$55.6 Billion Price Tag Large, But Not a Key Driver of Total Health Care Spending

For immediate release: September 7, 2010

Boston, MA – How much do medical liability costs—including the costs of malpractice insurance, claims and legal fees and doctors practicing “defensive medicine” to avoid being sued—add to overall medical costs?

During the recent debates over federal health care reform, considerable attention focused on whether medical liability reform should be included in the package as a means of reducing costs. Proponents offered some very high estimates (as high as 10%) of how much the liability system contributed to health care costs, while opponents trivialized these expenses. In an effort to separate fact from fiction—and to provide the first academic study of medical liability system costs— a comprehensive analysis from Harvard School of Public Health (HSPH) researchers found that medical liability costs totaled about 2.4% of annual health care spending in the United States, or $55.6 billion per year in 2008.

“Medical liability costs have been in the bull’s-eye of efforts to bend the health care cost curve down,” said lead author Michelle Mello, professor of law and public health at HSPH. “But we can’t have a meaningful debate about the potential effects of liability reform without solid cost estimates. At nearly $56 billion per year, the medical liability system carries heavy costs, and there are good reasons to want to improve it. But we should be realistic about what liability reform can achieve in terms of health care cost control.”

The study appears in the September, 2010, issue of Health Affairs.

According to Mello and her co-authors, other reforms, such as changing the fee-for-service reimbursement system that gives providers incentives to overuse services, probably hold more promise for reducing health care costs. Proponents of liability reform argue that it will address two drivers of health care costs: providers offsetting rising malpractice insurance premiums by charging higher prices and “defensive medicine,” in which liability concerns lead doctors to order more tests, procedures, and other services than are medically necessary.

To come up with their estimate of liability costs, Mello and colleagues analyzed various components of the medical liability system, including payments made to malpractice plaintiffs; defensive medicine costs; administrative costs, such as lawyer fees; and the costs of lost clinician work time. They found that the medical liability system’s annual price tag includes $45.6 billion in defensive medicine costs, $5.7 billion in malpractice claims payments, and more than $4 billion in administrative and other expenses.

While some elements of medical liability costs — such as the high amount spent on legal expenses —represent inefficiencies and could be trimmed, Mello counters claims that money spent on medical liability is waste. “We shouldn’t forget that despite all its dysfunctions and inefficiencies, the medical liability system does produce social benefits,” she said. “It makes injured patients whole by providing compensation; it provides other forms of ‘corrective justice’ for injured persons, producing psychological benefits; and it may deter future injuries by signaling to health care providers that they will suffer sanctions if they practice negligently and cause injury. The question is, can we reform the system to enhance these benefits and get them at lower cost?”

Atul Gawande, from the Harvard School of Public Health, Harvard Medical School, and Brigham and Women’s Hospital; Amitabh Chandra, from Harvard’s Kennedy School of Government; and David Studdert, from the University of Melbourne, were co-authors.

“National Costs of The Medical Liability System,” Michelle M. Mello, Amitabh Chandra, Atul A. Gawande, David M. Studdert, Health Affairs, September, 2010.

Michelle Mello is supported by a Robert Wood Johnson Investigator Award in Health Policy Research; Amitabh Chandra and Atul Gawande by the National Institute on Aging and the Taubman Center at Harvard University; Atul Gawande by the Harvard Risk Management Foundation; and David Studdert by a Federation Fellowship from the Australian Research Council.

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Contact:

Todd Datz

tdatz@hsph.harvard.edu

617.998.8819

photo: Ned Brown

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Harvard School of Public Health is dedicated to advancing the public’s health through learning, discovery, and communication. More than 400 faculty members are engaged in teaching and training the 1,000-plus student body in a broad spectrum of disciplines crucial to the health and well being of individuals and populations around the world. Programs and projects range from the molecular biology of AIDS vaccines to the epidemiology of cancer; from risk analysis to violence prevention; from maternal and children’s health to quality of care measurement; from health care management to international health and human rights. For more information on the school visit: https://www.hsph.harvard.edu