VI. THE MEDICAL INJURY COMPENSATION FUND-A PROPOSAL
The goals of the current tort system vis á vis medical malpractice are to compensate victims, deter substandard medical care, and spread the cost of injuries. [FN375] It is questionable whether the tort system meets these goals for existing medical injuries. It is even more debatable whether the tort system can meet these goals for managed care. As an alternative, this Article proposes a medical injury compensation fund system that will meet the goals that the tort system fails to meet. In addition, the proposed fund system provides an effective way to spread the costs of medical care.
This Part begins by summarizing the problems with the current tort system in Section A. Then, in Section B, the elements of the alternative medical injury compensation fund are set out. Section C addresses the limitations and problems inherent in implementing a fund system like the one proposed. Section D, on the other hand, outlines the important benefits that would be provided by the proposed fund.
A. Problems with the Tort System
The tort system results in a significant degree of chance, heavy transactional costs, inadequate compensation recovery, enormous malpractice premiums, and ineffectual deterrents. A significant element of chance exists under the tort system. *74 Recovery is speculative and has been equated to a lottery. [FN376] Even though seventeen percent of adverse outcomes in medical patients are traceable to negligence, [FN377] under the current tort recovery system only ten percent of injured patients eventually file a claim, and only four percent actually receive compensation. [FN378] The persons least likely to receive compensation are likely to be those least able to afford the injuries: the poor, women, and minorities. These groups have historically had inadequate access to the legal system, clearly affecting their ability to recover for cost containment injuries.
The tort system imposes heavy transactional costs. Even for those who actually receive compensation, the transactional costs created by the process are immense. Plaintiffs incur significant costs in time, money, and stress. [FN379] The average medical malpractice claim takes over eighteen months to settle or adjudicate. [FN380] Much of this time is attributable to delay as a defense maneuver. [FN381] The costs of litigating malpractice claims are significant, [FN382] and the psychological stress is real. [FN383]
The tort system provides inadequate recovery. Even after investing the time, money, and stress, the plaintiff's recovery is still likely to be inadequate to compensate her economic losses. In fact, up to forty percent of any award goes to attorney fees. [FN384] Thus, even if a patient overcomes the difficulty of recovering under the tort system and gets past the barrier of ERISA, compensation is likely to be inadequate.
The tort system breeds enormous malpractice premiums. Despite meager overall compensation, the extraordinary size of some tort recoveries has allowed insurance companies and others to create the impression of a medical malpractice crisis. This perception has allowed malpractice insurers to raise premiums astronomically. [FN385] For example, high-risk specialists *75 such as neurosurgeons and obstetricians in high-risk states such as New York and Florida pay annual medical malpractice insurance premiums of $100,000 to $200,000. [FN386] During three years in the 1980s, total medical malpractice premiums skyrocketed from $2 billion to more than $5 billion. [FN387] It is important to keep this in perspective: The average physician pays medical malpractice premiums of only $16,000. [FN388] Nevertheless, the overall increase in expenditures for malpractice insurance translates into increases in the cost of health care for everyone.
The tort system provides ineffectual deterrents. Whether the tort system deters substandard care is, at best, speculative. [FN389] The question is whether third-party payers will alter their behavior to conform to the legal standard for cost containment activities indicated by tort recovery. For instance, testing for glaucoma in persons under the age of forty was once seen as medically unnecessary because of the infrequency of the condition in that age group. But after Gates v. Jensen, [FN390] physicians may have begun to test persons under forty more frequently as a form of defensive medicine-they test to avoid liability, not to diagnose a specific condition. Third-party payers would not necessarily react in the same way. They could view the court as wrong and not conform their behavior, or they could simply ignore the court altogether, confident that traditional liability theories would not reach them. After all, only theoretical possibilities have been articulated, and no real and substantial deterrent effect has been proved. [FN391]
Consequently, whether viewed from the perspective of the nonrecovering patient, the premium-paying physician, or the damages-paying third-party payer, the present system is inadequate to handle the task of fairly distributing the cost of injuries. In addition to fairness problems, the present system exacerbates the cost of medical injuries through transactional costs, social costs of delay and disability, individual costs of fearful practitioners, and what may be developing as a systemic cost of defensive medical practice.
