Summary

In 2004 we accused President Bush of using "dubious statistics" to support his claim that limiting malpractice awards to injured patients could save the economy between $60 billion and $108 billion per year. Ever since, we’ve said most independent research indicated little if any savings from limiting malpractice liability, and just a few weeks ago we quoted the Congressional Budget Office as saying that only negligible savings could be expected.

Now CBO has revised its opinion, based on new evidence. Citing recent studies, including two new economic papers published only last month, CBO concludes that limiting malpractice liability would reduce total national health care spending by about one-half of 1 percent, or about $11 billion this year. That would save taxpayers about $41 billion over the next decade in lower Medicare, Medicaid and other federal spending for health care.

That’s still not close to what Bush claimed five years ago, and what some Republicans are still claiming. But it’s a significant point in favor of a health care proposal that is generally opposed by Democrats.

Analysis

Republicans have complained repeatedly that Democratic health care proposals don’t include any limits on damage awards in malpractice lawsuits or other "tort reform" measures. And they claim the savings to taxpayers and the economy could be enormous. House Republican Leader John Boehner of Ohio, for example, said in a recent interview with the conservative news site Newsmax.com:

Rep. Boehner, Oct. 2: We could save over $100 billion a year in less medicine being practiced if in fact we were to have real reform of medical malpractice laws.

That $100 billion figure still nowhere close to being accurate, even given the new evidence. We debunked it in 2004, when President Bush was making similar claims for his own plan to cap malpractice awards. He said limiting awards could save as much as $108 billion a year in overall health care spending. But he based his claim mainly on a single 1996 study by two Stanford economists who said caps on damage awards could hold down overall medical costs by 5 percent to 9 percent by reducing "defensive medical practices." The Standford study was based only on the cost of treating patients hospitalized for cardiac problems, however. Other researchers found little or no evidence of savings in other areas of medicine. The nonpartisan Congressional Budget Office said in January 2004 that, overall, it found "no statistically significant difference in per capita health care spending between states with and without limits on malpractice torts."

But CBO continued to study the question. Five years of additional research have produced new evidence that has prompted CBO to reach a somewhat different conclusion. In an Oct. 9 letter to Republican Sen. Orrin Hatch of Utah, CBO Director Douglas Elmendorf said that a package of changes including limits on malpractice awards "would reduce total national health care spending by about 0.5 percent (about $11 billion in 2009)."

That figure includes a 0.2 percent reduction just from lower premiums for malpractice insurance paid by medical professionals. And it includes an additional 0.3 percent in reduced costs of medical tests, imaging and other medical services.

(For a full list of the typical "tort reform" measures CBO studied, click below.)

[EET ]CBO: Typical proposals have included:

A cap of $250,000 on awards for noneconomic damages;

A cap on awards for punitive damages of $500,000 or two times the award for economic damages, whichever is greater;

Modification of the “collateral source” rule to allow evidence of income from such sources as health and life insurance, workers’ compensation, and automobile insurance to be introduced at trials or to require that such income be subtracted from awards decided by juries;

A statute of limitations—one year for adults and three years for children—from the date of discovery of an injury; and

Replacement of joint-and-several liability with a fair-share rule, under which a defendant in a lawsuit would be liable only for the percentage of the final award that was equal to his or her share of responsibility for the injury. [/EET]

CBO cited, for example, a 2007 study published in the journal Health Afffairs by a team of researchers from the University of California, Los Angeles; Dartmouth Medical School; and Harvard University. They studied Medicare payments between 1993 and 2001, and found that higher malpractice costs were associated with doctors ordering up increased tests, and especially expensive imaging services. They found that a 10 percent increase in average malpractice payments per physician within a state "was associated with a 1.0 percent increase in Medicare payment for total physician services and a 2.2 percent increase in the imaging component of these services."

