Medical Malpractice and Health Care Costs

There are a lot of opinions and economists’ assumptions bandied about as facts in the discussions about changing the American health care system. Today I want to look at this assertion: The cost of medical care is high in the United States in large part because of medical malpractice insurance and medically unnecessary, cover-your-ass tests and procedures ordered by trial-wary doctors. But first, let’s take a quick look back at the ground we’ve already covered.

So far I’ve looked at the economists’ arguments that if consumers knew the true cost of their health care, we would choose less expensive options and that patients would use fewer services if we had more of our own money at stake. I’m just a sample of one, but I have trouble believing from my own data that either of these are the true root causes for the high cost of health care in the U.S. It’s possible that I’m an overly conscientious consumer of medical services. And it’s also conceivable that I’m unknowingly proving their models correct. After all, I already spend some of my own money in the form of copays, I don’t go to the E.R. for routine events*, and I’ve turned down certain therapies (even though they might improve my overall health) because they would have meant more out-of-pocket costs to me. Perhaps I’m an outlier. Perhaps the savings from passing along the cost to the patient are overstated. In either case, I doubt the conclusions except at the extreme — having incredibly small copays is probably a bad idea if there aren’t sufficient alternatives to the E.R. or expensive therapies.

Another overstated argument having a kernel of truth is the impact of tort reform. Limiting pain-and-suffering awards and punitive damages would certainly have an effect on possible payments to suing patients and on malpractice insurance premiums? After Missouri reformed its medical damages laws, premiums fell (sometimes by as much as 25% to 30%) because malpractice insurers paid out fewer claims, according to a very thorough article from last September in the Cleveland Plain Dealer. There was some relief for those looking to get life insurance for the eighty-five and over. But overall health costs still went up in Missouri, as they did in Texas, which also sets limits on the amount an injured patient can claim. Burke Harvey’s blog post provides legal advice in such cases.

The reason, as has been reported in the Plain Dealer and multiple other sources, is that the costs related to medical torts are quite small relative to the whole 2.2 trillion dollars of health care spending. The nonpartisan Congressional Budget Office (CBO) estimates that aggressive caps on malpractice claims would result in a reduction of only 0.4% to 0.5% in American health care costs. (More information from the Washington Post about the CBO findings.) While that works out to about $54 billion over 10 years, the figure is nowhere the large figures — anywhere from $100-200 million per year, or roughly 5-10% of all health care spending — that are frequently claimed by tort reform advocates, such as Philip K. Howard did in his Post editorial “Health Reform’s Taboo Topic.”

The high figures are partly based on a 1996 study by two Stanford economists. Here’s how the Plain Dealer described it:

“The authors found wasteful defensive medicine in the treatment of elderly heart disease patients and extrapolated their findings to other areas of health care. But other experts, including the CBO and researchers at Dartmouth College, have been unable to replicate those findings.”

Syndicated columnist Charles Krauthammer has become another frequently quoted source who differs with the new CBO estimate. The Washington Independent casts doubt on his methodology:

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.

(The doctors in the Massachusetts survey and a similar one done in Pennsylvania were specialists in high-risk fields.)

So, the dollar amounts given by tort reform advocates are (most likely) very overstated — perhaps as much as 40 times. But that doesn’t necessarily mean changing medical malpractice is a bad idea. Five billion dollars a year is a significant amount of money when it comes to providing insurance for people currently without good access to health care. If tort reform can reduce the number of medically unnecessary procedures as it brings down malpractice insurance premiums, it’s likely — though certainly not guaranteed — that these savings would get passed along to patients.

Okay, okay. So it’s only a cost savings of at most $15 per American per year if everyone is covered, but that’s more than zero. Including medical malpractice changes could make a broader package of health care changes more palatable to doctors and insurance groups. Furthermore, it might help build bipartisan support for a bill by giving something to conservative members of Congress who have been asking for these changes for years.

Possible reforms might be roughly based on what the CBO has used in their estimates. Those changes don’t prevent juries from deciding awards based on a patient’s actual loss of income or opportunity; but they do affect pain-and-suffering awards, as well as money meant to punish doctors and hospitals. A recent press release by the American Association of Neurological Surgeons and the Congress of Neurological Surgeons presents these hypothetical modifications with an air of approval:

  • 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.

I’ve only just begun to think about how I feel about these possible changes. But my initial reaction, as a patient and as part of a two-income household, is that they seem okay to me. They provide income replacement, cover the cost of possibly new medical conditions, and provide a bit of retributive justice to boot. At the very least, they’re in the ballpark of what I could live with if I were — god forbid — injured by the actions of my doctor.

As health care reform goes, though, it’s definitely not enough.

* – Well, I don’t go to the E.R. for non-emergent care any more. When I was in high school and lacked a primary care physician, my step-father took me there a couple of times. Then again, he worked in the hospital as a paramedic and more-or-less snuck me in after midnight amidst the drunks getting treated for fist fights, those getting treated for alcohol poisoning, and the victims of DUI car crashes. It was probably not the best use of my time or the insurer’s money. But it was where I learned why one of my high school colleagues disappeared — she had to bring her infant twins into the E.R. for colic or croup or whatever. And it was when I learned the importance of having a primary care doctor.

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