AMA takes stand against trial lawyer tax break

John O'Brien Sep. 2, 2010, 4:00pm


WASHINGTON (Legal Newsline) - The American Medical Association says a possible tax break for trial lawyers will encourage more lawsuits and increase the cost of health care.

Ninety other medical groups joined in the letter sent Thursday to Treasury Secretary Timothy Geithner, who has already received inquiries from 25 U.S. senators. A July Legal Newsline report quoted sources at a convention who said the nation's trial lawyer group was waiting on an order granting the tax break.

The break would apply to costs associated with litigation done on a contingency fee basis.

"Changing the tax policy to allow trial attorneys to deduct court costs and other expenses would cost taxpayers $1.5 billion and increase the cost of health care in our nation," said J. James Rohack, M.D., AMA Immediate Past-President.

"This change would encourage trial attorneys to file more lawsuits."

Sources at an American Association of Justice convention in July in Vancouver, Canada, told Legal Newsline that John Bowman, the Director of Federal Relations for the AAJ, said an order from the Treasury could come soon. He said this in response to a question from a state delegate regarding recruiting new members.

The AAJ is the nation's trial lawyer group and did not return an earlier message. The Treasury Department also would not comment.

Sen. Chuck Grassley, R-Iowa, sent a letter to the Treasury, as did Sen. John Thune, R-S.D. Thune's was on behalf of 23 more senators.

Neither has received a response. A Grassley spokesperson said this week the senator hasn't been told to expect one, either.

The AMA says 65 percent of medical liability claims are dropped or dismissed, and average defensive medicine costs range up to more than $100,000. Defensive medicine procedures are those done to avoid malpractice claims.

The AMA says the federal government shouldn't create incentives for more lawsuits.

"Given that President (Barack) Obama and members of Congress from both parties have publically recognized that our medical liability system is in need of reform to reduce meritless lawsuits, and that the Congressional Budget Office estimates that effective medical liability reforms would decrease defensive medicine and save the government $54 billion over 10 years, we find it perplexing that the Treasury Department would consider a change in policy that could add to the cost of health care, especially at a time when our nation is engaged in implementing comprehensive health care reform and expanding coverage to the uninsured," the letter says.

Congress has opted not to approve legislation that would have granted the tax break.

Sources also said Bowman cautioned AAJ members not to go public with the news the order would soon be issued, for fear of raising public ire to the proposal.

At issue is a 1997 Field Service Advice that followed a decision by the U.S. Court of Appeals for the Ninth Circuit.

That decision held attorneys who represent clients in gross fee contingency cases are not extending loans to clients and therefore can treat litigation costs as deductible business expenses.

The FSA instructed Internal Revenue Service staff to continue to categorize contingency fee expenses as loans to clients, except in the Ninth Circuit.

The highest ranking member of the Finance Committee, Sen. Max Baucus, D-Mont., was joined by Sen. Dick Durbin, D-Ill., in an April letter to the Treasury's assistant secretary for tax policy, reported.

They asked Michael Mundaca to "clarify the position of the Treasury Department and the Internal Revenue Service with regard to the (Ninth Circuit's) decision." Mundaca said his office "is considering issuing guidance to clarify this issue."

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