Judicial temperament: Why it matters to emergency physicians

Robert A. Bitterman, MD, JD, FACEP, Contributing Editor; President, Bitterman Health Law Consulting Group, Inc., Charlotte, NC; Vice President, Emergency Physicians Insurance Co., Inc., Auburn, CA

In the turmoil of President Bush's recent nominations for the U.S. Supreme Court there has been a great deal of discussion concerning judicial philosophy or judicial temperament. The issue is whether judges are purely interpreting the law or actually 'making new law,' often called 'judicial activism.' The prevailing precedent is that judges should not make law or legislate from the bench, but instead should interpret and enforce the laws as written by the branch of government elected by the people.

An unfortunate example of why judicial restraint matters a great deal is the recent decision by the Wisconsin Supreme Court, in the case of Ferdon v. Wisconsin Patient Compensation Fund1 declaring the legislature's cap on non-economic damages in medical malpractice cases to be unconstitutional.

In 1995, Wisconsin had enacted a comprehensive statutory scheme of tort reform to address the medical liability crisis and access to care issues. It required physicians and hospitals to maintain liability insurance and also created a Patient Compensation Fund, financed by mandatory assessments on health care providers, to provide coverage for patient damages in excess of the statutory amount of insurance carried by the providers.

Any individual harmed could recover an unlimited amount of economic damages (including all lost income and medical expenses) from the physician, up to his or her amount of coverage, and any amount remaining would be paid out of the Fund. However, the legislature decided to limit non-economic damages (typically unquantifiable injuries such as pain and suffering) to $350,000, indexed to inflation (which raised the amount to $445,775 by 2005).

When enacting the reforms, the legislature specifically listed a number of objectives and findings that were the basis for enacting the statute and cap on non-economic damages. Its general objectives were to: (1) reduce the size of medical malpractice judgments and settlements to tame the cost of medical malpractice insurance, and (2) make the choice to practice medicine in Wisconsin desirable so that quality health care will be readily available in the state.1

Some of the legislature's specific fact findings were:

  • The cap reduces the size of malpractice awards and malpractice insurance premiums.
  • The cap protects the patient compensation fund's reserves and allows the fund to keep provider assessments to a reasonable level.
  • The cap encourages providers to stay in Wisconsin, reduces the practice of defensive of medicine, and reduces the overall cost of health care to our citizens.
  • Medical malpractice judgments and settlements have increased substantially, causing many liability insurance companies to cease providing malpractice insurance, and discourage young physicians to practice medicine in the state or cause health care providers to curtail or quit practices in Wisconsin.1

The Wisconsin Supreme Court, however, determined that the statute's non-economic damages cap violated the equal protection guarantees of the Wisconsin constitution.1

Normally a statute challenged on equal protection grounds is presumed to be constitutional "because statutes embody the economic, social, and political decisions entrusted to the legislature," and the party challenging its constitutionality must demonstrate it is unconstitutional beyond a reasonable doubt. If there is any doubt, the court must uphold the statute, and the court is supposed to give 'great weight' to the findings of the legislature.

The standard of review typically used to determine if statutes such as tort reform are constitutional is called the rational basis test. This standard means that if the legislature had any rational basis for its stated findings and purpose in enacting the statute, it meets constitutional muster. It is extraordinarily rare for a court to overturn a statute by asserting, beyond a reasonable doubt, that the legislature had absolutely no rational basis for enacting the statute; but that is exactly what the Wisconsin Supreme Court decided.

The judges began by stating "the court must presume that the legislature's judgment was sound and look for support for the legislative act," and that "a statutory discrimination will not be set aside if any state of facts reasonably may be conceived to justify it."1 The majority also acknowledged that the rational basis test does not require the legislature to choose the best or wisest means to achieve its goals; it simply has to have a plausible policy reason for a legitimate legislative purpose.

