Clinton Healthcare Plan Is Afflicted with Bias

By E. DREW BRITCHER & ARMAND LEONE, JR

Healthcare reform plans, including President Bill Clinton’s proposed legislation, contain proposals for medical malpractice liability reform.1 Because there is substantial evidence that only a minority of bona fide medical malpractice claims are brought and even a smaller number of malpractice victims are compensated for their injuries,2 malpractice reforms that further impede the prosecution of these claims must be carefully scrutinized. The question raised by the proposed malpractice reforms is what will the practical effects of such reforms be on medical malpractice litigation in New Jersey?

The Clinton plan proposes that a certificate of merit be filed by the plaintiff in order to bring a malpractice claim.3 For attorneys who specialize in malpractice litigation, this represents little practical change from their current standard operating procedures. Since New Jersey’s open discovery policy has long required comprehensive expert reports to be served by the plaintiff which fully set forth the foundation and opinions of the plaintiff’s expert, malpractice specialists generally obtain expert reports prior to filing a complaint.

The Clinton plan, however, contemplates that the action will be dismissed, unless an affidavit from a qualified medical specialist with expertise in the defendant’s specialty is filed within 90 days after the action is commenced or 90 days after medical records or other necessary information has been obtained. This stringent time limit creates several problems.

The 90-day filing requirement for the affidavit may force attorneys who do not regularly practice in this field to abandon these claims entirely because of the increased cost of prosecution. Since the failure to file an affidavit of merit within 90 days means dismissal of the case, a prudent plaintiff’s attorney may feel forced to simultaneously submit the plaintiff’s medical records to multiple medical experts for review, rather than risk the chance that a positive review is not received before the 90-day period expires. Since the cost of a single expert review can vary from $750 to more than $3,000, obtaining simultaneous expert evaluations within 90 days of filing may substantially increase the initial evaluation cost of such cases. Thus, many lawyers may find it prohibitively expensive to accept malpractice cases because of the initial expert evaluation cost.

The Clinton plan states alternatively that the certificate of merit be filed within 90 days after medical records or other necessary information has been obtained. One of the biggest problems that plaintiffs’ lawyers face in some malpractice cases, however, is knowing which records are essential to a proper review. Thus, in some cases, the relevant medical records include every single record since birth.

The certificate-of-merit proposal further contemplates that the affidavit be written by a “qualified medical specialist,” which means a healthcare professional who is knowledgeable of and has expertise in the same area of medical practice that is the subject of the action. This requirement does not address what happens when there are multiple defendants in a case concerning medical care that involves several distinct medical specialties.

Is a certificate of merit by a qualified medical specialist in the same field as one of the defendants sufficient to sustain the action, or must a separate certificate of merit be filed for each specialty physician named as a defendant? Once again, the potential increased cost of evaluating malpractice claims may negatively impact many lawyers who have previously handled such claims.

The 90-day requirement for the filing of the certificate of merit also raises questions about what happens with subsequently identified defendants, against whom claims are currently preserved by the John Doe pleading practice. Often, a culpable physician is not fully identified in the initial pleadings. Does the 90-day period for filing the certificate of merit run from the date the action is filed or from the date the medical records are received; or, does the 90-day period run from the date a plaintiff discovers the liability of a subsequently identified physician?

The defendant healthcare providers have access to the relevant information and intimate knowledge concerning any conduct which may have caused the plaintiff’s injuries. Often it is the plaintiff who is at a disadvantage in obtaining the records and ascertaining which of the multiple physicians was negligent. Thus, in New Jersey, where the discovery rule has reigned for more than three decades, the 90-day period should begin from the time of discovery.

Lastly, the “qualified medical specialist” standard appears more stringent than the current standards employed by the New Jersey courts for qualified expert opinion. The Clinton plan requires that the medical specialist not only be knowledgeable of and have expertise in the same specialty area, but it requires that the affiant must have practiced or taught in the same medical area within the preceding six years and be qualified by experience or demonstrate a competence in that area. Even though New Jersey has perhaps one of the strongest requirements for pretrial disclosure and expert opinion testimony in the nation,4 the Clinton plan may impose yet a higher standard for qualifying a medical specialist for expert testimony. As in any field, the cost of expert review increases with the specialization of the physician. Not only might more reviews be required, but each review would be more expensive.

