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Medical malpractice tort reform a red herring

By Josh Richman
Friday, August 28th, 2009 at 9:22 am in General, healthcare reform.

I’ve written or contributed to several stories in the past week on health care reform, and a few readers have e-mailed to ask why I didn’t delve into tort reform to bring down medical malpractice premiums that they believe are driving skyrocketing health care costs.

The answer: Because medical malpractice premiums aren’t driving skyrocketing health care costs.

From Bloomberg News:

(A)nnual 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, said Amitabh Chandra, a Harvard University economist. Chandra estimated the cost at $12 per person in the U.S., or about $3.6 billion, in a 2005 study. Insurer WellPoint Inc. said last month that liability wasn’t driving premiums.
Obama told an American Medical Association meeting in Chicago yesterday that his efforts to cut costs and increase coverage couldn’t succeed without freeing doctors from the fear of lawsuits. While that may be what his audience needed to hear, the evidence that malpractice drives up health-care costs is “debatable,” said Robert Laszewski, an Alexandria, Virginia, consultant to health insurers and other companies.
“Medical malpractice dollars are a red herring,” Chandra said in a telephone interview. “No serious economist thinks that saving money in med mal is the way to improve productivity in the system. There’s so many other sources of inefficiency.”

The Congressional Budget Office in 2004 concluded that medical malpractice tort reform wouldn’t have a significant effect on health care costs:

Malpractice costs amounted to an estimated $24 billion in 2002, but that figure represents less than 2 percent of overall health care spending. Thus, even a reduction of 25 percent to 30 percent in malpractice costs would lower health care costs by only about 0.4 percent to 0.5 percent, and the likely effect on health insurance premiums would be comparably small.

And Americans for Insurance Reform, a coalition of nearly 100 consumer and public interest groups around the country, issued a report in July which found:

    • Medical malpractice premiums, inflation-adjusted, are nearly the lowest they have been in over 30 years.
    • Medical malpractice claims, inflation-adjusted, are dropping significantly, down 45 percent since 2000.
    • Medical malpractice premiums are less than one-half of one percent of the country’s overall health care costs; medical malpractice claims are a mere one-fifth of one percent of health care costs. In over 30 years, premiums and claims have never been greater than 1% of our nation’s health care costs.
    • Medical malpractice insurer profits are higher than the rest of the property casualty industry, which has been remarkably profitable over the last five years.
    • The periodic premium spikes that doctors experience, as they did from 2002 until 2005, are not related to claims but to the economic cycle of insurers and to drops in investment income.
    • Many states that have resisted enacting severe restrictions on injured patients’ legal rights experienced rate changes (i.e., premium increases or decreases for doctors) similar to those states that enacted severe restrictions on patients’ rights, i.e., there is no correlation between “tort reform” and insurance rates for doctors.

Actually, at least 30 states already have capped medical malpractice lawsuit awards. One of ‘em is Texas; wanna see what’s driving health care costs there? This is a good read.

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  • RR, Uninvited Columnist

    The tort attorneys already have done their damage. In the near future it will be much easier to get a nose job than a simple check-up. Med schools are cranking out low-risk specialists a lot faster than primary care docs.

  • Doug

    Oh this is just the biggest, stinkiest piece of crap to come down the river in a long time. Malpractice forces doctors to over-test, over-medicate and generally practice defensive medicine. The $6000 CT scan I just had was done instead of merely rechecking my lipase enzyme levels. Why? Because it was safer for the doctor to do the big test, just in case, than to run another blood panel. You don’t measure awards, Chandra. You measure unnecessary medicine done because the doctor FEARS the jury award. Ask the FL ob/gyn paying an average of $250K/year. Let’s have a look at the methodology for this “study”, shall we? The last bullet point from the AIR is hilarious. Sure, there are lots of reasons health care is expensive, but without tort reform, we will NOT bring down health care costs in any meaningful way. Period.

  • george

    medical costs would be far worse if some of the big states like california hadnt already limited tort liability,, you betcha its a big deal and obama is a pawn of the trial lawyers and will give in to them every time

  • Edward JW

    I love it how people who most likely are probably not specialist in law, health, or economics who try to dispute the facts w/ their personal beliefs.

    In the context of what docs have to pay for insurance anyhow, is also a drop in the bucket compared to what doctors and hospitals make. And for a plaintiff to win a med mal lawsuit is really hard, and often stem from the doc failing to inform the patient of all the risks in the first place or from simply gross negligence. If the doc really has the facts on his side he’ll receive a judgment not w/standing the verdict or win on appeal.

  • RR, Uninvited Columnist

    Yeah, it’s tough to make ends meet when you’re a tort att’y. Ask John Edwards.

  • Elwood

    “If the doc really has the facts on his side he’ll receive a judgment not w/standing the verdict or win on appeal.”

    The stunning stupidity of that statement defies response.

  • Mason

    As I have heard from many doctors, malpractice insurance can feel like a huge ball and chain, particularly for fields like obstetrics.

