Tort reform

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http://www.economist.com/node/18712311

Tort reform          Sorry, losers


      New efforts to control costs could make it scarier to sue

              May 19th 2011              | AUSTIN                    | from the print edition


              
Endangered species?



SOME bills are much more contentious than suspenseful. Take Texas’s new “loser pays” measure. The bill, an extension of the state’s much-vaunted 2003 tort reforms, would make some people who lose a lawsuit responsible for the legal fees of their opponents. Even some winners would be on the hook, if the jury award is much less than they had previously been offered in a settlement. Rick Perry, the governor, has designated the reform an emergency matter, and on May 9th it easily passed the state’s House of Representatives, thanks to the huge Republican majority there. It is now with the state Senate, which also has a Republican majority. They will fiddle with the language. But Mr Perry should be getting his pen ready.


Texas’s “loser pays” provision is the latest in a series of such reforms. Tort reform has long been totemic to the political right, which argues that the current system allows trial lawyers to seek extortionate settlements for alleged damages. That creates extra costs for business, encourages litigiousness and warps sectors of the economy. According to some assessments, the costs of the tort system are equivalent to almost 2% of GDP each year.


Tort costs are especially heavy in health care. Many doctors spend thousands of dollars each year, if not each month, on premiums for medical-malpractice insurance—not because American surgeons and dentists are especially disposed to malpractice, but because a lost lawsuit could be ruinous. Tort reform has been back in the spotlight as concerns about government spending and health-care costs have spurred new looks at cost-saving, confidence-boosting measures. In January, as protesters were preparing to bundle into the Wisconsin state capitol to support unions, Governor Scott Walker signed a package that caps punitive damages for personal injuries, among other provisions. Last week the Tennessee General Assembly passed a similar bill capping non-economic damages.
      
  There is also action at the national level. Congress is considering a bill that would cap awards and lawyers’ fees and put a three-year statute of limitations on medical-malpractice claims. According to a report from the Congressional Budget Office, the measure would reduce the federal government’s health spending by $34 billion between 2011 and 2021. The projected savings would mostly come from lower premiums, along with a slight decline in “defensive medicine”—doctors ordering unnecessary tests and procedures to cover themselves against possible lawsuits.


Critics say that medical care will deteriorate if damages are capped. There is no evidence of this. Texas’s rate of workplace injuries, for example, is lower than the national average. Tort reform can also help states attract or retain businesses and workers, particularly in the health sector.


But even if tort reform could save the country several billion dollars a year, that is still just a sliver of overall health spending. It may be that tort reform is most valuable as a signalling device. It shows that a state cares about business. That would go some way to explaining why tort reform is such a priority for crusading fiscal conservatives. Frivolous lawsuits are, along with criminal aliens and fraudulent voters, a bit of a bogeyman. They do exist, but are hardly as ubiquitous as the thundering rhetoric would suggest.

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