Limiting Contingency Fees

Five out of the six proffered healthcare reform packages contemplate limitations on the amount of an attorney’s contingent fee. The various reforms seek to cap plaintiffs’ attorneys’ fees to one-third of the total amount recovered by judgment or settlement — some even reduce the attorney’s fees further. None of the malpractice reforms, however, contemplate limiting defense attorneys’ fees, and this is a clear bias favoring the defendants. It is unfair to restrict the plaintiffs’ attorneys’ fees and the ability of plaintiffs to prosecute a case, especially when such limitations on the plaintiffs’ attorneys increase the potential for abuse by defense attorneys.

Defense attorneys can file multiple motions against the plaintiff, thereby exhausting the plaintiff’s attorney’s resources and simultaneously generating higher fees for themselves. More important, New Jersey already has a court rule that limits plaintiffs’ attorneys’ fees more than does the proposal.

The Clinton plan also contemplates reduction of plaintiffs’ awards for recovery already received from collateral sources. This proposal has already become grounded in New Jersey law. The proposed reform lists collateral sources which should be deducted from an award, but does not account for the out-of-pocket cost of premiums for health and disability insurance which have been paid by the plaintiff.

New Jersey specifically provides that the premiums paid by the plaintiff which make collateral payment possible should be deducted from the total amount of the collateral source payment used to reduce the award.5 Without such a provision, the defendant’s insurers get a double benefit from the collateral source rule: They benefit from a reduction of the award by virtue of any health and disability insurance payments, and they also get to collect their premiums. Equal protection challenges to such tort revisions in some states have succeeded, while others confirmed the constitutionality of such restrictions. 6 No New Jersey case has yet to challenge this through a reported decision.

Periodic payment of awards at the request of any party to a medical malpractice liability action is another proposed reform of the Clinton plan that raises significant concerns. 7 Although theoretically available to both parties, no plaintiffs’ lawyers would ask for periodic payments under the present version of the bill. A more detailed explanation of how such periodic payments would be structured is needed, because it currently does not take into account the time value of money. The present value of future payments is less than the same award at the time of verdict. Fairness states that any future payment should be paid with interest, otherwise this is a benefit to the defendant at the expense of the plaintiff.

Furthermore, the healthcare reform proposals do not address who holds risks associated with the inevitable possibility that a specific annuity company could default on future periodic payments. Nor does the proposal identify who picks the annuity company. Some annuities are issued by companies that have impeccable financial standing, but not all. Lastly, while voluntary periodic payments are fair and are currently used in settling malpractice claims, involuntary periodic payments forced upon a plaintiff provide a windfall for the defendant, because the defendant, or the insurer, will continue to earn income on the unpaid portion. At a minimum, involuntary periodic payments should not be allowed to reduce the present value of an award.

Sanctions

The Clinton plan proposes sanctions for litigation and attorneys’ fees on a party, the party’s attorney, or both, if any information in the expert’s certificate is submitted without reasonable cause and is found to be untrue. If a fact underlying the plaintiff’s expert’s report is later found to be untrue during the course of the discovery of the defendant, it is unclear whether the plaintiff or plaintiff’s counsel would be subject to sanctions.

Thus, the possibility of such sanctions could have a chilling effect on plaintiffs and on the law firms who risk representing them, and decrease their willingness to bring medical malpractice claims.

The various healthcare reform plans, including the Clinton plan, are biased toward the defendant healthcare providers. For example, if the plaintiff is required to submit an expert’s report within 90 days of receipt of records or filing of the action, should not the defendant also be required to submit an expert’s report within 90 days of notice of the claim or, at least, 90 days after receipt of the plaintiff’s expert’s report? If the purpose of the malpractice reform is to weed out meritless claims, should not the corresponding purpose be to weed out meritless defenses? Certainly, it is easier for a healthcare provider to find an expert willing to render a favorable report than it is for a plaintiff.

