Correspondence

The Problems with Punitive Damages in Lawsuits against Managed-Care Organizations

N Engl J Med 2000; 342:1756-1758June 8, 2000

Article

To the Editor:

Studdert and Brennan (Jan. 27 issue)1 raise the possibility that subjecting managed-care organizations to tort liability and punitive damages might cause litigation to become widespread and disrupt “the economics of managed care for the insurer.” Although the liability system is far from perfect, the authors fail to mention countervailing considerations, and their proposal is therefore incomplete.

Managed care, like medical care in general, can have adverse effects,2 and the system must be held accountable for injury to an individual patient. Prospective safeguards such as quality competition and regulatory oversight are also needed but cannot help patients who are nonetheless harmed. The alternative the authors pose, “carefully crafted regulatory oversight,” is nowhere in sight and rests on a wishful view of policy processes. Academics can propose finely tuned policies designed to supplant a clumsy and unfair malpractice system, but actual policy processes resemble the way sausages, not clocks, are made. Indeed, because the political system has frequently been unresponsive to the public's dissatisfaction with managed care, punitive damages may be needed to pressure the industry to agree to the “carefully crafted regulatory oversight” that Studdert and Brennan favor.

The authors' speculation concerning the effect of litigation on managed care derives largely from interviews by Studdert and colleagues of industry insiders,3 who predicted that liability would force them drastically to change the way they manage their plans, including eliminating utilization review and greatly increasing premiums. We are reminded of the arguments made by hospital officials that hospitals could not survive the loss of their malpractice immunity. Events proved those self-interested arguments to be specious. The only current, rigorous evidence to date shows that managed care has been relatively unaffected by malpractice awards. State plans have never enjoyed immunity from suit under the Employee Retirement Income Security Act, yet litigation against them has had a rather de minimis effect,4 a result expected, given the documented rarity of actual claims for injury.5 Similarly, a nationwide comparison of public and private employer premiums showed that the threat of liability had no effect.6 Greater efforts are needed to reduce errors, but these cannot substitute for a fair and just means of compensating injured patients and creating incentives for reasonable policy.

David M. Frankford, J.D.
Rutgers University School of Law, Camden, NJ 08102

Sara Rosenbaum, J.D.
George Washington University School of Public Health and Health Services, Washington, DC 20006

Rand E. Rosenblatt, J.D.
Rutgers University School of Law, Camden, NJ 08102

6 References

1
Studdert DM, Brennan TA. The problems with punitive damages in lawsuits against managed-care organizations. N Engl J Med 2000;342:280-284
Full Text | Web of Science | Medline

2
Rosenbaum S, Frankford DM, Moore B, Borzi P. Who should determine when health care is medically necessary? N Engl J Med 1999;340:229-232
Full Text | Web of Science | Medline

3
Studdert DM, Sage WM, Gresenz CR, Hensler DR. Expanded managed care liability: what impact on employer coverage? Health Aff (Millwood) 1999;18:7-27
CrossRef | Web of Science | Medline

4
Hunt S, Saari J, Traw K. Impact of potential changes to ERISA: litigation and appeal experience of CalPERS, other large public employers and a large California health plan. Menlo Park, Calif.: Coopers & Lybrand, 1998.

5
Brennan TA, Leape LL, Laird NM, et al. Incidence of adverse events and negligence in hospitalized patients -- results of the Harvard Medical Practice Study I. N Engl J Med 1991;324:370-376
Full Text | Web of Science | Medline

6
Long SH, Marquis MS. Comparing employee health benefits in the public and private sectors, 1997. Health Aff (Millwood) 1999;18:183-193
CrossRef | Web of Science | Medline

To the Editor:

Among the adverse consequences that Studdert and Brennan suggest may result from lawsuits against managed-care organizations for denying medical services are further reductions in payments to physicians and hospitals and increased premiums to employers. Neither of these consequences is to be feared.

The first consequence implies that current reimbursements to physicians and hospitals are artificially elevated as a result of some kind of restraint by managed-care companies, and that the restraint will disappear if profits are reduced. Unfortunately, managed-care companies do not need the stimulus of litigation to reduce payments to physicians and hospitals — they are actively doing so right now. Given their primary focus on making money, these companies can be expected to continue to try energetically to drive down their payments, whether or not their profits are threatened by lawsuits.

The second consequence — that costs to buyers of medical insurance will increase — is valid but may have a beneficial effect. It could finally make the public, employers, and the medical profession acknowledge that good medical care and cheap medical care are contradictory goals that cannot be reconciled by the magic of managed care or alternative ways of delivering medical services. The strong public pressure to sue managed-care companies for care denied reflects the fact that this is one way that the cost of medical care is being kept down. It is time for people to understand that the promise of managed care to provide Cadillac medical care for the price of a Chevrolet is fiction. The fat in the delivery of medical care was long ago squeezed out of the system by the relentless pressure of managed care. What is squeezed out now by reduced reimbursements is what patients want — more time with physicians, timely and complete tests to diagnose disease early, and the best of care for their illnesses.

Jean-Claude Bystryn, M.D.
Kaplan Comprehensive Cancer Center, New York, NY 10016

To the Editor:

Awards of punitive damages against a large corporation actually penalize the clients of the corporation, whether it is an automobile company or a managed-care organization. The costs of the suit are passed on, and the company rarely suffers more than temporary bad press. If the chief executive officer of a managed-care company creates or knowingly condones a policy that is likely to cause injury, it would seem to be a criminal act. Perhaps legislation could be crafted to define felonious intent to withhold health care. Few corporate officers would be willing to go to prison to ensure a healthy bottom line. There would be no increase in the cost of health care and no intentional failure to provide needed services.

