Tort Reform Unlikely to Cut Health Care Costs

Created: August 19, 2009 06:00 | Last updated: July 31, 2020 00:00

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Amid the obstructionists’ claims that health care reform is “socialist” or a means of speeding Grandma towards her deathbed, a large focus of the conservative position on health care reform has been that frivolous lawsuits drive up health care costs and require doctors to practice “defensive medicine” that’s costly and wasteful.

In a recent Washington Post op-ed, Charles Krauthammer put “tort reform” on the top of his wish-list for reducing the costs of the health care system. Gov. Rick Perry of Texas in the Washington Examiner boasts that Texas tort reform that capped injured patient’s damages was the answer to his state’s problems. And the American Medical Association has said it won’t support any health reform bill that doesn’t reduce liability for doctors. “If the bill doesn’t have medical liability reform in it, then we don’t see how it is going to be successful in controlling costs,” James Rohack, president-elect of the organization, told Politico in March. “Why spend the political capital and energy in passing a bill if it is not successful?”

Illustration by: Matt Mahurin

So far Republicans have mostly focused on tearing apart any reform with a role for the federal government, portraying it as the government dictating how long old people get to live. But an undercurrent of those complaints is the insistence of doctors, hospitals, insurance companies and ideological conservatives that medical malpractice claims are out of control and a leading cause of rising health care costs.

The health economists and independent legal experts who study the issue, however, don’t believe that’s true. They say that malpractice liability costs are a small fraction of the spiraling costs of the U.S. health care system, and that the medical errors that malpractice liability tries to prevent are themselves a huge cost– both to the injured patients and to the health care system as a whole.

“It’s really just a distraction,” said Tom Baker, a professor at the University of Pennsylvania Law School and author of “The Medical Malpractice Myth.” “If you were to eliminate medical malpractice liability, even forgetting the negative consequences that would have for safety, accountability, and responsiveness, maybe we’d be talking about 1.5 percent of health care costs. So we’re not talking about real money. It’s small relative to the out-of-control cost of health care.”

Insurance costs about $50-$60 billion a year, Baker estimates. As for what’s often called “defensive medicine,” “there’s really no good study that’s been able to put a number on that,” said Baker.

Krauthammer cited a study by the Massachusetts Medical Society that found that five out of six doctors said they ordered additional tests, procedures and referrals to protect themselves from lawsuits. He also relies on a much-criticized study from the libertarian Pacific Research Institute on the civil justice system to conclude that “defensive medicine” wastes more than $200 billion a year.

Baker is skeptical, and makes the point that “defensive medicine” is not the same thing as wasteful medicine. “Like defensive driving, some defensive medicine is good,” he said. “To change behavior. When you drill down those studies, you see that what it means is, doctors are more careful with patient records. They spend more time with the patient. They’re more careful to say hello and goodbye to the patient. That’s good.”

Other health economists agree that “defensive medicine” is not the main driver of costs, and malpractice liability reform is not a panacea.

“If you were to list the top five or ten things that you could do to bring down health care costs that would not be on the list,” said Michelle Mello, a professor of Law and Public Health at Harvard.

Still, that doesn’t mean the medical liability system we now have is a good one. Mello estimates the costs of so-called “defensive medicine” to be far less than Krauthammer does — around $20 billion a year. “So there’s some savings to be had and frankly the health reform package has not come up with a lot of ideas for major savings.”

President Obama at a recent town hall meeting said he wants to reduce doctors’ insurance premiums, but that, based on his conversations with health care experts, “the evidence at least is that that is a very small, maybe not even a measurable factor in the reason that health care costs are going up.”

“He gets it,” said Baker.

Although damage award caps could slightly limit the future growth of liability insurance premiums – about 6 to 13 percent over time, says Mello, “it tends to be oversold as a solution and it’s pretty unfair to patients.”

Annual jury awards and legal settlements involving doctors amounts to “a drop in the bucket” in a country that spends $2.3 trillion annually on health care, Amitabh Chandra, another Harvard University economist, recently told Bloomberg News. Chandra estimated the cost of jury awards at about $12 per person in the U.S., or about $3.6 billion. Insurer WellPoint Inc. has also said that liability awards are not what’s driving premiums.

And a 2004 report by the Congressional Budget Office said medical malpractice makes up only 2 percent of U.S. health spending. Even “significant reductions” would do little to curb health-care expenses, it concluded.

A study by Bloomberg also found that the proportion of medical malpractice verdicts among the top jury awards in the U.S. declined over the last 20 years. “Of the top 25 awards so far this year, only one was a malpractice case.” Moreover, at least 30 states now cap damages in medical lawsuits.

The experience of Texas in capping damage awards is a good example. Contrary to Perry’s claims, a recent analysis by Atul Gawande in the New Yorker found that while Texas tort reforms led to a cap on pain-and-suffering awards at two hundred and fifty thousand dollars, which led to a dramatic decline in lawsuits, McAllen, Texas is one of the most expensive health care markets in the country. In 2006, “Medicare spent fifteen thousand dollars per person enrolled in McAllen, he finds, which is almost twice the national average — although the average town resident earns only $12,000 a year. “Medicare spends three thousand dollars more per person here than the average person earns.”

Still, many health policy experts don’t believe the current malpractice liability system is either efficient or fair. Mello and others favor an alternative compensation system that takes the issue away from courts and juries and gives it instead to a panel of independent experts to judge whether malpractice occurred and what compensation should be provided. That’s unlikely to bring about significant cost savings, though, because it would encourage many more claims to be filed. Currently, only about two of every 100 patients injured by malpractice ever receive compensations. “The new system would make it a lot easier to file claims,” said Mello, and would reduce the uncertainty doctors complain about from jury awards.

Such a system implemented at a hospital could mean the hospital pays for malpractice insurance, with premium costs tied to the number of claims. The hospital then has an economic incentive to ensure its doctors are providing good care. Currently, Mello says, most insurance is not “experience-rated”, meaning premiums aren’t tied to the number of claims filed against the doctor.

But Mello, who has advised the Obama administration on malpractice reform, doesn’t expect to see such proposals coming out of Congress or the White House anytime soon. “Trial lawyers don’t embrace proposals that would remove their role in the malpractice system,” she said. And they have a lot of influence with Democrats in Washington.

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