*76 These problems are based on the preexisting system of health care delivery, which was based on the singular relationship between provider and patient. The new relationship between third-party payers and providers, developed through the introduction of managed care, will result in additional and new kinds of injuries to encumber and tax an already overburdened system. Because managed-care injuries have such difficult problems of proof and are so indirect in causation, those injuries widen the gap between injury and compensation. For these reasons, it would be wise to consider some alternative to the present tort system to allocate the burden for injuries.
B. Elements of a Medical Injury Compensation Fund
This Article proposes, in general terms, an alternative system of medical injury compensation analogous to the widely accepted workers' compensation system. [FN392] Workers' compensation systems are based on the premise that injuries arising out of, and in the course of, one's employment should constitute an expense of doing business and that, therefore, the level of fault is irrelevant in most circumstances. [FN393] Recovery for one's injury is certain, and proof problems are limited. [FN394] On the other hand, the amount of recovery is less than full. [FN395] The injured employee's medical expenses are fully covered, [FN396] her rehabilitation expenses are usually fully covered, [FN397] and her loss of earning capacity recovery is limited. [FN398] Thus, the amount of money received by the injured employee does not make the employee whole. [FN399] However, because the transactional costs to the injured employee are minimal, the employee may, in real dollars, recover at about the same level as if the employee went to trial. The objectives of the system are to get *77 the employee back on the job and to induce employers to avoid on the job injury.
Like workers' compensation, the medical injury compensation fund would compensate quickly, correctly, and without regard to fault. An effective compensation scheme will deal with several issues: defining the compensable injury, determining the amount of compensation, financing the scheme, notifying the public of the existence of the fund and the performance of providers, defining exemptions, and covering legal fees for denied claims.
1. Defining Compensable Medical Injuries
The primary focus of the compensation fund would be on whether the patient incurred a medical injury. The fund would compensate for injuries arising out of, and in the course of, health care treatment. While the well-developed case law interpreting the workers' compensation requirements could be used by analogy, there are unique definitional problems, the most significant of which is defining “medical injury” itself. Certainly not all consequences to a patient should be covered. In particular, those physical conditions that are the natural consequences of disease or the aging process would not be covered.
Essentially, compensable medical injuries would be composed of four categories: treatment injuries, drug injuries, cost containment injuries, and informed consent injuries. For example, in the area of drug therapy, treatment injuries would consist of injuries caused by giving the patient the wrong medication or the wrong dosage of medication, or by failing to give needed medication. Drug injuries would be caused by an injurious reaction to an otherwise appropriately prescribed drug. Cost containment injuries would be caused by the refusal of the third-party payer to authorize payment for an essential and expensive drug. Informed consent injuries would result from the failure to inform the patient of the probable side effects of an otherwise appropriately prescribed drug.
Because the possibilities of fraud in connection with claims of failure to inform are so great, it is proposed that these claims be left to the existing tort system. [FN400] To include these claims in the compensation system would be inappropriate because the claims are peculiarly tied to conduct rather than status or circumstances.*78 The focus for questions of causation in the other three categories is on the source of injury, as in a workers' compensation system, and not on the conduct of the actor.
Another problem is defining the point at which subsequent injuries become so attenuated that they should not be covered by the system. As in workers' compensation, a medical injury could result from a previous medical injury or from complications of an initial condition.
As noted, a medical injury compensation fund will have difficulty defining an injury. Unlike the tort system, however, problems of proof of causation are almost nonexistent. A person wishing to recover from the medical injury compensation fund will only have to prove that (1) there was a medical injury and (2) the injury occurred in the course of medical services.
2. Compensation
Compensation would be limited but adequate to meet the patient's economic need, which is not necessarily the same as her economic loss. While limited recovery is a necessary part of a compensation scheme, recovery should not be so limited that it fails to act as a deterrent to unsafe medical and managed care practice or causes an economic hardship to the injured patient. To meet these requirements, the fund would compensate for medical expenses, [FN401] economic expenses, [FN402] and disabling pain and suffering. [FN403]
3. Financing the Fund
The fund would be financed by premium payments from all health care providers, health care institutions, and managed care organizations. All health care providers (e.g., physicians, hospitals, nurses, nursing homes, laboratories) licensed by a state to provide any kind of health care services would pay into the fund. The providers' payments could be based on a set premium or on a percentage of gross income from providing health care services.
