Civil Justice Memo
No. 22 September 1990
by Walter Olson
Every reporter knows lawsuits make good copy: they're violent, unpredictable, and expensive, and tend to show off the worst (and occasionally best) sides of human nature.
Lawsuit reform makes good copy too. Or so we conclude from a ceremony at Los Angeles's Four Seasons Hotel June 25. The event marked the presentation of the 1990 Gerald Loeb Awards, which honor the best financial journalism of the year past.
This year the magazine winner was Forbes for its story last October headlined "The Litigation Scandal." Our good friends Peter Brimelow and Leslie Spencer, in a tour de force of investigative journalism, dug up evidence that dozens of plaintiffs' injury lawyers around the country have amassed huge fortunesoften raking in $10 or $20 million a yearthrough methods that frequently skirt ethical lines. (Peter and Leslie's able colleague Deirdre Fanning explored the world of top corporate and Wall Street lawyers, which as it happened was very much less lucrative than that of the contingencyfee elite.) The article will be a basic building block of reform analysis in the years ahead; it belongs on the desk of every American concerned about our legal system.
The Loeb Award for best commentary went to another journalist whose courage and incisiveness we've long admired, Gordon Crovitz of The Wall Street Journal. Gordon won for his columns on abuses of the RICO law, a topic he addressed before a large audience at a Manhattan Institute conference a couple of years back. No one has done more to sound the alarm about the threat this law poses to our civil liberties.
The coming years will be exciting times for legal journalism, as the immensely lucrative new litigation industry begins to come under closer scrutiny from the general as well as the legal press. What was once a trickle of writing is turning into a steady stream:
In Upside, a Silicon Valley business magazine, journalist Nancy Rutter exposes some scandalous abuses of stockholder classaction lawsuits by rapacious litigators ("Shareholder Suits: Getting Mugged on the Courthouse Steps," April 1990);
In the September American Spectator, a cover story by Robert England explores the farflung influence of the organized plaintiffs' bar in American politics;
And, as this goes to press, Peter Brimelow and Leslie Spencer have struck again in Forbes with a fresh expose of the influence of the contingencyfee industry on what calls itself the "public interest" movement.
While our hat is off to Forbes, let us tip it once more to our own Peter Huber's everysecondissue column there, which contains some of his choicest writing on science and the law. We've attached two of our favorite columns from over the summer.
Insights FORBES, APRIL 16, 1990
Commentary by Peter Huber
MALPRACTICE LAW—A DEFECTIVE PRODUCT
"More medical malpractice than lawsuits," barked a recent front-page headline in The New York Times. "Thousands of hospital deaths and tens of thousands of injuries are tied to negligence each year," but "relatively few victims seek recourse in the courts." Says who? Says a major Harvard study of malpractice in New York hospitals, described by the newspaper as "perhaps the most comprehensive ever conducted in the U.S."
That description of the Harvard study reads like an advertisement for America's trial lawyers—which, in a way, it is. Defenders of the liability system are milking the study for all it's worth. In February, on separate podiums, I debated liability first with Robert Conason, a prominent New York plaintiffs' lawyer, then with Ralph Nader, surely the plaintiff bar's favorite consumer activist. Nader and Conason could hardly suppress their delight over the Harvard report and its attendant publicity.
Can it really be that we advocates of tort reform had it all wrong? That what America really needs is more malpractice litigation, higher insurance premiums and yet another overall rise in doctors' bills? Rest easy. The Harvard study, judging by the advance reports, is quite a different document than one might have been led to believe by the headline in the New York Times.
