Medicare-Led Malpractice Reform
Issue Brief
William M. Sage, MD, JD
Columbia University School of Law
Eleanor DeArman Kinney, JD, MPH
Indiana University School of Law-Indianapolis
January 2005
BACKGROUND
There is increasing interest in an integrated model for patient safety and medical liability
among policymaking organizations such as the Institute of Medicine (IOM) and the Joint
Commission on Accreditation of Healthcare Organizations (JCAHO). We propose a
breakthrough approach to medical malpractice reform: a system of medical error
identification, patient notification, rapid compensation, and safety improvement within the
Medicare program. Disputes in the reformed system would be adjudicated by Medicare’s
administrative appeals infrastructure – a “medical court” system that would work together
with health care regulation and payment policy to reduce errors and compensate injured
patients.
Medical malpractice policy has been in suspended animation for decades. Non-academic proponents
of reform have hardly budged in their recommendations since 1975, and opponents by and large
have countered those proposals without offering promising alternatives. The principal cause of
stagnation is that medical malpractice policy has never been connected to overall health policy. In
particular, the Medicare and Medicaid programs – which have shaped health policy and molded
health politics since the 1960s – have been invisible where malpractice is concerned. Consequently,
the politics of medical liability has been co-opted by the politics of general (non-medical) tort
reform, so that the public hears mainly rhetoric intended to persuade them that lawsuits destroy or
protect America’s economy and social fabric, not reasoned discussion of the effect of the current
liability system on the quality, cost, and availability of medical care.
Specifically, the malpractice debate remains preoccupied with replicating or resisting California’s
MICRA statute – which caps non-economic damages and limits lawyers’ contingent fees in order to
reduce “junk and frivolous lawsuits” – mainly because those reforms are easily transferable to other
legal arenas of greater importance to non-health care political stakeholders. The reform process
therefore ignores critical failings of conventional malpractice litigation involving patient care and
insurance risk pooling. The current malpractice system treats patients like strangers, subjecting them
and their physicians to a painfully slow, cruelly adversarial process that denies them information,
compassion, and, where appropriate, compensation. Far too many medical errors occur, resulting in
too many avoidable injuries, with malpractice litigation generally working at cross-purposes with
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timely, self-critical, systems-based performance improvement. Fragmented, volatile markets for
liability insurance subject physicians and patients to periodic financial and political upheavals;
induce perverse, “defensive” medical practice; and potentially decrease access to care for vulnerable
populations. MICRA-style malpractice reform likely results in somewhat less of a bad thing, but not
a good thing. Even seemingly innovative proposals, such as “medical courts,” rely on stand-alone,
reactive institutions for resolving traditional malpractice claims that might be more efficient than
conventional litigation but would do little to enhance patient safety, spread the costs of avoidable
injury, or help patients and physicians deal with adverse outcomes of care.
In our opinion, there are three available avenues for integrating malpractice policy with health
policy, thereby focusing medical liability on patient safety while taking account of cost and access.
One possibility is a state-level system of administrative compensation linked to health care
regulation, much as workers compensation dovetails with occupational safety regulation. “Rapid
advance” demonstrations of this type were proposed by the Institute of Medicine in 2002. A second
possibility is for sponsors of employment-based health insurance to use their authority under ERISA
to create a private system of limited compensation, with supervision by the US Department of Labor.
No formal proposals taking this approach have been circulated. The third possibility – which we
believe to be the most promising – is for the federal government to pioneer a program of
administrative compensation applicable to Medicare patients, which would set the standard for the
rest of the health care system. In essence, Medicare would establish “medical courts” and link them
to other quality-related initiatives involving patient safety, consumer information, and provider
payment. The resulting regulatory system would, for the first time, transform private claims into an
effective mechanism to assure compensation for avoidable injury and encourage performance
improvement.
Medicare-led malpractice reform has several advantages. Conventional malpractice litigation serves
Medicare beneficiaries poorly. Long delays resolving claims disadvantage elderly patients, as do
limitations on non-economic damages considering beneficiaries’ advanced age and lack of current
employment. Because Medicare is the nation’s largest health care payer, bringing malpractice
policy into Medicare also may promote direct coverage of economic losses and more careful
incorporation of liability costs into reimbursement formulas. As medical care improves, future
medical expenses become the most important component of malpractice damages and
comprehensive health insurance constitutes a critical part of malpractice reform for both patients and
providers. Medicare also has in place an extensive system of administrative law judges who decide
disputes over Medicare benefits. This system is currently being reevaluated, and could feasibly be
reconfigured to adjudicate disputes involving medical errors. Finally, the federal government has
unique capacity to absorb shocks to insurance markets, and therefore can blunt the harshest effects of
malpractice crises on health care providers by offering subsidies for liability coverage such as lowcost reinsurance.
Medicare frequently tests innovations through pilot programs and demonstration projects.
