• Malpractice defense costs are real

    Whenever I post about the malpractice system, I try to make it clear that while I don’t consider it to be the cause, nor the cure, for the problems in our health care system, that doesn’t mean that the system isn’t broken in many ways. Nuisance cases do exist; cases that have real merit never see the light of day. One additional side effect of portraying the malpractice system as the boogeyman of the entire system is that we lose sight of the fact that it really does impact physicians. Take defense costs.

    There’s a new paper in the Journal of Law, Medicine, and Ethics by yours truly and co-authors that looks at this in detail:

    The objective of this study was to take a closer look at defense-related expenses for medical malpractice cases over time. We conducted a retrospective review of medical malpractice claims reported to the Physician Insurers Association of America’s Data Sharing Project with a closing date between January 1, 1985 and December 31, 2008. On average a medical malpractice claim costs more than $27,000 to defend. Claims that go to trial are much more costly to defend than are those that are dropped, withdrawn, or dismissed. However, since the overwhelming majority of claims are dropped, withdrawn, or dismissed, the total amount spent to defend them surpasses that spent on claims that go to trial. Defense attorney expenses account for the majority of defense-related expenses (74%), while expert witness expenses and other expenses split the remaining 26%. A strong association was also found between the average indemnity payment and the amount it costs to defend individual claims by specialty. Our study found that defense-related expenses for medical malpractice claims are not an insignificant cost. As state and federal governments debate how to repair the malpractice system, addressing the high cost of defending claims should not be ignored.

    There are some high points that I’d like to hit. The first is what happens to claims that are filed:

    Adjudication Status of Claims

    The first thing to note is that the majority of claims are dropped, withdrawn, or dismissed. Some look at this and say that it speaks to the fact that so many cases are “nuisances”. Others look at it and feel reassured. Most cases never really go anywhere. Another thing to note is that very, very few cases are won by plaintiff verdict. So very, very few cases wind up with big trial payouts. Focusing on these as a means to change the whole system (tort reform) doesn’t always make a whole lot of sense.

    But defending cases is not cheap. Estimates put the costs of the “system” at about $5 billion. And all types of cases cost money to defend:

    Average Defense Expenses by Adjudication Status and Year

    Not surprisingly, cases which go to court cost more. But even those cases which are dropped, withdrawn, or dismissed now average about $25,000 each to defend. Since they comprise such a large percentage of all claims, the expenses to defend these cases total more than one third of all defense costs.

    Those costs may not seem like a lot when we talk about the $2.5 trillion we spend on health care each year. But that’s the point I’m often trying to make. Malpractice costs aren’t “real” to the country, but they are very real to physicians and¬†malpractice¬†lawyers. Those defense costs result in increased premiums, and they’re going up. That’s totally worth talking about.


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    • Would you have any idea if more malpractice claims are dropped, withdrawn, or dismissed than other types of tort claims?

      Malpractice litigation serves two purposes – compensate victims and discipline doctors. We don’t seem to have any other system for disciplining doctors – state boards appear (at least to me) to be completely ineffective.

      People who don’t like malpractice litigation say defensive medicine increases costs by much more than direct costs. This seems flawed because among other things, (1) doctors get paid more if they do more, so they have an incentive other than litigation to do these things and (2) the threat of litigation provides an incentive to do better.

      • I hope you don’t think I’m one of those people!

        • I think systems provide incentives and people react to incentives. Often these reactions are not the product of conscious thought. Sinclair Lewis famously said “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”

          These are of course generalities. I have no idea how much this affects you. I do know that it’s very difficult to design systems to provide the right incentives and that people seldom think beyond first order effects.

      • While its true that SOME doctors make money based on the tests they order, that does not account for most of the “wasteful” spending, since the low hanging fruit of doctors investing in their own labs, radiology suites, etc has already been undone by the Stark laws.

        Lets take blood work for example. Docs dont get paid at all based on how much blood work they order. The labs make a lot of money, but the people running those labs arent doctors, and they arent the ones ordering the tests. Imaging is another huge cost. Radiologists make a lot of $$$ based on those tests, but radiologists arent the ones ordering the tests.

        The tests that doctors make money on that they control directly are things like cardiac caths, colonoscopies and other invasive procedures. Those kind of procedures account for a tiny percentage of all medical testing.

        Everybody has the mistaken assumption that when you go to the ER, the ER doctor makes a lot more money if he orders you a ton of blood tests, a CT scan, etc. In reality, the ER doc makes LESS money on those patients because he doesnt see an extra dime for that labwork but he DOES get paid based on how many patients he sees that night. So when he orders a lot of testing, it slows down the throughput of the ER and he doesnt get the same bonus he would get otherwise. ER docs and ERs in general make a lot more money when they can have a bunch of people who have the flu, dont need any lab testing or medicine, and can be discharged from the ER in 5 minutes.

    • I understand your point about defense costs being significant to physicians but not to medical costs overall as your $5 billion number is two tenths of 1% of the health costs.

      What seems to be missing is a cost effective solution. Since a malpractice claim is a highly technical area I believe that the medical industry itself must be the source of any improvement, possibly in the form of some type of self determination by the industry itself as a part of the litigation process and greater self-discipline by the medical profession in terms of removing incompetent practitioners or facilities.

