Mass Tort Medicine Men

In 1995, the executive director of the Manville Trust, Patricia Houser, became concerned about a spike in claims by people reporting nonmalignant lung disease ' primarily marginal or incipient asbestosis ' after seemingly minor exposures. Subsequently, trustees initiated a medical audit to make sure those claims were real. Under the terms of the settlement that set up the trust, trustees needed the permission of a body called the Selected Counsel for the Beneficiaries (SCB) to launch such an audit. The SCB consists of three leading national asbestos plaintiffs' lawyers: Fred Baron of Dallas' Baron & Budd; Ron Motley of Mt. Pleasant, SC's Ness Motley; and Robert Steinberg of Los Angeles' Rose, Klein & Marias. The SCB initially consented to the trustees' plan.

As Houser later explained in an affidavit she filed in March 1999: “We intentionally designed the X-ray review process to operate in favor of confirming the disease documented by the claimant and to give the benefit of any doubt to the claimant.” That procedure called for 5% of each law firm's claimants to submit X-rays. Those X-rays would then be examined by two independent, so-called “B-readers,” physicians with the highest medical certification for diagnosing occupational lung disease. If either of two B-readers confirmed the claimant's diagnosis, the trust would pay the claim. To make passing easier, the B-readers were told to accept subdiagnostic indicia of disease, less than the minimum ordinarily required by the American Thoracic Society.

At first, most firms simply did not submit X-rays as requested. Of those that did, about half failed. (Failure meant reclassification to either a less remunerative category of disease or total rejection of the claim.) In April 1996 the trust announced that firms whose pass rates were lower than 80% would henceforth have all of their claims audited, as would firms that were still failing to submit X-rays at all. At that point, as Houser relates in her affidavit, the SCB first raised questions about the trust's authority to conduct audits after all. It argued that many compromises had been struck in settling the rancorous bankruptcy proceedings of the mid-1980s, and that one of those was that claimants would be assured of swift payment of claims, even at the risk that some unqualified claims would also get paid. The audits were upsetting the bargain that had been struck.

The SCB's immediate demand, however, was simply that audits be refocused to punish doctors rather than law firms. If a doctor were found to have a high rate of error, the SCB suggested, the trust could disqualify him or her. However, it should not impose added scrutiny on the law firm that had submitted the suspect claim.

Reasonable though that proposal might sound, Houser resisted it for two eyebrow-raising reasons. Both stemmed from the trust's early analyses of the audit data. In mid-1996, the trust had commissioned bio-statisticians at Penn State University and the University of Pennsylvania to help them with that task. Houser quickly discovered that the failure rate of any given doctor often correlated with which law firm that doctor was working for at the time. A physician's failure rate might be markedly elevated when working for one firm, but quite average when retained by another. In fact, the bio-statisticians concluded, in a written report submitted to the trust in February 1998, that the particular law firm that submitted any given claim was “a strikingly significant predictor” of whether that claim would fail the audit, and that those findings exhibited “huge levels of statistical significance.” (The report does not identify any law firms by name.)

The other reason Houser was reluctant to focus on doctors, according to her affidavit, was that the pass rates of the doctors most commonly used by plaintiffs' lawyers were so poor, and the volume of claimants they diagnosed so great, that the trust faced the prospect of having to re-examine literally tens of thousands of claims. Even if the trust disqualified only doctors who fell below a lenient 50% pass rate, Houser explained in her March 1999 affidavit, “it appeared that over 70% of all claimants would have their diagnoses rejected by the trust and then be required to obtain an additional medical report.” In other words, of the approximately 60,000 new asbestosis claims that became eligible for payment in 1997, the trust would have had to reexamine 42,000 of them.

After dickering with the SCB over audit design for about a year, the trustees decided in 1998 to require all asbestosis claimants to submit X-rays, and to audit all of them. A month late, a plaintiffs' firm in Baltimore sued to stop the audits, arguing that they were unauthorized under the original bankruptcy settlement agreement. In April 1999, the challenge came before Judge Jack Weinstein of the Eastern District of New York, who indicated from the bench that he was tending toward ruling for the Baltimore plaintiffs. The parties then settled, and the audits came to an end.

What had they shown while they lasted? According to an April 1998 Manville Trust memorandum, the ten physicians most frequently used by plaintiffs' firms at the time of the audits had an average failure rate of 63%. Nine had failure rates ranging from 50% to 70%, while the tenth failed 36% of the time. (The lung conditions being diagnosed are so marginal and subjective that even the trust's own B-readers frequently disagreed with each other's asbestosis diagnoses, rendering inconsistent interpretations between 3% and 36% of the time, depending on the pair of B-readers being compared.)