Consequently, Medicare can institute malpractice reform selectively, starting with medical groups,
hospitals, and other organized health care providers capable of improving patient safety and
promptly compensating avoidable injury. The importance of Medicare to the hospital sector makes
Medicare a particularly credible and effective catalyst for enterprise-based malpractice reform. For
example, Medicare can impose conditions of participation on providers designed to ensure that
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patients who exchange their traditional rights under state malpractice reform for novel federal
remedies are adequately protected. The Medicare program has also displayed a strong interest in
patient information, in technical patient safety improvements, and in paying for improved
performance.
Having Medicare play a principal role dramatically changes the politics of medical malpractice.
Framing liability reform around Medicare shifts power from legislative committees primarily
concerned with the judicial system to committees primarily concerned with the health care system.
Medicare-led malpractice reform also may recruit new political voices, such as AARP, who have
much more of a stake in health care generally and Medicare specifically than the general business
and consumer lobbies who currently control the debate.
Finally, as occurred with respect to provider reimbursement reforms two decades ago, it is highly
likely that a successful Medicare initiative can be leveraged into system-wide reform as private
payers and health care providers – particularly hospitals – realize the advantages of a uniform
approach to managing medical errors.
THE REFORM INITIATIVE
We believe that comprehensive malpractice reform structured and administered through the
Medicare program is best suited for a Medicare demonstration project, but could also be adopted
outright on a program-wide basis. Four fundamental issues require analysis and resolution: legal
authority, substantive and procedural mechanics, integration of liability reform with other Medicare
policy issues, and methods for evaluating the success of reform.
Authority
Issues of authority divide into constitutional and statutory categories. Constitutional concerns must
be anticipated and addressed, but should not present insuperable barriers to a Medicare-based
malpractice program. In American federalism, Article I of the U.S. Constitution limits federal
legislative authority to enumerated powers, and, reinforced by the Tenth Amendment, reserves
residual authority to state government. Although legal analysis is warranted, federal spending
powers and regulatory powers over interstate commerce should be sufficient to authorize federal
litigation rights that supersede state malpractice claims under the Supremacy Clause. Analogously,
recent interpretations of ERISA by the Supreme Court allow federal law to preempt state common
law and statutory tort claims and substitute a narrowly drawn federal cause of action with extremely
limited remedies. A different constitutional issue requiring more extensive analysis is Congress’
ability under Article III and the Seventh Amendment to limit recourse to federal courts and jury
trials in favor of intra-agency administrative adjudication with deferential judicial review, especially
for federal claims that replace traditional state claims.
Statutory authority means the ability of the U.S. Department of Health and Human Services to
institute or modify aspects of the Medicare program without specific legislative action by Congress.
Although claims regarding poor quality care have been adjudicated under federal laws implicating
Medicare such as the False Claims Act and EMTALA, no precedent exists for federal malpractice
litigation outside of government-operated programs such as the Veterans Administration, much less
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for resolving these disputes through administrative adjudication. Various demonstration authorities
exist, however, some of which arguably empower DHHS to experiment with alternatives to
malpractice litigation. It is necessary to determine which aspects of Medicare-led malpractice
reform require explicit Congressional authorization, perhaps including federal preemption of state
malpractice claims (which is currently not the case for claims against Medicare HMOs), mandatory
rather than voluntary participation by beneficiaries, and the extension of reform beyond the
demonstration stage to encompass the entire Medicare population,. It is also necessary to specify
steps that can be taken to implement Medicare-led malpractice reform through DHHS rulemaking,
including anticipating economic and other analyses required by OIRA and OMB.
Reform Mechanics
The most important legislative and regulatory decisions involve specifying the basic components of
Medicare-led malpractice reform and ensuring that the choices that are made further policy goals
such as improved patient safety, fair compensation for injury, and more open communication
between providers and patients/beneficiaries. Some components are substantive, including provider
and beneficiary participation, triggering events, and safety and compensation outcomes. Other
components are procedural, involving the process of presenting evidence and adjudicating claims.
Substantive issues
There is considerable consensus among academics who study medical malpractice policy that early
detection and disclosure of medical errors, prompt compensation for avoidable injury, and a greater
institutional role in patient safety and liability risk management are desirable. Specific questions
include the following:
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Provider “earn-in”: What types of health care enterprises (hospitals, HMOs, physician group
practices) should be eligible to follow federal standards for medical liability instead of being
subject to conventional tort litigation? What conditions of participation must they meet to
earn their way into the new system?
•
Physician participation: How do physicians not part of a corporate enterprise participate in
liability reform? Under what conditions (e.g., clinical integration) may eligible enterprises
such as hospitals bring independent physicians under their liability umbrella?
•
Provider subsidies: What financial inducements might be necessary to generate sufficient
provider interest? Should DHHS offer participating providers subsidized excess liability
coverage (reinsurance) or primary liability coverage?
