CBO Underestimates Benefits of Malpractice Reform
A full accounting of medical malpractice reforms shows the benefits would be $242 billion a year.
By LAWRENCE J. MCQUILLAN
From Pacific Research Institute
OCTOBER 23, 2009, 4:21 P.M. ET.
Earlier this month, the Congressional Budget Office (CBO) said medical-liability reforms could save about $11 billion annually. This assessment is a gross underestimate of the potential benefits of reform and was intended to give cover to congressional Democrats who say malpractice-liability costs are trifling. But a full accounting shows the benefits would be a hefty $242 billion a year, more than 10 percent of America's health expenditures.
Last year alone, damage awards for medical-malpractice claims reached $5.9 billion. Adding in legal costs, underwriting costs, and administrative expenses, total med-mal tort costs were nearly three times higher — $16 billion. From 1986 through 2002, the average insurance payment for a malpractice claim more than tripled to $320,000. The average jury award for medical liability was $637,134 in 2006.
Getting sued is now part of the job description for physicians. Each year, up to 25 percent of them face lawsuits. Doctors are found innocent in 90 percent of cases, but they lose even then — average defense costs per claim approach $100,000. Fear of lawsuits causes most doctors to practice "defensive medicine," meaning they order unnecessary tests, referrals, and procedures to protect themselves against allegations of medical negligence.
A recent survey of doctors published in the Journal of the American Medical Association found that 93 percent of physicians admit to practicing defensive medicine. A 2008 survey by the Massachusetts Medical Society found that about 25 percent of medical procedures are defensive in nature.
Defensive medicine wastes patients' and doctors' time and costs $191 billion annually, according to the best scholarly research. Such waste drives up the cost of medical care and the price of health insurance. In fact, by making health insurance more expensive, defensive medicine adds at least 3.4 million Americans to the rolls of the uninsured, and reduced productivity and annual output by more than $41 billion in 2008. To ease the burdens of malpractice lawsuits, jury awards should be capped for impossible-to-quantify "pain and suffering," so-called non-economic damages.
According to my study "Tort Law Tally," capping awards in med-mal lawsuits cuts losses an average of 39 percent and annual insurance premiums by 13 percent. But the most important benefit from caps is better access to care. States with caps have 12 percent more physicians per capita than states without caps, according to a study published by the U.S. Department of Health and Human Services.
Non-economic-damage caps were an integral part of the malpractice reforms adopted in Missouri in 2005. Skyrocketing malpractice premiums had caused shortages of specialists, and patients had problems getting treatment. Thanks to the reforms, med-mal claims in Missouri are at a 30-year low. Average payouts are $50,000 lower than they were in 2005, before the caps went into effect.
Texas capped non-economic damages in 2003 as part of a broader tort-reform package, and since then, more than 16,500 doctors have flooded into Texas, many to previously underserved rural and minority communities. Texas has jumped six spots in the American Medical Association's ranking of doctors per capita. Nearly 430,000 Texans have health insurance today as a result of the medical liability reforms, says the Perryman Group.
Rising liability costs are causing hospitals to close; doctors to flee states; maternity centers, trauma centers, and clinics to shut down; and patients to travel long distances due to chronic shortages of providers in some communities. Congressional testimony relates the cases of Tony Dyess, who is brain-damaged, and Fred Andricks, who died, because lawyers drove neurologists out of their local areas, forcing long delays in treatment while being airlifted.
Despite these grim realities, Senate Majority Leader Harry Reid, a Nevada Democrat, claims: "The whole premise of a medical malpractice 'crisis' is unfounded." The senator is wrong, and so are those, including the CBO, who minimize the burdens.
Effective malpractice reforms would allow doctors to spend more time with patients, not attorneys, increase access to health insurance and local providers, and provide benefits of at least $242 billion a year. Less spending on wasteful litigation means better patient care and lower costs for all Americans.
Mr. McQuillan is director of business and economic studies at the Pacific Research Institute and coauthor of "The Facts about Medical Malpractice Liability Costs" and "Tort Law Tally." |
