Doctors v. Lawyers: A New Battle Over Court Costs

As the Treasury Department considers a tax policy change that would allow trial lawyers to deduct their litigation expenses in contingency-fee cases, the American Medical Association and 90 medical organizations are urging Treasury Secretary Timothy Geithner to drop the proposal like a bad habit.

"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," J. James Rohack, the immediate past president of the group, said in a written statement. "This change would encourage trial attorneys to file more lawsuits."

The coalition of medical groups sent Geithner a letter Wednesday, stating its case, including a recent report by the AMA that found 95 medical liability claims were filed for every 100 physicians and that 65 percent of the claims are dropped or dismissed. Average defense costs range up to more than $100,000 and take physicians away from patient care.

"Any increase in the number of lawsuits filed will add unnecessary costs to our health care system," Rohack said. "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 $70-126 billion per year."

But the American Association for Justice, an advocacy group for trial lawyers, said the change isn't a tax break but a clarification of the tax code.

"It's no secret that we have advocated that our members receive the same fair tax treatment that every other small business in the country currently enjoys," AAJ spokesman Ray De Lorenzi said in a written statement. "Obviously, we are exploring all avenues to clarify this confusing tax code."

The Treasury Department said it had not reached a decision yet on whether to make the tax policy change.

"The Treasury Department has not yet determined whether additional guidance on this issue is appropriate at this time," spokeswoman Sandra Salstrom said in a written statement to FoxNews.com.

Trial lawyers are citing a 1995 ruling by the 9th U.S. Circuit Court of Appeals that allows attorneys to deduct up-front costs in San Francisco for contingency-fee cases where there's a so-called "gross fee." The Treasury Department could expand the ruling across the country.

But the AMA noted in its letter that other circuit courts have not validated the ruling, that the IRS stated in 1997 that trial lawyers cannot deduct litigation expenses and that legislation in Congress to allow the tax deduction has stalled in committee.

"Considering these dynamics, we believe that any change in tax policy would be unjustified without a full and public examination of the ramifications," the letter read.