*79 Whatever the initial mechanism, subsequent premiums would be adjusted on the basis of the injury experience in the particular medical field and on the basis of individualized claim experience. Physicians in high-risk specialties in high-risk states would pay the highest premiums, and individual physicians with high-claim experience would pay higher premiums. Similarly, third-party payers' premiums could be based on both the risk they undertake and their actual claims history. The fund can act as a deterrent to unsafe practice if premiums are based on actual claims history-both the number of claims and total amount paid out for the claims.
4. Duty of Public Notice
The authorizing statute of the fund would create a duty on the provider, institution, or organization to notify all patients of the fund's availability, benefits, and limitations. In addition, it would require publication of risk experience. These requirements would assure that patients were aware of their rights and could exercise those rights before the running of the statute of limitations. It would also provide patients with information that they could use to evaluate providers or procedures. [FN404]
5. Exemptions
Intentional and malicious conduct would be exempted from the fund, and the patient would continue to have a tort cause of action, but without the defendant having any of the usual conduct defenses. Refusal or failure of the physician to participate in the fund would give the patient the option of recovery against the defendant (at three times the normal recovery) or recovery in tort without the defendant having conduct defenses.
6. Attorney's Fees
If the patient brings in an attorney because of a denial of a claim, a prevailing patient's costs of suit or administrative costs, excluding attorney's fees, would be payable by the defendant. The patient and the attorney could make any appropriate agreement concerning attorney's fees, but the department of medical injury compensation would have the authority to approve or disapprove any attorney's fee agreement. If the *80 department disapproves, the attorney's services would be compensable under a statutorily set rate.
C. Problems of a Medical Injury Compensation Fund
Implementing a medical injury compensation scheme presents several difficulties. The first problem is the ability to maintain fiscal stability in the face of increasing participation. The second problem is curing and preventing the occurrence of fraud, abuse, and malingering. The third problem is state and federal constitutional challenges. Finally, because a scheme such as this would have to be enacted legislatively, the fourth problem is political feasibility.
1. Fiscal Stability
Any compensation scheme that proposes to include one hundred percent of medical injuries will face issues related to fiscal stability. Workers' compensation schemes continuously confront issues of continued fiscal viability. [FN405] In general, the rising cost of medical care for the injured worker has placed workers' compensation systems in jeopardy. [FN406] The state can absolutely control by statute the amount of benefits received by the injured worker herself, but cannot control medical costs. However, the definitions of temporary total disability, temporary partial disability, permanent total disability, and permanent partial disability have been altered by the courts over the years that workers' compensation systems have been in place, so that the length of recovery time allowed for any particular injury has expanded over time. [FN407]
This problem precurses a decision that must be made in connection with a medical injury compensation scheme: whether to compensate on the basis of simple physical impairment, such as loss of bodily function, or the more complex loss of earning capacity. The issue of increasing costs of medical services should not be as significant in the case of a medical injury compensation fund because the additional compensation for medical injuries would be a quid pro quo to offset medical cost containment efforts, such as utilization review and financial risk shifting. These cost containment efforts should prevent the *81 fiscal instability arising from runaway medical costs that have plagued workers' compensation systems.
2. Fraud, Abuse, and Malingering
In any system where compensation is made not on the basis of conduct but on the basis of status, the problems of fraud, abuse, and malingering are intensified. [FN408] Ordinarily, a person who seeks medical treatment seeks the care for physical, mental (psychological), or social reasons. A compensation scheme adds an economic incentive. Physicians are trained to distinguish between physical, mental, and social causes for illness or articulated symptoms but are not necessarily adept at identifying economic causes. Thus, curing fraud, abuse, and malingering will be a problem with a medical injury compensation scheme just as it has been a problem with workers' compensation. Still, the benefit of providing compensation to the significant number of injured individuals who have been previously excluded outweighs any additional costs of overcoming fraud, abuse, and malingering. [FN409]
3. Constitutionality
In workers' compensation, a takings issue arises because the employer forgoes its defenses and the employee gives up a right to full recovery, both of which are arguably property rights. In New York Central Railroad v. White, [FN410] however, the Supreme Court held that the government has a right to add to, and subtract from, defenses as a right of sovereignty. [FN411] The Court also held that because the workers' compensation system incorporated a quid pro quo (foregoing defenses in exchange for foregoing complete recovery), the scheme did not constitute a taking. [FN412] A medical injury compensation scheme incorporates the same quid pro quo. Health care providers give up their *82 defenses, and patients give up their right to full recovery. Over the last ten years, however, the Supreme Court has dramatically altered its view of what constitutes a taking, so that its attitude about workers' compensation schemes may no longer hold. [FN413]
4. Political Feasibility
Only a few years ago, the political feasibility of instituting a medical injuries compensation scheme would have been questionable. There was little public concern about the so-called medical malpractice crisis and powerful opposition to such a scheme. [FN414] Both attorneys and insurers had powerful lobbies that could effectively oppose any state or federal attempts to institute a medical injuries no-fault scheme. [FN415] The recent focus on the need to reform the health care system to control cost may make a medical injury compensation scheme more appealing. [FN416] In effect, the quid pro quo for instituting utilization review, financial risk shifting, and other cost containment measures should be the compensation of all medical injuries.