    However, “tort reform” has become a scapegoat issue for the medical field in the same way that “illegals” have become for the working class. Analysis of malpractive insurance balance sheets shows that tort costs are NOT the driver of high insurance premiums. One of the biggest impeti is losses in their investment portfolio, which they seek to offset via increased insurance income.

    The other issues include: extraordinarily high loan payments for medical school, the rising cost of living, the increasingly mean-spirited and backbiting professional/management atmosphere, and a fractured social/family life which often leads to drug or alcohol abuse. All of these changes over the past 30-40 years are largely invisible but can put many doctors in a cynical, sullen mood in their working environment. Which of course works to the disadvantage of patients, who then spend much more money on needless tests or are treated callously and with a tin ear.

    Some medical centers, like the Mayo Clinic, are still offering tremendous care at reasonable rates. But most clinics/hospitals/practices are not structured in a similar manner. The United States is truly one of the worst places in the world to seek medical treatment.

  • Elwood

    “The United States is truly one of the worst places in the world to seek medical treatment.”

    Oh?

    Then I wonder why so many people from other countries come here to seek medical treatment?

  • Josh Richman

    Ah, but that’s not exactly as it seems, Elwood.

    Consulting firm McKinsey & Co. put out a report last year on this, using a narrow definition of medical travelers as only those whose primary, explicit purpose in traveling abroad was to obtain in-patient medical treatment in a foreign country; it put the total number of travelers worldwide at 60,000 to 85,000 per year. See it here (free registration required):

    The largest segment, with 40 percent of all medical travelers, seeks the world’s most advanced technologies. These men and women take their search for high-quality medical care global, giving little attention to the proximity of potential destinations or the cost of care. Most such patients—originating in Latin America (38 percent), the Middle East (35 percent), Europe (16 percent), and Canada (7 percent)—travel to the United States.

    With 32 percent of all medical travelers, the second-largest segment comprises patients who seek better care than they could find in their home countries, which are often in the developing world. When selecting a destination, such patients generally trade off perceived quality against burdens such as costs, distance, and unfamiliar cultures. Some of these people disregard costs to some degree; others are looking for higher quality at the best available price. Patients in this segment seek care in several different specialties, particularly cardiology.

    The third-largest segment comprises people who want quicker access to medically necessary procedures delayed by long wait times at home for orthopedics, general surgery, or cardiology. Its numbers depend on capacity in the home countries, so health investments there can reduce the need to seek care abroad. Recent and ongoing infrastructure investments in the United Kingdom, for example, have focused on cutting wait times. Those for knee and hip replacements, which used to be especially long, have fallen by about 40 percent in the past six years.

    While only 9 percent of the travelers seek lower costs for medically necessary procedures, this segment has the greatest potential for growth. Since the price of treatment varies greatly around the world, patients can save significant amounts, depending on the procedure. An aortic valve replacement costs more than $100,000 in the United States, for instance, but about $38,000 at a provider in Latin America, and only $12,000 at a provider in Asia. US patients make up 99 percent of the people in this group. In 30 percent of all cases, patients are traveling for orthopedic care, and in 16 percent, for general surgery.

    So, yes – people seeking the most cutting-edge treatments, for whom cost is no object, or those from developing countries tend to come to the United States for care. But if U.S. patients make up 99 percent of the group traveling abroad in search of lower costs for medically necessary procedures, that’s a clear sign that our costs are out of whack.

  • Elwood

    Oh, absolutely!

    If I needed a high tech procedure, I would definitely shop around for the cheapest price. I understand they do a fabulous heart transplant in Zimbabwe at a very reasonable rate.

    “But if U.S. patients make up 99 percent of the group traveling abroad in search of lower costs for medically necessary procedures, that’s a clear sign that our costs are out of whack.”

    I’d say it’s a clear sign that some people aren’t very bright.

  • Josh Richman

    Elwood, I think you’re missing the obvious – Americans are going abroad seeking lower costs for medically necessary procedures because they can’t afford the care they need here. It’s not a matter of shopping around; if their insurance covered it, they wouldn’t care about the difference in cost, and would simply stay here. In order to stay alive, they have to go someplace where they can afford to pay for treatment out of their own pockets.

  • Elwood

    From your post, Josh:

    “only 9 percent of the travelers seek lower costs for medically necessary procedures”

    I rest my case.

  • Josh Richman

    Actually, Elwood, you’re resting my case: That 9 percent constitutes the world’s most desperate medical travelers, those who must go abroad essentially in order to stay alive, and the vast majority of them are your countrymen.

    It’s fine that people for whom money is no object are coming here in droves to seek more advanced treatments – which account for a small percentage of all illnesses – but lots of Americans are going elsewhere because our costly system would let them die. What good is it if a rich Russian comes here for a state-of-the-art facelift if at the same time your neighbor must go to India to be able to afford on the basic heart procedure his insurer won’t cover (assuming he has any insurance at all)? As the McKinsey report says, “An aortic valve replacement costs more than $100,000 in the United States, for instance, but about $38,000 at a provider in Latin America and only $12,000 at a provider in Asia.”