A more recent study by economists from the University of Southern California and the RAND Corporation, published just last month by the National Bureau of Economic Research, found that growth in malpractice payments had added as much as 5 percent to the total growth of medical spending over the past decade. This research examined rising jury awards for malpractice in 125 U.S. counties, and compared those awards to hospital costs and Medicare costs in those counties over more than a decade. The economists found that between 1991 and 2002, medical expenditures grew by 34 percent while malpractice payments grew by 65 percent. Their data, they said, "would imply that, over this period, the growth in malpractice payments added 5.1% to the growth in medical expenditures, or about 15% of the total growth."

Yet another study, also published just last month by NBER, examined data from private health insurance plans covering more than 10 million non-elderly workers, and spanning the years 1998 through 2006. It found that limiting malpractice liability reduced health insurance premiums paid by 1 percent to 2 percent. "The results are the first direct evidence that tort reform reduces healthcare costs in aggregate," stated the authors, a team of researchers from the University of Texas Law School, Northwestern University’s Kellogg School of Management, and Northwestern University’s School of Law.

Tax and Save

A 0.5 percent reduction in medical spending would save the federal government $41 billion in spending over the next decade for federal medical programs, including Medicare, Medicaid, the Children’s Health Insurance Program and the Federal Employees Health Benefits program that covers 8 million federal workers, CBO said. Furthermore, it would result indirectly in an additional $13 billion in tax revenues being collected. This would happen as private employers realize savings in the cost of providing non-taxable health benefits to their workers and pay higher taxable wages instead, CBO said. (Standard economic theory holds that employers pay whatever combination of wages and benefits is required to attract the workforce they need.) The combination of lower federal medical spending and higher federal tax revenues would produce a $54 billion reduction in the projected federal deficit over 10 years, CBO said.

CBO noted that savings would be even greater if not for the fact that many states have already imposed their own changes. CBO said about one-third of the states already have caps on noneconomic damages, and about two-thirds have imposed other measures being proposed at the federal level. Because of this, CBO said, "a significant fraction of the potential cost savings has already been realized."

Health Effects?



It’s still an open question whether limiting liability saves lives. "Some recent research has found that tort reform may adversely affect such outcomes, but other studies have concluded otherwise," CBO said. The new UCLA/Rand study mentioned earlier found that a 10 percent reduction in costs related to medical malpractice liability would increase the nation’s overall mortality rate by 0.2 percent. It concluded that the savings in money would not be worth the cost in lives. But another study published in the March issue of the Journal of Health Economics, by health economists from Duke University and the University of North Carolina at Chapel Hill, concluded that "tort reforms" don’t have any significant effect on patient outcomes.



So while there is now clear evidence that limiting malpractice liability can save money, it’s not nearly as much as some proponents have claimed. And on the question of whether patients would suffer, the jury is still out.

–by Brooks Jackson

Sources

Meyers, Jim and David A. Patten "Rep. Boehner Accuses Obama of Subverting Constitution." Newsmax.com. 2 Oct 2009.

Elmendorf, Douglas W. CBO’s Analysis of the Effects of Proposals to Limit Costs Related to Medical Malpractice ("Tort Reform") Letter to Sen. Orrin Hatch. Congressional Budget Office. 9 Oct 2009.

Baicker, Katherine and Elliott S. Fisher and Amitabh Chandra. "Malpractice Liability Costs And The Practice Of Medicine In The Medicare Program." Health Affairs May/June 2007; 26(3): 841-852.

Lakdawalla, Darius N. and Seth A. Seabury. "The Welfare Effects of Medical Malpractice Liability." National Bureau of Economics Research Working Paper no. 15383. Sep 2009.

Avraham, Ronen, Leemore S. Dafny, and Max M. Schanzenbach. "The Impact of Tort Reform on Employer-Sponsored Health Insurance Premiums." National Bureau of Economic Research Working Paper no. 15371. Sep 2009.

Sloan, Frank A. and John H. Shadle. "Is there empirical evidence for ‘Defensive Medicine’? A reassessment." Journal of Health Economics. Mar 2009.