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Tort Reform to Cut Budget Deficit and Create Jobs

December 2, 2010

National Commission on Fiscal Responsibility and Reform, Co-Chairmen Erskine Bowles and Alan Simpson, released a draft report titled “The Moment of Truth” that includes sweeping tort reforms to help cut the federal budget deficit and create jobs. The 18-member Commission is expected to vote on Friday to issue a formal recommendation to President Obama and Congress. The Commission estimates that medical malpractice reform will save $2 billion in 2015 and $17 billion through 2020.

As New York enters 2011 with an estimated budget deficit of $10 billion, members of The Business Council of New York State are urging Governor-elect Andrew Cuomo and the Legislature to enact sweeping legal reforms. The Business Council’s Equitable Justice = Jobs proposal includes enactment of an appeal bond cap; repealing the scaffold law; capping awards for noneconomic damages; and transparency by the Attorney General when retaining outside counsel.  The highly regarded Pacific Research Institute estimates that each legal reform would create a minimum of 86,000 jobs, expand the tax base, increase tax revenues, lower health care costs, cut insurance premiums and attract new business at no cost to taxpayers.

Excerpt from “The Moment of Truth”:

Most experts agree that the current tort system in the United States leads to an increase in health care costs. This is true both because of direct costs – higher malpractice insurance premiums – and indirect costs in the form of over-utilization of diagnostic and related services (sometimes referred to as “defensive medicine”). The Commission recommends an aggressive set of reforms to the tort system.

Among the policies pursued, the following should be included: 1) Modifying the “collateral source” rule to allow outside sources of income collected as a result of an injury (for example workers’ compensation benefits or insurance benefits) to be considered in deciding awards; 2) Imposing a statute of limitations – perhaps one to three years – on medical malpractice lawsuits; 3) Replacing joint-and-several liability with a fair-share rule, under which a defendant in a lawsuit would be liable only for the percentage of the final award that was equal to his or her share of responsibility for the injury; 4) Creating specialized “health courts” for medical malpractice lawsuits; and 5) Allowing “safe haven” rules for providers who follow best practices of care.

Many members of the Commission also believe that we should impose statutory caps on punitive and non-economic damages, and we recommend that Congress consider this approach and evaluate its impact.