished standards of care: the average visitor to a Los Angeles County emergency room faces a six-hour wait.

National proponents of limiting victims' rights claim that doctors' fear of lawsuits is driving them to perform unnecessary tests and procedures -- so-called defensive medicine. "We must address one of the prime causes of higher cost, the constant threat that physicians and hospitals will be unfairly sued," Bush declared in his State of the Union address.

"If you're worried about getting sued all the time, then there is the natural tendency to practice what they call defensive medicine," the President told the doctors in Scranton. "In other words, you order tests that someone may not need to protect yourself in a court of law, and that's costly. And that's one of the main reasons why costs are going up."

In the managed care age, however, the financial incentives point the other way -- to less caution, not more.

The Congressional Office of Technology Assessment foresaw this trend in July 1994, reporting that less than 8 percent of diagnostic procedures are likely to be caused by conscious concern about malpractice liability. "Defensive medicine is not always bad for patients," the agency stated. "Malpractice reforms that remove incentives to practice defensively, without differentiating between appropriate and inappropriate defensive medicine, could also remove a deterrent to providing too little care at the very time that such mechanisms are needed."

Steven Olsen's sight and mind would be normal today if he had been treated by a healthy dose of defensive medicine. While striking California doctors claimed 26 years ago that defensive medicine was ruining them, many California patients would today attest that the lack of caution is far more ruinous.

CAPS AND DENIAL OF REPRESENTATION

Defenders of liability caps argue that families like the Olsens are treated fairly because they still can receive unlimited "economic" damages for medical bills and lost wages. Non-economic damages, which are capped, compensate for losses that do not result in a tangible bill such as blindness, brain damage, lost fertility, disfigurement and the death of a child or senior citizen, who have no wage loss.

Presidential spokesperson Ari Fleischer described non-economic damages this way in a recent White House press briefing when challenged by a reporter about why the president would not meet with the Olsens. "The president wants to make sure that we have a legal system that works for the people who deserve help, and that's why the president's proposal does not call for caps in all regards. It calls for caps in non-economic damages, which has been the source of the greatest abuse. But there is no cap on the actual economic damages that people suffer under the president's proposal." California Republican Representative Chris Cox more bluntly refers to non-economic damages as "feelings compensation."

The Olsen family did receive $1.9 million in economic damages in the court case. However, legal costs and fees, which cannot be recovered as part of the "economic" losses, cost the family $914,000. Their remaining "economic" damages, which also includes a private settlement with a managed care company, must cover not only a lifetime of medical care, attendant care and special education, but also Kathy Olsen's lost income from her career, as well as Steven's care after his parents have departed.

Still, the Olsens say they are among the lucky ones, because they found an attorney to take their case. Innocent patients without large wage loss or medical bills -- such as seniors, students and those with injuries like the loss of fertility -- cannot find attorneys to recover any damages, economic or noneconomic.

For example, Jessica Santillan, the 17-year-old heart-lung transplant who died after receiving the wrong blood typed-organs, would likely not be able to find an attorney in California because she would have no wage loss. Lawyers would have to recover their fees and expert witness costs from her $250,000 recovery. Attorneys could spend as much prosecuting the case as Santillan could recover from it.

The situation stirred well-known insurance defense attorney Robert Baker, who defended malpractice suits for more than 20 years, to tell Congress about the problem. "As a result of the caps on damages, most of the exceedingly competent plaintiff's lawyers in California simply will not handle a malpractice case," Baker told the House Judiciary Committee in 1994 on behalf of the American Board of Trial Advocates. "There are entire categories of cases that have been eliminated since malpractice reform was implemented in California. The victims of cases that have a value between $ 50,000 and $ 150,000 are basically without representation. As an example, incidents of failure to diagnose an appendicitis still occur, but suits are not filed to any extent in California."

Soon after the testimony, Baker's major clients -- Kaiser Permanente and malpractice insurer The Doctors' Company -- fired him.