•
Beneficiary opt-in: Should patients of participating providers be obligated to accept federal
reform in lieu of state claims? What opportunities, if any, should there be to opt in or opt out
of the new system?
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•
Event detection: A major premise of Medicare-led reform is that it should actively root out
medical errors rather than assuming the reactive posture of conventional litigation. What
systems should participating providers have in place to detect compensable events? What
forms of government oversight are advisable?
•
Event disclosure: How will patients and families learn about medical errors? What types of
disclosure conversations should be required, and how should they be conducted? To what
degree should event reporting extend to DHHS and the general public?
•
Compensation triggers: What types of errors and injuries will trigger a right to compensation
under the reformed system? What thresholds will exist? How will “avoidability” be
defined? Should there be a category of events (i.e., “ACES”) that are designated as
automatically compensable?
•
Non-conforming events: Will providers have the option to offer compensation for events not
fitting definitions of avoidability, thereby precluding beneficiaries from filing conventional
malpractice claims? What exceptional circumstances, if any, will allow patients suffering
injury to file claims in other courts or resting on other theories?
•
Compensation payments: How will damages be calculated? Should compensation include
non-economic damages (“pain and suffering”) in addition to lost wages and future medical
costs? What thresholds and limits should apply? Who will create schedules of damages?
Should Medicare separately compensate medical costs by expanding benefits to injured
patients or waiving subrogation rights against liable providers?
Procedural issues
As noted above, a key feature of Medicare-led reform is that administrative adjudication
procedures housed within DHHS will replace tort litigation for participating providers and
patients. Several aspects of this process must be resolved.
•
Administrative courts: What modifications to Medicare’s existing system of administrative
law judges are necessary to render effective decisions regarding avoidability of harm and
extent of compensation?
•
Mediation: Should providers and beneficiaries be encouraged or required to mediate disputes
before proceeding to administrative resolution? If so, what type of mediation should be
conducted and in what setting?
•
Evidence: How should expert testimony on standards of medical practice, causation of
injury, and extent of damages be presented? Should Medicare courts appoint impartial
experts instead of allowing the parties to hire consultants? Under what circumstances, if any,
should Medicare courts rely on DHHS reports, guidelines, or advisory opinions?
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•
Precedent: How should decisions rendered by administrative adjudication be communicated
to the parties and the public? Should decisions constitute binding precedent in subsequent
cases?
•
Judicial review: What rights should parties have to judicial review of administrative
decisions? What standards for review should apply?
Integration with other Medicare policy issues
A substantial contribution of the Medicare approach is to connect malpractice reform to other
initiatives currently under way within the Medicare program and to important health policy issues
affecting that program. The former category includes several ongoing system-wide or demonstration
initiatives: Medicare’s recently revamped quality improvement program, patient safety and
disclosure requirements adopted by JCAHO, consumer information and provider “report card”
efforts, and pay-for-performance reimbursement innovations. The latter category includes the
potential for malpractice reform to increase physician participation in Medicare, the need to refine
the relationship between liability costs and Medicare payment formulas, and the connection between
liability and accountability within Medicare managed care (Medicare Advantage).
Evaluation
The initiative should include a protocol for evaluating the costs and effectiveness of any Medicare
liability demonstration project containing the attributes described above, and offer extrapolations for
system-wide liability reform.
About the Authors
William M. Sage, MD, JD, is Professor of Law at Columbia University, where he teaches courses in
health law, regulatory theory, and the professions. Professor Sage has published extensively on
health law and policy, including many articles and book chapters on medical malpractice policy.
Professor Sage is the lead editor of Medical Malpractice Reform in the United States: New Century,
Different Issues (Cambridge University Press forthcoming 2005). In 2002, Professor Sage was
principal draftsperson for the liability demonstration proposal of the Institute of Medicine’s
Committee on Rapid Advances in Health Care. He is currently a member of the liability and patient
safety task force of the Joint Commission on Accreditation of Healthcare Organizations. From
2002-2005, he serves as principal investigator of the Project on Medical Liability in Pennsylvania,
funded by The Pew Charitable Trusts.
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Eleanor DeArman Kinney, JD, MPH, is Professor of Law and Co-Director of the Center on Law and
Health at Indiana University-Indianapolis, where she teaches courses in health law and
administrative law. A widely published author and respected lecturer on the subjects of America’s
health care system, medical malpractice, health coverage for the poor, and issues in administrative
law, Professor Kinney recently published Protecting American Health Care Consumers (Duke
University Press 2002) and edited the Guide to Medicare Coverage Decision-Making and Appeals
(ABA Publishing 2002). She currently serves as chair of the Patient Safety Subcommittee of the
Indiana Commission on Excellence in Health Care. Professor Kinney is vice chair of the American
Bar Association's Section on Administrative Law and Regulatory Practice in August 2003, and will
be section chair in 2005-2006.
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