However, instead of searching the facts for those that justified the legislature's action, the court did exactly the opposite. It conducted its own investigation into the facts, its own review of the published literature and studies on the impact of non-economic damage caps, its own accounting analysis of the Patient Compensation Fund's finances and then, as noted by the dissenting opinion, simply substituted its findings for those made by the legislature to conclude that Wisconsin's cap was unconstitutional.

The majority opinion held that it was not reasonable to believe that a $350,000 cap on non-economic damages reduces malpractice insurance premiums or that the cap was rationally related to the legislature's objective of lowering malpractice premiums. The conclusions of the court were (and compare these to the legislature's finding):

  • The non-economic damages cap does not decrease malpractice awards or decrease malpractice insurance premiums.
  • The cap would not effect a physician's decision to practice or limit services in Wisconsin.
  • The cap would not help reduce the practice of defensive medicine or reduce overall health care costs.
  • The cap would not protect the solvency of the Wisconsin Patient Compensation Fund.1

The dissenting opinions noted that the state's judicial precedent "requires only that the reviewing court locate some reasonable basis" for its statutory classifications, prompting one of the dissenting judges to state, "Now, instead of attempting to locate a rationale to support the caps, the majority searches for studies to discredit them."1 The judges minimized, selectively discredited, or ignored important facts that actually supported the legislators' findings, often from the very same studies the court felt supported its position, such as governmental studies conducted by the U.S. Dept. of Health and Human Services (HHS), the General Accountability Office (GAO), and the Congressional Budget Office (CBO). For example:

  • Malpractice awards and malpractice insurance premiums
    — The GAO conclusively showed that during 2001-2002 states with caps experienced an average premium rate increase of 10%, as compared with a 29% increase in states without caps over the same time period, and that malpractice premiums were lower and grew less rapidly in states with non-economic damage caps.2,3
    — Wisconsin's own malpractice premiums dropped by 5% during 1991 to 2002, whereas in the same 11-year period the median medical malpractice premiums increased more than 35-50% in other states. In fact, Wisconsin had the lowest loss ratio of any state, around 62%, compared with greater than 100% loss ratios in virtually every other jurisdiction. (Loss ratio is the amount of losses paid by an insurance company related to the amount of premium received. Med-mal companies typically run ratios greater than 100% because of the time value of money: The premium received today isn't used to pay claims until years later.)1
    — Oregon's experience. In 1998 caps on non-economic damages were ruled unconstitutional in the state of Oregon. Losses had remained steady over the previous 7 years with the cap in place. After removal of the cap, annual losses tripled in less than 3 years.4
    — The CBO concluded that federal caps on damage awards, in combination with other tort reforms, would reduce malpractice insurance premiums by 25-30% during the 10-year period from 2004 to 2013.5
    — HHS's Office of Technology Assessment found that caps on damages awards consistently reduced the size of claims, and, in turn, malpractice premium rates.6
    — Study published by Kenneth Thorpe, former advisor to the Clinton administration on health policy issues, found that medical liability insurance premiums were 17.1% lower in states that had capped court awards.7
    — The American Hospital Association Professional Liability Insurance Survey found professional liability expenses doubled for nearly half of the hospitals in states experiencing a liability crisis, but were lower in states that had enacted liability reform. The average professional liability expense growth over the previous two years in the crisis states was 158% compared with 74% in the reform states.8
    — A study by Milliman USA, based on statistics reported to the National Practitioner Data Bank, demonstrated that malpractice losses were below average in states that had laws limiting non-economic damages, while states without these reforms had losses above the national average.9,10
  • Attracting more physicians to Wisconsin
    — An HHS study evaluated 49 states during an extended period and concluded that "States with a cap average 24 more physicians per 100,000 residents that states without a cap. Thus, states with caps have about 12% more physicians per capita that states without a cap." The same study found the effect even more pronounced in Wisconsin; the difference was over 25% compared to states without caps.11,12
    — The American Hospital Association Professional Liability Insurance Survey, March 2003, noted hospitals in malpractice crisis states compared with those in non-crisis states reported considerable more difficulty in recruiting physicians, retaining physicians, providing on-call physician coverage of their emergency departments, and in their ability to maintain specific services such as trauma care or obstetrical care.8
  • Defensive practice of medicine costs/overall health care costs.
    — The majority simply ignored a large body of accumulated research that medical malpractice liability causes doctors to practice defensive medicine. It even sidestepped one of the government studies it quoted, missing the fact that the same study determined that the imposition of damage caps would result in "between $9.3 billion and $16.7 billion in additional budgetary savings [to the U.S. government] in 2013 from reduced defensive medicine."13,14
    — The HHS itself estimated the government would save $28 billion to $48 billion per year in the Medicare and Medicaid programs on defensive costs alone if the malpractice situation was brought under some control.15
    — The Employment Policy Foundation Study estimated that limiting damage awards in medical liability cases could save $54.8 billion to $97.5 billion annually, or 7.2% to 12.7% of the $765 billion spent on hospital and physician services each year. The report says that rising liability costs reduce access to care and artificially inflate health care expenditures by encouraging medically unnecessary tests and diagnostic procedures. It estimated that curbing medical liability excesses would reduce employer-sponsored health plan costs by $17.4 billion to $30.9 billion annually, and would reduce the employee share of annual health plan costs by $59 to $109 per employee annually.16
  • Effect on the Wisconsin Patient Compensation Fund
    — The Wisconsin Insurance Commissioner's own written conclusion stated that the non-economic damage caps helped control medical malpractice awards and create a stable legal environment in Wisconsin. In fact, a non-partisan legislative actuary study and audit had estimated that "if Wisconsin's cap on non-economic were to be declared unconstitutional, the potential fund liabilities may be increased by an estimated 150-200 million dollars." The audit specifically cited the legislature's re-establishment of a limit on non-economic damages in 1995 as one of the reasons behind the stabilization of the Fund's finances.1

