What Does ‘Tort Reform’ Mean?

By Robert Kessler
  • Monday, July 8, 2002

Our healthcare crisis here in Nevada is getting worse. For the last several months we have heard many prescriptions for a solution. Doctors and insurers want reform of tort (personal injury) law, but lawyers don’t. Recently, several patients expressed confusion as to what tort reform really is. So the following is intended to help explain.

In 1975, California was in a crisis similar to the one we are experiencing now. That state enacted groundbreaking legislation called the “Medical Injury Compensation Reform Act,” or MICRA. This act changed the rules of lawsuits:

  • It caps non-economic damages at $250,000. Economic damages (medical expenses, lost earnings, etc.) are not limited.
  • It allows a defendant to tell a jury about damages already paid by someone else (collateral source rule).
  • It limits attorney fees. Rather than the usual fee of 40 percent of the whole settlement, attorneys under MICRA can charge 40 percent of the first $50,000, 33 percent of the second $50,000, 25 percent of a settlement between $100,000-600,000, and 15 percent of a settlement over $600,000.
  • MICRA sets the statute of limitations at three years from the injury or one year from the discovery of negligence.
  • It allows payments for a patient’s future expenses to be paid in the future.
  • It allows patients and their doctors to agree to binding arbitration.

Those who oppose this type of legislation argue that it limits how much an injured patient gets. So let’s examine the effects of MICRA on injured patients. Without reform, a settlement is usually divided like this:

  • The attorney gets 40 percent of the whole settlement,
  • Then costs are taken out,
  • Then the injured patient gets anything left.

With reform, the time it takes to settle a lawsuit in California is 23 percent shorter than in states without these reforms. Thus, not only does the trauma of the suit end sooner for everyone, but also the costs are lower. And lower costs means more money is available for the injured patient. Because of this, and because MICRA limits attorney fees, an injured patient awarded $1 million winds up with an extra $111,000. In 2001 there were 24 California cases settled for more than $1 million. Because of the MICRA reforms, patients in these cases received a combined total of $13.7 million dollars more.

You’ve heard allegations about injured patients who might get less than they deserve from a lawsuit if tort reform was enacted. One recent statement was, “Would $250,000 be enough to compensate someone who had the wrong leg cut off?” But the storyteller only mentioned the limited, non-economic damages—leaving out the economic damages, which remain unlimited. For example, were that person a 30-year-old carpenter making $40,000 annually, his total award would include damages of $1.4 million for lost wages (absent increases for inflation), plus medical and other costs. In addition, he could receive up to $250,000 in non-economic damages. Without MICRA, lawyers typically take 40 percent off the top of the settlement, after which expenses are deducted—leaving the patient with what’s left (if any).

With any change, some people will get more and some will get less than otherwise. But on average, an injured patient in California receives $14,000 more than he or she would have without the MICRA reforms. In fact, before MICRA, injured patients got only 34 percent of the average settlement in California. With MICRA, costs and attorney fees are lower, so deserving patients receive more of the money.

There are, of course, stories like these told by people on both sides of the issue. Those opposed to tort reform tell of people who were limited in how much the jury could give them. Those for tort reform tell of patients who were awarded money by the jury but didn’t get a dime after costs were deducted. I believe my statistics are accurate, but check for yourself. Talk to your friends and neighbors. Find one who has been involved in a lawsuit and ask how much of the settlement they received. If they received more than half, call your state and federal representatives and tell them the lawyers are right, tort reform is unfair to injured patients. But if they received less than half of the settlement—as most do—demand tort reform now. And if your representatives try to tell you tort reform is unfair to injured patients, tell them you know better.

Robert Kessler, D.O. lives and practices in Boulder City. He is a health policy fellow with the Osteopathic Heritage Health Policy Fellowship. He is also a policy fellow with the Nevada Policy Research Institute.

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