Victor L. Kovner, M.D.
12311 Ventura Blvd., Studio City, CA 91604

To the Editor:

It is particularly ironic that much of the impetus to increase the exposure of managed-care organizations to litigation emanates from organized medicine and individual physicians. For many years, physicians almost uniformly rejected any proposed justification of the legal system that attempted to link litigation to quality assurance, believing instead that the quality of medical care actually provided is, for all intents and purposes, irrelevant in predicting whether a malpractice suit will be brought by a dissatisfied patient or family and how such a suit will ultimately be resolved.1 It is quite unclear why physicians now believe that increased exposure to tort liability — with all its unpredictability — will effectively and efficiently have a positive effect on quality assurance when managed-care organizations, rather than practicing physicians, are thrust into the role of defendants.

In fact, the previous position of the medical profession was probably more correct. As Studdert and Brennan, as well as others,2 have noted, there is little evidence that the quality of care correlates well with the risk of being sued, let alone with the possibility of one's being found liable and assessed monetary damages. Physicians who are concerned about the negative impact of managed-care organizations on the quality of patient care would do better to continue pushing for less, rather than more, reliance on the lottery-like tort system and to put more of their lobbying eggs in the public-policy basket of carefully crafted regulatory oversight, demands for private or voluntary accreditation programs, a payment system that creates financial incentives for good patient care and outcomes, and other market mechanisms that use carrots (i.e., that reward quality) instead of crude sticks that haphazardly punish a few wrongdoers after the damage has been done.

Marshall B. Kapp, J.D., M.P.H.
Wright State University, Dayton, OH 45401-0927

2 References

1
Konner M. Medicine at the crossroads: the crisis in health care. New York: Pantheon Books, 1993:20.

2
Weiler PC, Hiatt HH, Newhouse JP, Johnson WG, Brennan TA, Leape LL. A measure of malpractice: medical injury, malpractice litigation, and patient compensation. Cambridge, Mass.: Harvard University Press, 1993.

Author/Editor Response

The authors reply:

To the Editor: The main aims of tort law are to compensate victims of injury and deter injury-causing behavior. Frankford and colleagues blur the distinction between these two aims. There is clearly a need for a fair and just means of compensating patients who are injured by substandard care. Because the tort system does not appear to provide one for the vast majority of patients who are injured as a result of negligence,1 we and others have investigated and argued for more equitable approaches.2,3

Punitive damages, however, have little to do with compensation. They are designed to deter and punish wrongdoers. Therefore, the key question is whether they can be expected to deter appropriately and to steer the behavior of managed-care organizations in the right direction — namely, toward the delivery of high-quality medical care.

Alluding to the weight of evidence in this area, Kapp answers no. We agree. Kovner suggests that the signals designed to promote deterrence are weak but may be strengthened by criminal sanctions. He may be correct, although we know of no specific legal barrier to such prosecutions today, other than the need to identify the elements that constitute a criminal act. (Except in outlandish circumstances, health insurers' conduct will not fall into this category.)

We concluded that, whatever one's degree of optimism about the influence of punitive damages on the quality of care, the prospects of other behavioral responses loom large, and many of these would adversely affect users, purchasers, and providers of health care. In a previous study we came to a somewhat similar conclusion about a related but separate trend — increases in the general volume of managed-care litigation.4 However, we did not consider the issue of compensation in that analysis.

Frankford and colleagues appropriately emphasize that patients have interests in recovering damages from insurers that harm them. Outdated federal law may (and has) undercut the ability of some to do so. However, the welfare of an individual patient or group of patients is not tied exclusively to opportunities to recover damages, and a serious disruption of managed-care markets would not be in the broader interest of patients.

How likely is a growth in managed-care litigation to cause such a disruption, and how large are the potential harms? A close look at the studies Frankford and colleagues cite shows that there is no “rigorous evidence” to answer these questions.5 We simply do not know. But as skilled attorneys set their sights on managed-care organizations, fresh from billion-dollar successes in asbestos and tobacco litigation, there are reasons for concern.

David M. Studdert, LL.B., Sc.D., M.P.H.
RAND, Santa Monica, CA 90407

Troyen A. Brennan, M.D., J.D., M.P.H.
Brigham and Women's Hospital, Boston, MA 02115

5 References

1
Studdert DM, Thomas EJ, Burstin HR, Zbar BI, Orav EJ, Brennan TA. Negligent care and malpractice claiming behavior in Utah and Colorado. Med Care 2000;38:250-260
CrossRef | Web of Science | Medline

2
Weiler PC, Hiatt HH, Newhouse JP, Johnson WG, Brennan TA, Leape LL. A measure of malpractice: medical injury, malpractice litigation, and patient compensation. Cambridge, Mass.: Harvard University Press, 1993.

3
Bovbjerg RR, Sloan FA. No-fault for medical injury: theory and evidence. Univ Cincinnati Law Rev 1998;67:53-123
Web of Science

4
Studdert DM, Sage WM, Gresenz CR, Hensler DR. Expanded managed care liability: what impact on employer coverage? Health Aff (Millwood) 1999;18:7-27
CrossRef | Web of Science | Medline

5
Gresenz CR, Pace NM, Dombey-Moore B, Hensler DR, Studdert DM. A flood of litigation?: predicting the consequences of changing legal remedies available to ERISA beneficiaries. Document no. IP-184. Santa Monica, Calif.: RAND, 1999. (See: http://www.rand.org/cgi-bin/Abstracts/abdb.pl.)

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