Extrapolating from the audit results, we can see that the total number of suspect claims being paid by the Manville Trust is mind-boggling. Portions of the trust's vast database have been made available to researchers, including those at National Economic Research Associates (NERA), which does mass tort-consulting work for numerous corporations and insurers. Frederick Dunbar, an NERA senior economist, agreed to run some numbers for The American Lawyer. During the years 1995 through 2000, the ten high-volume doctors who had been monitored during the medical audit accounted for 70,570 asbestosis diagnoses filed against the trust, or 49.6% of all of the asbestosis claims that identified a doctor. (The Manville database identifies the diagnosing doctor for roughly 65% of the asbestosis claims filed.) The most prolific diagnosing doctor, whose failure rate was 66%, was alone responsible for 30,467 asbestosis diagnoses during that 6-year period.

It is impossible to quantify precisely how much the trust might have overpaid for misdiagnoses. Nevertheless, we do know that during the period from 1995 through November 2001 the trust paid out $940,636,943 to asbestosis claimants, suggesting that perhaps $190 million of that sum was paid for spurious or inflated claims (63% times 49.6% times 65% of all asbestosis claimants). That's assuming – conservatively, perhaps ' that most doctors who were not monitored would have proven pure as driven snow.

Even those numbers don't begin to tell the whole story. Most claimants who file with the Manville Trust also file claims against numerous other bankruptcy trusts, and then file full-fledged tort actions against scores of not-yet-bankrupt defendants as well. Most of those defendants and trusts cannot scrutinize individual claims any more carefully than the Manville Trust can. In fact, some accept the fact that the Manville Trust has already paid a claim as evidence of its validity.

Beginning to get the picture?

Roger Parloff is a non-practicing attorney and regular contributor to Fortune magazine. He has also written for The American Lawyer, The New York Times Magazine, Brill's Content, and The Wall Street Journal, among others.

Mass tort litigation provides ample opportunity for filing spurious claims. Last November, a Philadelphia federal judge sharply criticized two small New York plaintiffs' firms for allegedly having submitted dubious claims to a fen-phen diet pill settlement trust. U.S. District Judge Harvey Bartle III of the Eastern District of Pennsylvania found that 78 claimants did not, in fact, show evidence of heart valve damage, notwithstanding diagnoses to that effect by two physicians retained by the firms. One of those physicians had been paid $725,000 to interpret 725 echocardiograms, while the other was getting a contingent $1500 bonus for each diagnosed claim that was paid by the trust, the judge found.

Although it may be shocking, it is very small potatoes compared with the diagnostic irregularities that have been knowingly and routinely tolerated in the asbestos realm for years ' all while drawing essentially no press attention. Consider, for the moment, the Manville Trust, the oldest and largest settlement fund paying asbestos claimants.

After asbestos manufacturer Johns-Manville declared bankruptcy in 1982, about $2 billion of its assets were used to form the Manville Trust, a fund that pays asbestos claimants who were exposed to Johns-Manville's products. Claimants fill out forms identifying the disease category they allegedly fall into, and the trust pays out fixed sums based on a grid schedule ' x amount for nonimpairing asbestosis, y for asbestosis with impairment, z for lung cancer, and so on.

In 1995, the executive director of the Manville Trust, Patricia Houser, became concerned about a spike in claims by people reporting nonmalignant lung disease ' primarily marginal or incipient asbestosis ' after seemingly minor exposures. Subsequently, trustees initiated a medical audit to make sure those claims were real. Under the terms of the settlement that set up the trust, trustees needed the permission of a body called the Selected Counsel for the Beneficiaries (SCB) to launch such an audit. The SCB consists of three leading national asbestos plaintiffs' lawyers: Fred Baron of Dallas' Baron & Budd; Ron Motley of Mt. Pleasant, SC's Ness Motley; and Robert Steinberg of Los Angeles' Rose, Klein & Marias. The SCB initially consented to the trustees' plan.

As Houser later explained in an affidavit she filed in March 1999: “We intentionally designed the X-ray review process to operate in favor of confirming the disease documented by the claimant and to give the benefit of any doubt to the claimant.” That procedure called for 5% of each law firm's claimants to submit X-rays. Those X-rays would then be examined by two independent, so-called “B-readers,” physicians with the highest medical certification for diagnosing occupational lung disease. If either of two B-readers confirmed the claimant's diagnosis, the trust would pay the claim. To make passing easier, the B-readers were told to accept subdiagnostic indicia of disease, less than the minimum ordinarily required by the American Thoracic Society.

At first, most firms simply did not submit X-rays as requested. Of those that did, about half failed. (Failure meant reclassification to either a less remunerative category of disease or total rejection of the claim.) In April 1996 the trust announced that firms whose pass rates were lower than 80% would henceforth have all of their claims audited, as would firms that were still failing to submit X-rays at all. At that point, as Houser relates in her affidavit, the SCB first raised questions about the trust's authority to conduct audits after all. It argued that many compromises had been struck in settling the rancorous bankruptcy proceedings of the mid-1980s, and that one of those was that claimants would be assured of swift payment of claims, even at the risk that some unqualified claims would also get paid. The audits were upsetting the bargain that had been struck.

