Liability Is a Tax
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Reprinted from NewsMax.com

Kenneth Beer, M.D.
Monday, Aug. 9, 2004

One issue that is hobbling the economy is the unseen tax placed on everything from manufacturing to health care. The tax I refer to is the liability cost in everything from workers' compensation to product liability to malpractice. These costs affect many goods and services used by Americans every day. With daily news stories reporting jobs moving abroad and a sluggish economic recovery, it would be appropriate to consider the cost to everyone (except a small group of attorneys who benefit from the crisis).

The liability crisis in this country is costing trillions in lost revenue, billions in loss to the GDP and millions in jobs lost to overseas competitors. The loss to the creative fabric of this country is incalculable as we have slid from the attitude of “can do” to “can sue.” More than tax cuts or trade agreements, tort reform could stimulate the economy and create jobs.

As a physician in private practice in Florida, I see first hand how the liability crisis affects my business. Malpractice insurance recently went from about $32,000 per year to more than $64,000 per year. Since there is no way to change fees regulated by the federal government, physicians can do little to pass on these costs.

Some are responding by retiring early or leaving the state. Others, despite their total lack of training, are pursuing cash-based cosmetic procedures such laser treatments. Still others have resorted to using physician assistants and nurse practitioners to care for their patients. This has become so prevalent in my area that most patients do not realize they are no longer seeing a doctor.

Few physicians in my area are purchasing durable goods or hiring more employees. For physicians who directly care for their patients, the only way to keep up with increased costs is to to see more patients (imagine lawyers who had their fees capped irrespective of training or reputation trying to see more clients per hour).

Inflated or unreasonable workers' compensation claims also adversely affect small businesses. In my practice I have been fighting, for over two years, a workers' compensation claim by a part-time employee who was fired by another employer. Her status with me has never changed, yet I have had to spend hours and money to fight this claim

One of my friends lost his manufacturing business when his workers' compensation insurance kept rising and he could not compete with foreign manufacturers. The result: 12 people out of work.

A local construction company is in litigation with the state of Florida for not having workers' compensation insurance. The reason it doesn’t have insurance? Not one carrier will write a policy because they cannot quantify the risk. Without a doubt, this affects not only contractors but also manufacturers – witness the recent move of 1,000 jobs by Carrier from the Syracuse area.

Product liability litigation also takes a toll on business. Every device we use or medication we prescribe has future litigation factored into its price. This price inflation means the products I purchase or prescribe cost the end user, the patient, more than it should.

It means that the cost of a cup of coffee at McDonald's is more because they have to pay to defend against serving hot cups of coffee. It means that the price of a car is less affordable because it includes the calculations of what will need to be paid out in lawsuits. Even the price of a Coke has bundled into it the cost of doing business in today’s legal environment, where litigation by a select few can drive up the costs for many. This is money that could have been invested in hardware, software, employees or technology.

It would be naive to suggest that product liability, workers' compensation or malpractice reform will be swift or simple. However, reforming it from the no-entry to play-lottery system that it presently is should seriously be considered by policy makers who want to see the economy grow and jobs return to the U.S., and to foster the creativity that has driven this country.

There are some ways to release the brakes applied by rampant litigation. These include capping contingency fees on workers' comp, product liability and malpractice suits to 10 percent. Forcing plaintiffs or their attorneys to post a bond also would be a strong disincentive toward bringing a frivolous suit.

Presently, in an effort to avoid costly litigation, unjustified lawsuits are settled by carriers. Capping awards will help by eliminating the ability of trial attorneys to “send a signal” or “punish the corporation” or “ teach the doctor a lesson” by handing down a seven-figure judgment.

Reining in these costs affects the bottom line of all businesses. It is in the interest of all the people who create, build, manufacture, employ and heal to see this done soon.

Kenneth Beer, M.D., practices dermatology in Palm Beach, Fla.