Final comment

When reviewing validly enacted legislative acts, the court is supposed to recognize that it is the legislature's function, not the court's, to evaluate studies and reports. The court should not second guess the legislature. In this case the court essentially conducted its own mini trial to independently find the facts, examined only selective evidence that supported its policy perspective rather than that of the legislature, and conveniently ignored evidence that the legislature considered or that did not fit with the court's conclusions.

Furthermore, the court gave no weight to the fact finding of the legislature, instead of the customary great weight, or at least the benefit of the doubt, it is supposed to give to the legislature's decision making, particularly regarding such a contentious and difficult issue.

The statute was an attempt by the legislature to find a balance between compensating victims of malpractice, protecting health care providers from excessive cost of medical malpractice insurance, and ensuring access to quality health care in the state. All those harmed by malpractice were guaranteed recovery of all their economic losses and medical expenses; it was only the unquantifiable damages of pain and suffering that were capped by the legislature. It strains credibility to hold that enacting such a comprehensive medical injury compensation package—which includes caps on non-economic damages to minimize the flow of dollars out of the health care system—doesn't "rationally advance a legitimate legislative objective."

The Wisconsin Supreme Court pledged its adherence to "to the concept of judicial restraint that cautions against substituting judicial opinions for the will of the legislature," but it did exactly the opposite, tossing judicial restraint out the window to 'make new law' by simply substituting its policy preferences for those of the legislature.

Wisconsin now joins Illinois and Ohio, along with a few other smaller states, in invalidating legislatively enacted caps on non-economic damages, in contrast to its neighboring states, Michigan and Indiana, which have declared the caps are constitutional.

Postscript

After the ruling by the Wisconsin Supreme Court, the state's legislature made a number of attempts to reinstate damage caps for medical malpractice cases, and finally reached an agreement with Governor Jim Doyle earlier this year to cap non-economic damages at $750,000. The constitutionality of the higher cap is certain to be challenged court. Stay tuned!