The SCB's immediate demand, however, was simply that audits be refocused to punish doctors rather than law firms. If a doctor were found to have a high rate of error, the SCB suggested, the trust could disqualify him or her. However, it should not impose added scrutiny on the law firm that had submitted the suspect claim.

Reasonable though that proposal might sound, Houser resisted it for two eyebrow-raising reasons. Both stemmed from the trust's early analyses of the audit data. In mid-1996, the trust had commissioned bio-statisticians at Penn State University and the University of Pennsylvania to help them with that task. Houser quickly discovered that the failure rate of any given doctor often correlated with which law firm that doctor was working for at the time. A physician's failure rate might be markedly elevated when working for one firm, but quite average when retained by another. In fact, the bio-statisticians concluded, in a written report submitted to the trust in February 1998, that the particular law firm that submitted any given claim was “a strikingly significant predictor” of whether that claim would fail the audit, and that those findings exhibited “huge levels of statistical significance.” (The report does not identify any law firms by name.)

The other reason Houser was reluctant to focus on doctors, according to her affidavit, was that the pass rates of the doctors most commonly used by plaintiffs' lawyers were so poor, and the volume of claimants they diagnosed so great, that the trust faced the prospect of having to re-examine literally tens of thousands of claims. Even if the trust disqualified only doctors who fell below a lenient 50% pass rate, Houser explained in her March 1999 affidavit, “it appeared that over 70% of all claimants would have their diagnoses rejected by the trust and then be required to obtain an additional medical report.” In other words, of the approximately 60,000 new asbestosis claims that became eligible for payment in 1997, the trust would have had to reexamine 42,000 of them.

After dickering with the SCB over audit design for about a year, the trustees decided in 1998 to require all asbestosis claimants to submit X-rays, and to audit all of them. A month late, a plaintiffs' firm in Baltimore sued to stop the audits, arguing that they were unauthorized under the original bankruptcy settlement agreement. In April 1999, the challenge came before Judge Jack Weinstein of the Eastern District of New York, who indicated from the bench that he was tending toward ruling for the Baltimore plaintiffs. The parties then settled, and the audits came to an end.

What had they shown while they lasted? According to an April 1998 Manville Trust memorandum, the ten physicians most frequently used by plaintiffs' firms at the time of the audits had an average failure rate of 63%. Nine had failure rates ranging from 50% to 70%, while the tenth failed 36% of the time. (The lung conditions being diagnosed are so marginal and subjective that even the trust's own B-readers frequently disagreed with each other's asbestosis diagnoses, rendering inconsistent interpretations between 3% and 36% of the time, depending on the pair of B-readers being compared.)

Extrapolating from the audit results, we can see that the total number of suspect claims being paid by the Manville Trust is mind-boggling. Portions of the trust's vast database have been made available to researchers, including those at National Economic Research Associates (NERA), which does mass tort-consulting work for numerous corporations and insurers. Frederick Dunbar, an NERA senior economist, agreed to run some numbers for The American Lawyer. During the years 1995 through 2000, the ten high-volume doctors who had been monitored during the medical audit accounted for 70,570 asbestosis diagnoses filed against the trust, or 49.6% of all of the asbestosis claims that identified a doctor. (The Manville database identifies the diagnosing doctor for roughly 65% of the asbestosis claims filed.) The most prolific diagnosing doctor, whose failure rate was 66%, was alone responsible for 30,467 asbestosis diagnoses during that 6-year period.

It is impossible to quantify precisely how much the trust might have overpaid for misdiagnoses. Nevertheless, we do know that during the period from 1995 through November 2001 the trust paid out $940,636,943 to asbestosis claimants, suggesting that perhaps $190 million of that sum was paid for spurious or inflated claims (63% times 49.6% times 65% of all asbestosis claimants). That's assuming – conservatively, perhaps ' that most doctors who were not monitored would have proven pure as driven snow.

Even those numbers don't begin to tell the whole story. Most claimants who file with the Manville Trust also file claims against numerous other bankruptcy trusts, and then file full-fledged tort actions against scores of not-yet-bankrupt defendants as well. Most of those defendants and trusts cannot scrutinize individual claims any more carefully than the Manville Trust can. In fact, some accept the fact that the Manville Trust has already paid a claim as evidence of its validity.

Beginning to get the picture?

Roger Parloff is a non-practicing attorney and regular contributor to Fortune magazine. He has also written for The American Lawyer, The New York Times Magazine, Brill's Content, and The Wall Street Journal, among others.