First revelation: Yes, there is negligence in New York hospitals. Substandard medical care harmed about 1% of hospital patients, according to the Harvard study. Extrapolating from which one may conclude that negligence "contributed to" 7,000 deaths and an additional 29,000 injuries in New York hospitals in 1984. Sometimes the "contribution" will be grave; sometimes it will shorten life by as little as a day, but this is detail. Extrapolate nationwide, as Nader and Conason both enthusiastically did, and you are talking "worse than Vietnam" (Conason) or "worse than all highway accidents" (Nader). For my part, I can easily believe the Harvard numbers. Hospitals, being filled (like my Washington, D.C. neighborhood) with sharp knives and potent drugs, are dangerous places to frequent. I'm stuck with the neighborhood, but I heartily avoid hospitals except when my condition makes it even more dangerous to remain elsewhere.
Second revelation—the one that has Nader and Conason beaming: The Harvard study found that only 8 out of 306 Harvard-certified victims of negligence went to court. Which is to say, 97% didn't. For Nader and Conason the implication is obvious. The country needs more lawsuits just as they always told you, the crisis lies with malpractice itself, not with liability.
Third revelation, the one buried at the end of the Times story, the one not dwelt on by either Nader or Conason until I was rude enough to mention it: Only 8 of the negligence victims sued, but another—39 patients—who were not victims of any negligence, according to the study—also sued. In other words, over 80% of the patients who did sue had no basis for doing so.
So there we have it. Nader and his friends will tell you that the lawyers miss 97% of cases involving true negligence—though it may well be that many patients, wiser than many lawyers, simply choose not to sue. But over 80% of the cases lawyers do file involve no negligence. And this is only the beginning. Additional layers of error are inevitable when claims actually get to a jury.
Of course a 1% rate of negligently caused harm in hospitals is not acceptable; no avoidable harm is ever acceptable. Yes, we do need mechanisms to weed out the incompetent fringe of the medical profession. But most doctors fear, with some justification, that stricter disciplinary measures by hospital boards will be answered with yet another round of litigation, this time for libel, wrongful discharge, or anti-competitive denial of hospital privileges.
A doctor need not be paranoid to fear the lawsuit both coming and going. When college basketball star Hank Gathers died on the court last month, his family vowed to sue various doctors who—at Gathers' request—had reduced the dosage of a drug prescribed for his irregular heartbeat. A few days earlier, another player died of a heart attack following a game—but only after filing a career—disruption suit against the doctor who had advised him that he didn't have a heart for basketball. Hospital review boards face similar legal dilemmas in every disciplinary proceeding they consider.
The big news in the Harvard study is not that some patients get substandard medical care in hospitals. After all, we don't live in Lake Wobegone, where all the children are above average. On the medical side of the ledger, what's striking about the study is that an astonishing 99% of patients apparently received treatment without any negligently caused harm. My cynical mind is inclined to doubt that hospitals are really that good. But even if they're twice as bad as the Harvard study suggests, the doctors are obviously performing vastly better than certain other professions.
The legal profession, for example. Imagine that the manufacturer of a car or contraceptive delivered a product that was defective 80% of the time. Imagine that some diagnostic laboratory ran tests that produced 97% false negatives and 80% false positives. Or imagine that some doctor failed to diagnose 97% of all patients with gangrenous legs, and that when he did reach for a scalpel he applied it to the wrong limb over 80% of the time. Do you think that Nader might demand reform? I would. Lawyer, sue thyself.
Insights FORBES, JULY 9, 1990
Commentary by Peter Huber
THE LAWYERS VERSUS THE HOMELESS
It has become "a rich man's drug for a poor man's disease," remarks one observer. The drug is Clozaril, developed by Sandoz Pharmaceuticals in the early 1960s. It is now recognized as a breakthrough therapy for schizophrenia, which means Clozaril could do far more for the homeless in this country—many of whom are schizophrenic—than all of the endless posturing on the issue from Washington. Congress could make the drug widely available to the poor with a onesentence, zero-cost bill. Everyone would benefit, except lawyers. So count on it that nothing whatsoever will be done.
Here’s the picture. Schizophrenia afflicts over 2 million Americans, who are often completely destitute because they cannot work or sustain contact with family and friends. Many of them thus spend decades in squalid institutions or end up on the streets.
