Tort Reform Works…So Far…In One Specific Area

By May 13, 2008Briefly Legal, Health Care

The Aon Corp., the risk management and consulting firm, has released an analysis of liability costs and trends in the long-term care industry, and for the first time in the nine years of reporting, liability costs are stable on a national average basis. From the news release:

The study found that average general liability and professional liability loss costs nationwide are at approximately $1,460 per bed after peaking at $2,030 per bed in 1998. This trend is driven by a reduction in the average severity of claims from a high of $261,000 in 1998 to $138,000 in 2007. In addition, the number of claims (frequency) has stabilized in recent years — hovering around 10.6 claims per 1,000 occupied beds after rising from 6.7 claims in 1997.

“The impact of tort reform has been lasting, but it is not the only factor contributing to the stabilization of liability costs in the long term care sector,” said Theresa W. Bourdon, managing director and actuary for Aon Global Risk Consulting. “Many other changes, including the withdrawal of some long term care facilities operators from expensive markets, more effective defense strategies, the use of arbitration for claims settlement and significant improvements in quality of care, have combined to help alleviate the liability crisis.”

Note the clause we bolded, “the use of arbitration for claims settlement.” Arbitration contracts are one important element in a broad strategy for managing and controlling liability costs, AND, they help bring more balanced compensation when claims are justified. Arbitration is a way of replacing the roulette wheel of “jackpot justice” with a disinterested evaluation of causation, damages, and legal responsibility.

All of which explains why arbitration is under attack on Capitol Hill. Rather than a single bill limiting (or effectively banning) binding arbitration, the trial bar’s lobbyists are hoping to write anti-arbitration language into a wide variety of legislation. Right now they’re focusing on long-term care, hoping to leverage success there into more areas of law.

In April, Sens. Mel Martinez (R-FL) and Herb Kohl (D-WI) introduced S. 2838, the Fairness in Nursing Home Arbitration Act. The bill would amend the Federal Arbitration Act to ban pre-dispute arbitration agreements for nursing homes and residential care facilities, e.g., assisted living facilities. History tells us — as does the Aon survey — that the result would be higher costs with no clear benefit to care.

The Wall Street Journal examined long-term arbitration in a page one story in April.

The nursing-home industry says arbitration is relatively quick and cheap — for the elderly plaintiffs as well as the defendants — and lets homes concentrate their staff and budgets on caring for patients, not litigation. “It’s hard to keep staff focused on doing their best when there is a threat of lawsuits constantly hanging over their heads,” says Gerald Coggin, a spokesman for Tennessee-based nursing-home operator National HealthCare Corp. In Tennessee, state legislators this year introduced a bill specifically to allow the nursing-home agreements as a condition of admission, to help homes “hold down or avoid the costs of litigation,” says Democratic state Rep. Randy Rinks, one of the sponsors.

The industry was alarmed in the late 1990s by a rash of huge jury awards. In one case, $83 million was awarded in the death of a Texas woman with infected bedsores; $95 million went to a California woman who fractured her hip and shoulder when she allegedly was dropped by nursing-home staff. Both awards were knocked down by the trial judges: the Texas judgment to $56 million, and the California award down to $3.6 million. But plaintiffs lawyers were newly drawn to nursing-home suits by the big awards.

And arbitration provisions minimize the likelihood of these kinds of huge payouts, which have little to do with justice. Hence the attack against binding arbitration in Congress.

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