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Medical Groups: Litigation Expenses to Cost Taxpayers $1 Billion

 |  By cclark@healthleadersmedia.com  
   September 03, 2010

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."

The physicians' group letter makes several other arguments:

  • The change would cost taxpayers over $1.5 billion and could act as a financial incentive for trial attorneys to file less meritorious lawsuits against physicians and other healthcare providers. The average cost per case, now an estimated $22,000, would increase, money that could otherwise be used to expand coverage for the uninsured.
  • The Internal Revenue Service in 1997 says litigation expenses advanced by trial lawyers are not deductible regardless of whether a trial attorney uses a gross fee or net fee contract with clients.
  • Proposed legislation now in the House and Senate "has failed to attract enough support to hold hearings on the issue, let alone be considered by either chamber."

The groups support a national cap on pain and suffering awards, similar to that in California and Texas, which does not exceed $250,000.

"The Congressional Budget Office found that medical liability reforms that include a quarter-million dollar cap on non-economic damages would reduce the federal budget deficit by about $54 billion over 10 years. As our nation works to reduce the growth in healthcare costs, it's clear that medical liability reform must be part of the solution."

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