Hidden reason behind tort reform

    I recently became aware of a website - www.sickoflawsuits.org.  It makes a number of claims that America needs lawsuit reform.  One argument they make is, “Frivolous lawsuits threaten our healthcare” because “Doctors are afraid to practice medicine”.  Another claim they make is, “Frivolous lawsuits threaten medical innovation and jeopardize patient health”.

    If this is true, then one would expect that healthcare companies would be doing very badly as far as trying to make a profit.   Yet the May 16, 2005 Investor’s Business Daily list of top 100 stocks based on growth include the following companies:

    12    Ventana Medical (VMSI)develops products for drug testing
    18    Cantel Medical (CMN) manufactures products for dialysis patients.
    23    Syneron Medical Ltd (ELOS) manufactures products for doctors.
    32    Kindred Health (KND) operates 255 Nursing Centers in 30 states.
    43    American Healthways (AMHC) provides comprehensive care to health plans and hospitals.
    47    DJ Orthopedics (DJO) designs surgical products
    48    Aetna (AET) provides managed healthcare services to 13 million members
    53    Healthcare Services Group(HCSG) provides housekeeping/laundry/food to nursing homes
    58    Coventry Health Cr (CVH) managed health care company
    63     UnitedHealth (UNH) provides health care coverage and related services
    64    Wellcare Health (WCH) provides managed healthcare through medicaid and medicare to 747,000 members.
    80    United Surgical (USPI) operates 75 surgery centers and 12 surgical hospitals
    87    Triad Hospitals (TRI) - operates 52 acute care hospitals in 15 states
    89     Community Health Systems (CYH) - operates 71 hospitals in 22 states
    98    Radiation Therapy Services (RTSX) - provide radiation services through 41 free-standing and 11 hospital based treatment centers in 8 states

    If doctors are afraid to practice medicine, how could 3 hospital companies be listed among the fastest growing companies with other stocks like Google, Panera Bread, Coach, K Swiss, and Bebe Stores?  If medical innovation is so threatened by lawsuits, how can the top 3 companies above prosper when they sell products to the medical industry?

    The American public is not getting the full story with regard to lawsuits.  A new study released by the Economic Policy Institute (EPI) titled "Frivolous Case for Tort Law Change," by Lawrence Chimerine and Ross Eisenbrey finds that opponents of the U.S. tort liability system have no evidence that the tort system can be blamed for economic problems, and that tort law changes advocated by President Bush will have no substantial positive effect in these areas.

    EPI examined in detail an annual estimate of the cost of the U.S. tort system published by Tillinghast-Towers Perrin (TTP), a consulting firm whose clients include many of the world's largest insurance companies. Advocates of changes to the tort system have long relied on TTP's estimates, citing them in claims that there is a tort liability "crisis" that warrants changing the tort system. Users of the TTP reports include the President's Council of Economic Advisers (CEA), which devoted an entire chapter of its 2004 Economic Report of the President to tort liability.
Economic Analysis Reveals Flawed Data

    EPI's economic analysis reveals that TTP's reports are one-sided, exaggerating the impact of the tort system and ignoring its benefits, and that evidence supporting them is shaky or nonexistent. Claims that the tort system harms the U.S. economy do not square with the data. In fact, there is a good deal of evidence to the contrary. EPI's careful examination of available data and economic trends concludes that:

    1.          Fully half of the "costs" that Tillinghast-Towers Perrin attributes to the tort system are actually transfer payments from wrongdoers to victims, which, the Congressional Budget Office agrees, are not true costs to society as a whole, as they "merely shift money from injurers to victims."

    2.    A number of economic factors, not the tort system, have caused insurance premium increases in recent years.

    3.    There is no evidence that the tort system has reduced real wages and caused job loss.

    4.    Far from harming corporate profits, product quality, productivity, or research and development spending, the tort system has actually been beneficial in all of these areas.

    5.    There is no basis for claims that tort law changes now being considered will result in more jobs.

    Unfortunately, a person has to work hard today to stay informed.  People that have a financial stake in laws changing to benefit themselves have spent a lot of money to advertise their arguments that change is needed. 

    Michael L. Neff
    www.mlnlaw.com
    mneff@mlnlaw.com

Tort tax- not for real.

http://www.epi.org/content.cfm/bp157

The frivolous case for tort law change: Opponents of the legal system exaggerate its costs, ignore its benefits

    In this article by Lawrence Chimerine and Ross Eisenbrey published by the Economic Policy Institute, the authors rebut the arguments made by big business and insurance companies that there is a “tort tax”.  “There is scant evidence for any of these claims.”

    President Bush, made "reducing the lawsuit burden on our economy" a key element of his jobs program. The White House claims that its version of tort law change will "reinforce economic growth—and translate that growth into jobs for America's workers" (Executive Office of the President 2003). 

    The President relies on reports published by  Tillinghast-Towers Perrin, a company whose clients include most of the world's largest insurance companies.  TTP makes it impossible to verify their figures because it claims that its data and methodology are "proprietary" and will not release the raw data it relies on to anyone else.

    However, one half of the "costs" that Tillinghast-Towers Perrin attributes to the tort system are not costs in any real economic sense. They are transfer payments from wrongdoers to victims. As the Congressional Budget Office points out, costs that "merely shift money from injurers to victims…are not true costs to society as a whole." (CBO 2003, 19).

    The article concludes that no evidence has been presented that the tort system has reduced real wages and caused job loss. “The claim that tort costs amount to a 5% "tax" on wages is founded on a gross overestimation of tort costs and extreme and false assumptions about tax shifting and the extent to which tort costs are random and excessive.”