Similarly, if a plaintiff and attorney are liable for attorney’s fees and litigation costs when a certificate of merit is untrue, should not a defendant be liable for the attorneys’ fees and litigation costs of the plaintiff if the defendant’s expert’s report or the facts underlying it are untrue?

Alternative Dispute Resolution

Alternate dispute resolution of medical malpractice claims is proposed in four out of the six major healthcare reform bills before Congress. 8 The Clinton Act requires that each regional alliance health plan adopt at least one alternative dispute resolution method for resolving medical malpractice claims for its enrollees. 9 The proposed National Health Board would be charged with developing ADR methods that include, at a minimum, arbitration, required mediation and an early settlement process. Since none of the proposed acts contemplate binding ADR for medical malpractice claims, the enrollee or defendant provider can proceed to trial on the malpractice claim for damages after exhausting the ADR mechanisms.

Such nonbinding arbitration is inadequate to affect the desired reforms and will only increase the cost of bringing and defending malpractice claims. Several commentators have already recognized that only voluntary binding arbitration can bring about reduced transaction costs and shorter resolution times for resolving medical malpractice claims.10 By setting up a pretrial ADR program, the proposed reforms only create more “hoops” for plaintiffs and their attorneys to jump through in order to prosecute a medical malpractice claim.

Plaintiffs’ lawyers have learned in automobile injury arbitration that many insurance companies follow a no-pay policy, even after an arbitration award in favor of the plaintiff.

Some medical malpractice insurance companies have a no-pay approach to all but the most blatant medical malpractice claims. If ADR becomes mandatory but nonbinding, insurance companies that follow no-pay policies will be able to increase the time and cost of prosecuting malpractice claims, thereby forcing plaintiffs with lesser damages and attorneys with lesser resources to forgo presenting these claims.

Considering the complexity of medical malpractices cases and the out-of-pocket costs incurred in their prosecution — such as the cost of medical expert testimony — most malpractice practitioners already will not undertake a claim unless the case has a multiple six-figure jury verdict value. Nonbinding arbitration will certainly increase the cost of prosecuting these actions, such that malpractice cases will need even higher potential value to be worthwhile for plaintiff’s attorneys to undertake.

Thus, plaintiffs with meritorious claims but with lesser damages may be precluded from being able to obtain any relief. More important, the number of law firms that can afford the additional time and expense of litigating meritorious claims will decrease, because nonbinding arbitration will not prevent a substantial percentage of cases from proceeding to litigation. The number of players may decrease, but the litigation will remain substantially the same.

The Clinton plan also proposes pilot projects that implement enterprise liability and medical practice guidelines. The procedural streamlining which an enterprise liability system creates appears beneficial in reforming malpractice claim resolution. However, New Jersey has a charitable immunity statute which places a cap of $250,000 on a non-profit hospital’s liability. For this reason, New Jersey plaintiff’s attorneys rarely name the hospital as a direct defendant. However, the number of hospitals that claim nonprofit status has grown, and it is questionable whether all so-called nonprofit hospitals actually function as such.

If enterprise liability were to be adopted, many hospitals that are not charitable institutions would abuse this liability cap by stretching the definition of a nonprofit organization to take advantage of the charitable immunity statute. At the same time, they would be earning significant income from their hospital operations. Thus, for enterprise liability to succeed in New Jersey, the charitable immunity protection must be removed, or, at a minimum, be strictly reserved for authentic nonprofit charitable institutions.

The other pilot project is the establishment of medical practice guidelines by the Agency for Healthcare Policy and Research. The use of such practice guidelines developed by societies of specialty physicians are already utilized by both sides in malpractice actions.11 The proposal posits that these practice guidelines would provide a complete defense, if they were followed by the healthcare provider. To prevent an unfair bias against the plaintiff, if practice guidelines provide a complete defense when followed by the defendant’s provider, should not a failure to follow the guidelines be conclusive on the issue of deviation from the applicable standard of care? Even by providing plaintiffs with this corollary presumption, plaintiffs still must prove the causation issue and the amount of damages. Thus, the development of practice guidelines could be a beneficial malpractice reform, if they are applied equally to both defendants and plaintiffs. They would assist in eliminating both meritless claims and meritless defenses.

