Medical Groups: Litigation Expenses to Cost Taxpayers $1 Billion

A reversal of federal policy that lets trial lawyers use litigation expenses as tax deductions would result in more frivolous lawsuits, add to America's healthcare bill and result in lawyers' conflict of interest, says a coalition of 90 medical groups including the American Medical Association.

"We would object in the strongest possible terms to any change in federal tax policy that could increase meritless claims and add unnecessary costs to our healthcare system," says the group's Wednesday letter to Treasury Secretary Timothy Geithner.

The groups, which include numerous state medical societies and specialty organizations, say that if attorneys are allowed the proposed special tax deduction—for gross fee contingency contracts—it would pose a "conflict with long-standing state ethics rules against trial attorneys providing financial assistance to clients without the expectation of being paid back upon the successful conclusion of the case."

Existing rules, the groups say, "are meant to prevent a conflict of interest whereby a trial attorney's financial stake in a case is put ahead of the client's desire for justice."

The Treasury Department is considering reversing its policy that court and other litigation expenses advanced by trial attorneys are not deductible as business expenses.

"This change would encourage trial lawyers to file more lawsuits," says immediate AMA past president J. James Rohack, MD.  Even now, he added, "many physicians are forced to practice defensive medicine to protect themselves from meritless lawsuits.  The U.S. government estimates the cost of defensive medicine to be between $70 billion and $126 billion per year."