D. Benefits and Consequences of a Medical Injury Compensation Fund
A medical injury compensation fund would have several benefits. One benefit would be an overall reduction in administrative costs for medical injuries. Another benefit would be significantly increased participation in this recovery system over the tort system. As participation increased, however, potential monetary recovery would be reduced. The most significant benefit would be spreading the cost of managed care injuries to managed care products. The fund would avoid the problems that traditional tort theories present and would also avoid the barrier that ERISA presents.
1. Reduced Administrative Costs
Administrative costs would be reduced. The time and delay of traditional jury trials are not present in the typical workers' *83 compensation scheme and would not be present in the medical injury compensation fund. [FN417] Instead, authorizing legislation would impose strict liability on health care providers and organizations. [FN418] Thus, society's interest in preventing economic hardship and reducing transactional costs would be elevated over the attribution of fault. This elevation would allow for faster claim administration. [FN419]
2. Increased Participation
Currently, of every one hundred patients who experience a medical injury, approximately six receive compensation. [FN420] Under a medical injuries compensation fund, all one hundred would receive compensation. Although patients who cannot prove an injury or prove that an injury occurred in the course of medical care would still not recover, they by definition do not have a medical injury.
3. Reduced Monetary Recovery
Reduced monetary recovery by the patient is necessary to limit the economic liability of the health care providers and of society as a whole. [FN421] The limits on societal resources require that some of the risks of medical treatment be apportioned to the patient.
Of every one hundred patients who suffer an injury during and related to medical treatment, seventeen have injuries falling within the present concepts of provider negligence. [FN422] Of these, only four receive any compensation. [FN423] Thus, a scheme compensating all one hundred injured patients could cost about twenty-five times as much as the present system; a scheme compensating only the seventeen injuries because of provider fault would cost about four times as much. Even assuming a dramatic increase in system efficiency, resulting in only thirty percent of the premium dollars being lost in transactional costs, the scheme would still cost three to seventeen times as much as *84 presently. [FN424] Consequently, as noted by one author, “economic realities require patients to carry some of the risk of injury.” [FN425]
4. Greater Spread of the Cost of Managed Care Injuries
Current tort theories are inadequate to encompass managed care injuries. The doctrines of corporate negligence, respondeat superior, and ostensible agency are all inadequate to spread the cost of managed care injuries because they focus on the negligent conduct of providers and not on the utilization review process or financial risk shifting. Attempts to hold the managed care product directly liable for utilization review and financial risk shifting have not been able to overcome the tendency of courts to focus on the character of the decision-making conduct rather than on the inevitability of effects on individual patients. Thus, when trying to hold managed care directly liable, the problems of burden of proof continue to prevent liability from attaching. These problems are overcome with a medical injury compensation fund, because all medical injuries, regardless of the source, would be covered.
E. Summary
The goals of the current tort system to compensate victims and to deter substandard medical care cannot be met for either existing medical injuries or managed care injuries. In contrast, a medical injury compensation system, like workers' compensation, could compensate quickly, correctly, and without regard to fault. Such a system would not only have the advantage of increasing compensation from four percent to one hundred percent for medical injuries, it would also be an efficient way of covering medical injuries caused by health care cost containment efforts, thus spreading the risk of cost containment throughout society.