References

1. Ferdon v Wisconsin Patient Compensation Fund, 701 N.W.2d 440 (WI 2005).

2. U.S. Government Accountability Office. GAO Report (GAO-03-702). Medical Malpractice Insurance: Multiple Factors Have Contributed to Increased Premium Rates. Available: http://www.gao.gov/new.items/d03702.pdf. The GAO determined multiple factors, including falling investment income and rising reinsurance costs, contributed to increases in malpractice premium rates, but found that losses on claims were the primary driving factor.

3. U.S. Government Accountability Office. GAO Report (GAO-03-0836) August 2003. Medical Malpractice: Implications of Rising Premiums On Access to Health Care. Available: http://www.gao.gov/new.items/d04128t.pdf.

4. Data from A.M.Best Database Services and the Tillinghast report.

5. U.S. Congressional Budget Office. Limiting Tort Liability for Medical Malpractice (January 8, 2004). Available: www.cbo.gov. (See also the CBO report of The Economics of US Tort Liability: A Primer [October 2003].)

6. U.S. Department of Health and Human Services Office of Technology Assessment. Impact of Legal Reforms on Medical Malpractice Costs. September 1993. Report found that caps on damages awards consistently reduced the size of claims, and, in turn, premium rates for malpractice insurance. See also U.S. HHS Update on the Medical Litigation Crisis: Not the Result of the "Insurance Cycle". November 2002. Available: http://aspe.hhs.gov/daltcp/reports/mlupd2.htm.

7. Thorpe K. Medical Liability Premiums. Health Affairs. January 21, 2004. http://www.healthaffairs.org.

8. American Hospital Association Professional Liability Insurance Survey - A Growing Crisis. March 2003.

9. Kipp R, Cookson JP, Mattie LL. Health Insurance Underwriting Cycle Effect on Health Plan Premiums and Profitability. Milliman, USA, April 10, 2003.

10. Actuarial and Analytics Practice of Aon's Risk Services, Inc. Aon conducted a hospital professional liability and physician liability benchmark study and concluded that the "real problem" is the growing size of liability awards and that caps do limit award sizes. January 2004. Available: http://www.aon.com.

11. U.S. Department of Health and Human Services. Addressing the New Health Care Crisis: Reforming the Medical Litigation System to Improve the Quality of Health Care. March 3, 2003. Available: http://aspe.hhs.gov/daltcp/reports/medliab.pdf.

12. U.S. Department of Health and Human Services Agency for Healthcare Research and Quality (AHRQ). Hellinger FJ, Encinosa WE. "The Impact of State Laws Limiting Malpractice Awards on the Geographic Distribution of Physicians." Available: http://www.ahrq.gov/research/tortcaps/tortcaps.htm.

13. Cohen H .Congressional Research Service Report for Congress. Medical Malpractice Liability Reform: Legal Issues and Fifty-State Survey of Caps on Punitive and Non-economic Damages. Order Code RL31692 Updated May 14, 2003. Discusses the pros and cons of the malpractice liability reform bill passed by the U.S. House of Representatives, H.R. 5 (The HEALTH Act), on March 13, 2003. It includes a discussion on the effectiveness of caps.

14. U.S. Department of Health and Human Services Report - Confronting the New Health Care Crisis: Improving Health Care Quality and Lowering Costs by Fixing Our Medical Liability System. July 24, 2002.

15. U.S. Congressional Budget Office. Cost Estimate for H.R.5 (Health Act of 2003) March 2003. Based on its own research on the effects of tort restrictions, the Congressional Budget Office (CBO) estimated that provisions of the Health Act of 2003 (H.R.5) would lower premiums nation wide by an average of 25%-30% from the levels likely to occur under current law. Available at www.cbo.gov.

16. Employment Policy Foundation Study June 21, 2003. Employment Policy Foundation, Washington, DC.