Under California law, a CEO who is severely injured can collect millions in lost wages. Maurice Greenberg, the CEO of American Internal Group, the third largest medical malpractice insurer, was paid $1,085,500 in 2001, excluding stock options, for example. CNA Insurance Companies' chief Steven Lilienthal made $1.8 million. Their "economic" losses in event of disabling injury would accordingly be quite substantial.

By contrast, a blue-collar worker disfigured by the same act of negligence would not be able to prove significant wage loss and would not find an attorney.

THE ANSWER: INSURANCE REFORM

Moments after President Bush's address from Scranton ended, CNN's Wolf Blitzer was standing on Capitol Hill with Democratic California U.S. Senator Dianne Feinstein. There she announced her legislation federalizing California's malpractice cap. A millionaire like Bush, Feinstein declared that California's law was "balanced" and "tested" since "the California way of doing this has a cap on non-economic damages. That's what the president spoke to. It allows for economic damages. That's what the president spoke to."

"Senator Feinstein made a pledge to us during our trip to Washington, D.C. last week that she would carry the legislation," Jack Lewin, president of the California Medical Association, bragged in his organization's January 17, 2003 newsletter. The Association wants to ensure that federal law does not adopt a more generous cap than the 1975 $250,000 limit, which would be worth $800,000 today if indexed for inflation.

Feinstein's main focus in the wake of Bush's Scranton speech was that "before 1975, California had one of the highest malpractice premium rates in America. We now have one of the lowest." She never bothered to examine the cause.

Data from the National Association of Insurance Commissioners show that doctors' malpractice premiums nearly tripled in the first dozen years after the 1975 California law. Premiums only fell sharply and stabilized after Californians passed insurance reform Proposition 103 at the ballot box in 1988.

Among other things, Proposition 103 required state approval for premium increases, strictly regulated insurer profiteering, refunded excessive premium dollars and, under the state's first elected insurance commissioner, froze premiums for four years. $ 135 million was refunded directly by malpractice insurance carriers under Proposition 103 simply as part of its rollback. After three years of Prop 103's regulation, medical malpractice rates had fallen by more than 20 percent and, a decade later, adjusted for inflation, malpractice premiums were down by 35 percent.

Former California Governor Jerry Brown, who signed the 1975 law, warned 17 years later against federalizing California's restrictions because he "witnessed yet another insurance crisis and found that insurance company avarice, not utilization of the legal system by injured consumers, was responsible for excessive premiums."

The avarice Brown described is called "the insurance cycle." This is a phenomenon in which insurers, during bad economic times, raise premiums to cover investment losses after years in which they have lowered premiums (during the good economic times) to attract capital for investment. Consumer advocates contend that it is this cycle and its inherent periods of investment losses which increase malpractice premiums, not lawsuits and claims.

Proposition 103, which Feinstein opposed in 1988, stabilized the insurance cycle in California by preventing an insurance rate from remaining in effect if it was "excessive, inadequate or unfairly discriminatory."

Steven Olsen's parents, Kathy and Scott, want lawmakers to acknowledge that the limited liability movement is driven not by a desire to protect patients but by economic interests that want to restrict the ability of individuals to have their day in court and to hold negligent doctors, hospitals and managed care corporations accountable.

But even more, they say, Bush is pressing a human rights issue in seeking to federalize state jurisprudence. Applying a one-size-fits-all limit to non-economic damages objectifies and erases the person, considering them as a fixed "thing" for the purposes of law so that there is no recognition of the uniqueness of their suffering.

The Olsens contend there is no quicker way to strip an individual of their humanity than to fail to recognize their suffering.
---------------
Jamie Court is executive director of the Santa Monica-based Foundation for Taxpayer and Consumer Rights, and co-author of Making A Killing: HMOs and the Threat To Your Health (Common Courage Press). His forthcoming Corporateering: How Corporate Power Steals Your Personal Freedom and What You Can Do About It will be published by Tarcher/Penguin/Putnam in May.



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