The various healthcare reform proposals, and the American Health Security Act of 1993 in particular, suggest various medical malpractice reforms which will do little to affect medical malpractice litigation in New Jersey, but may greatly affect the risks of prosecuting medical malpractice claims. Because substantial evidence suggests that most legitimate malpractice claims are never brought and most malpractice victims go uncompensated, malpractice reforms that place additional impediments to bringing these claims are a cause for great concern.

The proposals for certificates of merit and nonbinding alternate dispute resolution will significantly increase the cost of evaluating medical malpractice claims are to decrease the number of cases that will be brought for injuries cased by medical malpractice. Many claims will still proceed to trial, but with added layers of cost.

The other proposed changes will affect New Jersey practice little, if at all. Because New Jersey practice has an open discovery policy concerning experts’ reports on deviation and causation and already limits attorneys’ fees to a greater extent than the proposed fees, these malpractice reform proposals will not significantly change New Jersey practice. Accordingly, the number of malpractice lawsuits may decrease because of financial intimidation, while the litigation of these claims will remain substantially the same.

The general bias of the proposed reforms toward defendants and the inequities to plaintiffs should be addressed and removed. Medical malpractice reform should eliminate both meritless claims and meritless defenses, while affording hurt plaintiffs an opportunity to be compensated. As proposed, the malpractice reforms are likely to have a chilling effect on the exercise of plaintiffs’ rights without a reduction in nonmeritorious defenses.

Endnotes

American Health Security Act of 1993, H.R. 3600 and $1757 at 933, Subtitle D. Section 5301 et seq.: D. Margolick, “Clinton Stirs Unease on Medical Malpractice.” The New York Times, Sept. 24, 1993 at A26: R. Sherman, “Health Plan Addresses Antitrust Malpractice.” Sept. 23, 1993 at 9.

D.B. Simpson, “Compulsory Arbitration: An Instrument of Malpractice Reform and a Step Towards Reduced Health Care Costs?” Seton Hall Leg. J., Vol. 17:457 at 461-462 (1993); “Straight Talk on Medical Malpractice — Separating Fact From Fiction,” Association of Trial Lawyers of America, February 1994; A. Russell Localio et al., “Relation Between Malpractice Claims and Adverse Events,” 325 New Eng. J. Med. 245 (July 25, 1991); P.J. Hilts, “Bush Enters Malpractice Debate With Plan To Limit Court Awards,” The New York Times, May 13, 1991 at A 1.

American Health Security Act of 1993, Section 5303.

See Crespo v. McCartin, 244 N.J. Super. 413, (App. Div. 1990)

N.J.S.A. 2A:15-97 (West Supp. 1993)

See e.g. Farley v. Engleken, 241 Kan. 663, 740 P.2d 1058 (1987) (collateral source rule unconstitutional) and Fein v. Permanente Medical Group, 38 Cal. 3d 137, 211 Cal. Rptr. 368, 695 P.2d 665, app. dism’d. 474 U.S. 892, 83 L. Ed 28 215, 106 S.Ct. 214 (1985) (collateral source rule does not violate equal protection clause)

American Health Security Act of 1993, Title 5, Sub-Title D, Section 5306.

A. Clymar, “Many Health Plans, One Political Goal,” The New York Times, Oct. 17, 1993 at 22.

American Health Security Act of 1993, Section 5302.

Editorial, “Healthcare and Malpractice,” 135 N.J.L.J. 656, Oct. 11, 1993; A. Leone, “ADR and Enterprise Liability,” 135 N.J.L.J. 1008, Nov. 8, 1993.

A. Leone, “Guidelines Now Set Liability Standards,” 133 N.J.L.J. 1599 (1993).

The article is reprinted with permission from the July 25, 1994 issue of the New Jersey Law Journal. © 1994 NLP IP Company.