Tort Reform: No Slam Dunk

I wrote a few weeks ago about Republican alternatives to Obamacare. One proposal is a tax law change: provide individuals the same health insurance deduction that employers enjoy. Another is tort reform: make it harder to sue your doctor for malpractice and limit the damages you get if you win.

I subsequently wrote that the tax proposal goes right to the root cause of high medical costs. Since current law encourages most people to get their health insurance from their employer, and thereby insulates them from its true cost, patients and doctors do not take costs into account when they make health care choices.

The effect of the American culture of litigation on medical costs is not as clear. By all accounts the actual costs of malpractice insurance, lawyers fees, and damage awards is small – somewhere between two percent of health care spending (1) and less than one-half of one percent (2).

However, the malpractice system adds other line items to the doctor’s bill besides insurance, lawyers, and damages. In particular, it adds the cost of defensive medicine, the practice of ordering medically questionable tests, hospital admissions, and other procedures for the sole purpose of preventing lawsuits; procedure with dubious value in the TLC department, but great value in the CYA department. Numerous studies show that this practice exists. A representative sample:

In a 2007-2008 survey of 900 Massachusetts physicians, 83 percent confessed to practicing defensive medicine, with an estimated cost of $1.4 billion (3).

In a 2003 survey of 824 Pennsylvania physicians, 93 percent confessed to practicing defensive medicine (4).

In an often-cited 1996 study, Daniel Kessler and Mark McClellan compared the costs of hospitalizing heart patients in states with damage caps and states without. The authors estimated that between 5 and 9 percent of the cost of treatment was due to defensive medicine (5).

Clearly, defensive medicine is widespread. Unfortunately, we cannot draw any conclusions about its overall costs from these studies; they are all limited to certain geographical regions (like Massachusetts) or certain specialties (like cardiac care). If we want to know the benefits of tort reform, we’re going to need a bigger study.

References:
(1) PriceWaterhouseCoopers, “The Factors Fueling Rising Healthcare Costs 2006”, www.ahip.org.
(2) Baker, T., The Medical Malpractice Myth, University of Chicago Press, 2005, cited in E. Klein, “The Medical Malpractice Myth” in Slate.com, 11 July 2006.
(3) “MMS First-of-its-kind Survey of Physicians Shows Extent and Cost of the Practice of Defensive Medicine and its Multiple Effects of Health Care on the State”, www.massmed.org, 17 November 2008.
(4) D. M. Studdert et al., “Defensive Medicine Among High-Risk Specialist Physicians in a Volatile Malpractice Environment”, JAMA 2005:293:2609-2617.
(5) D. Kessler and M. McClellan, “Do Doctors Practice Defensive Medicine?", Quarterly Journal of Economics, May 1996: 353-390, cited in ”President Uses Dubious Statistics on Costs of Malpractice Lawsuits”, FactCheck.org, 29 January 2004.