      (Full disclosure: Daughter in law is a plaintiff’s malpractice attorney. The cases she takes to court are horror stories of indifference and incompetence).

      • I don’t disagree at all. I think tort reform is a blunt instrument that won’t work as intended. There are, however, many other options. I think that “The Medical Malpractice Myth” by Tom Baker is a great place to start.

        I, too, have seen malpractice cases that horrific. I do not deny they exist at all.

        • Thanks for the book recommendation. It’s only US$3.99 in Kindle format at Amazon.

          Personally, I distrust any call for tort reform that doesn’t propose mechanisms for (a) radically reducing the horrific damage due to medical error and (b) compensating patients hurt by medical error despite efforts to reduce that error. The problem, of course, is that no call for tort reform I’ve ever seen addresses those issues, and were part (b) implemented, there would be a lot of enourmous payments; way more than there are now. And proposals for (a), of course, never come with tort reform as part, because tort reform would only make things worse without (b), which no one seems to have any ideas on.

          • Let me know what you think of the book. I think you’ll be pleased.

          • Mr. Littleboy,

            As i mentioned above (or below, depending on where this comment appears, can’t tell …) I recommend the work of Dr. Brian Liang – deals precisely with the issues you raise …

    • Do you have an ungated version of this (or could you send the pdf via e-mail to this address)?

    • Do your defense costs for dismissed, withdrawn etc claims include settlement amounts? It would have been useful to add that some percentage (a large one I guess) of withdrawn dismissed claims are withdrawn/dismissed because the insurer sees merit in the claim and settles. A little simplistic on my part, I admit, and I’d be interested to know your thoughts.

    • Perhaps the more important question would be how both the cost and frequency of medical malpractice claims compare to similar types of claims in other industries.

      It can take $10,000 to defend a slip and fall or construction defect claim (leaning on my experience in the property/casualty insurance industry here). The fact that malpractice claims cost 2-3 times that to defend shouldn’t be surprising considering what’s at stake.

    • Since you have access to the claims database, it seems to me an interesting thing to look at is to look at states that have done reforms, particularly non-caps reforms, such as Michigan and Pennsylvania, vs caps states like Texas, vs all the other states.

      • Not a bad idea, but I don’t have the data broken down by states, I think. Need to check.

        • I think that would be a worthwhile analysis.

          The current data set doesn’t cover this time period, but in the last legislative session (2011) some more reforms were passed. These were of the non-cap variety.

    • Have you looked into the POV put forward by Dr. Brian Liang, MD,JD of Loma Linda Univ. re the “shame and blame” aspects of both the medical and legal models of medical error and how they negatively impact its resolution? He has done some great presentations on that ….

    • I know the point isn’t to do actuarial science here but have you looked at claims frequency? When we look at casuality claims we often split frequency from severity – you can’t predict individual severity as well but you sure can predict frequency (or likelihood). I’m curious if claim frequency has also increased over time and whether increased costs per claim for certain specialties also correlates with increased frequency of claims for those specialties. I suppose the question is whether over time and in certain specialties there is more malpractice risk in general (i.e. more frequently and at a higher cost) or whether it’s more tail risk (where the chances of a claim are low but very high cost if they do occur).

      Also, I’m curious if it’s the cost of the legal system going up over time or the real damages per incident. We might get a sense of this looking at the positive judgment amounts over time excluding all other legal costs.

    • The problem with malpractice isnt the direct costs, its the indirect costs of extra testing which just about all of these studies ignore and pretend doesnt exist. Its also a

      Medical malpractice is fundamentally a question of science. The legal standard in EVERY STATE is that you have to break a “standard of care” in order to be guilty of malpractice. Yet, in reality thats not how the courts operate.

      Consider how a “standard” is created. A standard is not created by one person, its created by a group of professionals. Yet the courts accept “expert” testimony from one person in lieu of testimony by organizations who actually set real standards. That difference is crucial.

      Consider one of the cases of John Edwards, the infamous trial lawyer who made a lot of money by suing ob/gyns for cerebral palsy in neonates. In one case, he had to hire 30 “experts” before he found the one who said that the defendant doc was guilty of breaking a “standard” of care. Now you tell me who is a better representative of a “standard of care”: the 30 ob/gyn experts who said the doc did not breach, or the ONE that did? If the court system was serious about a “standard of care” then there’s no way the one expert would outweigh the other 30.

      Med mal cases come down to one “expert” giving scientific testimony vs another “expert” on the opposing side. A layperson jury is generally incapable of determining whose science is right in that kind of system. Professional medical organizations set standards — NOT individuals. The med mal court system is fundamentally built on a lie.

    • One retort that I commonly hear from lawyers is that prosecuting med mal cases is so expensive and time consuming that if you dont get successful settlements or court wins that you cant possibly stay in practice. Its a crock.

      Its common to find med mal plaintiff attorneys who only receive settlements or jury wins in 10% of their cases — meaning 90% of their cases get no payout at all. Yet they stay in business with no problem. The “lottery” wins they get more than make up for all the losses they take. Its a “lets throw stuff against the wall and see what sticks” kind of game.