Tort Reform and Jobs

Advocates of tort reform cite the greater economic good as the chief justification for a lean, efficient tort system. There is an intrinsic connection between the efficacy of the tort system and the country's economic performance, especially where the job market is concerned. As lawmaker Joseph Nixon wrote in a review of Texas's heavily reformed tort system, "The causal connection between economic prosperity and efficient, fair courts is stronger than most people realize. The simple fact is that free people using free markets need a strong judicial system: Fair markets require fair courts." [1] The political posturing around tort reform hinged on this argument. Lawmakers in a multitude of states became staunchly devoted to an agenda that would streamline the tort system; they sought to eliminate a tendency toward "arbitrary" decision making in the courts, equipped with evidence that the courts lacked a degree of consistency in how medical malpractice decisions were made.

Texas exemplified heavy-handed tort reform efforts, and for that reason, we evaluate the economic effect of tort reform using Texas as an example. In 2003, Governor Rick Perry signed sweeping tort reform bill HB4 into law, with far-reaching consequences. HB4 imposed a $250,000 limit on noneconomic (pain & suffering) damages and created stringent guidelines for every step of a tort claim, notably where expert witnesses were concerned. 10 years after the reform was enacted, Nixon evaluated its effects through an economic lens. Supporting the argument that overzealously litigated liability claims hurt the job market, following Texas' tort reform, the number of practicing physicians in the state drastically increased from what had been an “abysmally low" rate. [2]

Tort law influences the job market in both the healthcare and insurance industries. In the three years prior to tort reform in Texas, the number of malpractice insurance companies in the state dropped from 17 to just 4. A poorly constructed, ill-regulated tort system contributed to a “drain” of physicians - the state began to experience a veritable shortage. South of San Antonio, there was not a single neurosurgeon. 100 of Texas' 254 counties did not have a single pediatrician, and 154 counties lacked any obstetricians. Texas also has the most counties in the country, almost 100 more than its immediate second, Georgia - this could potentially skew perception of the distribution of physicians.

After long, arduous debates (HB4 became the most debated bill in Texas history), the new medical tort laws went into effect, with seemingly impressive economic impact. Speaking in support of the act the New York Times wrote, "doctors are...arriving from all parts of the country to swell the ranks of specialists at Texas hospitals and bring professional healthcare to some long-underserved rural areas.” With the number of tort suits expected to never exceed one-half of pre-tort reform levels, the landscape of Texas' healthcare industry has become decisively physician friendly (perhaps at the detriment of a patient?) At the close of 2013, the number of physicians in the state had doubled. With 60,000 physicians now practicing in the state, the number of physicians is growing at a rate twice that of the greater Texas population. They are arriving in droves to Texas metropolitan hospitals, with an addition of 200 physicians to the border community of El Paso. Hospitals have been able to take on more specialists. Memorial Hermann Hospital hired 26 pediatric sub-specialists in a single year, as opposed to an addition of one or two commons in the pre-tort reform era. With decreased liability expenses, more hospitals were able to grow their pool of employees. Texas Children's Hospital completed a multibillion-dollar expansion, taking on a lot of new physicians, nurses, and general staff. It is estimated that $10 billion in healthcare facility expansion can be attributed to HB4. Nonprofit CHRISTUS Health was able to funnel $100 million more into charity care, due to decreased liability expense. 2,000 physicians in New York have relocated their practice to Texas, due in part to New York's high malpractice premiums. It bears mentioning that the author of the report from which these statistics were obtained was the author of HB4.

Small businesses are likewise believed to shoulder some of the costs of tort liability, including medical liability. It cannot be disputed that financial strain on small businesses hurts the job market. A report by the US Chamber Institute for Legal Reform characterizes small businesses as the “engine of job growth” in America, generating 64% of net new jobs in the last 15 years. If tort litigation raises the cost of healthcare over time, this will increase the cost of employer-sponsored health insurance premiums. If a small business cannot carry the full burden of those expenses for employee benefits, they may be forced to reduce the number of people they employ. With $152 billion of the $183 billion of total tort costs estimated to fall on small businesses, it is worth evaluating the effect the tort system has on small businesses with regard to jobs. A 2007 Harris poll of business owners found that 62% of them make business decisions to eschew lawsuits. 23% said those decisions forced them to cut employee benefits; 11% said those decisions forced them to lay off employees. We can infer that these decisions were made to help keep costs down and profit up, especially in a case of a tort suit. Of those polled, 34% had had a lawsuit filed against them in the ten years prior.

Medical professionals are not conventionally thought of in conjunction with small business, but the report notes, "Although we may think of physicians and medical labs primarily in their professional roles, they are also businesses dealing with the customary issues of running a business, striving to keep costs manageable and operations running smoothly. The unpredictability and high costs of the medical malpractice system create a significant business challenge.” [3]

Statistics like those discussed above play a significant role in tort reform, underscoring its necessity from a legislative perspective. However, these statistics neglect a body of evidence that suggests tort costs are severely inflated and the impact on employment is slight. [4]

References

[1] Nixon, Joseph. "Ten Years of Tort Reform in Texas: A Review." The Heritage Foundation. N.p., 26 July 2013. Web. 26 Apr. 2017. <http://www.heritage.org/report/ten-years-tort-reform-texas-review#_ftn1>.

[2] Blumenthal, Ralph. "More Doctors in Texas After Malpractice Caps." The New York Times. The New York Times, 04 Oct. 2007. Web. 26 Apr. 2017. <http://www.nytimes.com/2007/10/05/us/05doctors.html>.

[3] Wagner, Gerhard. "Tort Liability Costs for Small Business." Tort Law and Liability Insurance Tort and Insurance Law (n.d.): n. pag. Instituteforlegalreform.com. U.S. Chamber Institute for Legal Reform, 2010. Web. <http://www.instituteforlegalreform.com/uploads/sites/1/ilr_small_business_2010_0.pdf>

[4] Eisenbrey, Ross. "The Frivolous Case for Tort Law Change: Opponents of the Legal System Exaggerate Its Costs, Ignore Its Benefits." Economic Policy Institute. N.p., 16 May 2006. Web. 26 Apr. 2017. <http://www.epi.org/publication/bp157/>.

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