Clozaril, by all accounts, does wonders. It is the first drug to treat the schizophrenic's apathy, anxiety or catatonia. It produces none of the serious side effects of conventional antipsychotic drugs. But 1% or 2% of patients on Clozaril will develop a rare and potentially fatal blood disease. Careful monitoring, however, can identify these patients before they are seriously harmed.
In a rational world, Clozaril would be classified a prescription drug, to be distributed with a careful warning to doctor and patient, and that would be that. Many lives that would have ended in misery on the streets would be saved. Tragically but quite predictably, some patients would get the medicine without adequate monitoring, and some fraction of those would then be killed by the treatment. Sandoz would continue to work calmly with the Food & Drug Administration and prescribing doctors to prevent such accidents. The risk would never be completely eliminated, but accidents notwithstanding, the world would be much improved.
This is in fact pretty much what has happened in Europe. Clozaril was introduced in the 1960s, then withdrawn when the fatal side effects first became apparent. After further tests, the drug was reintroduced; by mid1989 it was available in Switzerland, West Germany, Austria, Denmark, Finland, the Netherlands and Portugal, and was undergoing clinical trials in the U.K. The cost is reported to be as little as $30 per week.
The American scene is rather different. The FDA got around to approving Clozaril in February 1990, almost three decades after it was first tested in Europe. But Clozaril is going to cost U.S. patients $175 a week. That's $9,000 a year, which means that thousands who need the drug aren't going to get it. By current estimates, Clozaril is now available to fewer than one in ten patients who might benefit from it.
No one wants to say this openly, least of all Sandoz, but you can charge this mess to the American legal system. The law used to insulate drug companies from the misuse of prescription drugs with a simple, reliable rule: Once the manufacturer supplies a proper warning to the doctor, subsequent misuse is the sole responsibility of the doctor, pharmacist or patient. But in its boundless folly, today's American law insists that drug companies remain broadly liable for misadventures involving their products, even if the fault rests far downstream.
Sandoz has therefore decided to do precisely what the U.S. legal system demands: It is taking responsibility not just for the drug but for every detail of its distribution and use. Sandoz will market Clozaril through a health agency, Caremark Homecare Inc., which will supply the drug only in exchange for a weekly blood sample. Courier connections between Sandoz and Caremark outlets allow Sandoz to maintain a national, uptotheminute database of Clozaril patients. Of course, such things cost.
From Sandoz' perspective, however, almost no cost is too high. Here's what Sandoz must surely fear. It's 1995 and Congressman Henry Waxman has seized on the Clozaril "tragedy" as another opportunity to flail at the FDA. After the first lash or two, the FDA is tearfully considering a complete ban of the drug. In 1996 superlawyer Stanley Chesley assembles a class action on behalf of 1,100 Clozaril users in a federal courtroom in Cincinnati. Thereafter Sandoz' legal department is the fastestgrowing division of the company.
For obvious reasons, this is a quagmire Sandoz does not care to explore. Sandoz is understandably reticent about how things might go wrong: A spokesman for the company just delicately points out that the company "simply cannot afford any fatalities."
Thus, yet again, our unlimited right to sue eclipses our right to do more important things. Doctors, pharmacists and patients, in any combination, would readily assume the risk and accept responsibility for Clozaril if they could. But the law no longer affords them any legally effective way to do so. Warnings, waivers, consent forms and such—the traditional ingredients of a binding private contract—just aren't reliably enforced in court anymore, at least not when matters of health and safety are affected.
Anatole France observed that the law, in its majestic impartiality, forbids the rich and poor alike to sleep under the bridges of Paris. Our laws are equally fair. Rich and poor retain an unbounded right to sue anyone (like Sandoz) who might somehow be blamed for hurting them. But as he freezes on the heating grate, the homeless schizophrenic who can't get Clozaril may, in some passing moment of lucidity, wonder whether he wouldn't be better off without his goldplated right to sue.