• Meme-busting: Tort reform = cost control

    This is an ongoing series on health care system “memes” that continue to permeate our debate, even when evidence shows them to be false. The introductory post contains links to all entries.

    For better or for worse, whenever many are asked about how they would help control the cost of the health-care system, tort reform always seems to be one of the first things offered as a solution.

    The argument goes that doctors, afraid of being sued, order lots of extra tests and procedures to protect themselves. This is known as defensive medicine. Tort reform assumes that if we put a cap on the damages plaintiffs can win, then filing cases will be less attractive, fewer claims will be made, insurance companies will save money, malpractice premiums will come down, doctors will feel safer and will practice less defensive medicine, and health-care spending will go way down.

    Ergo, tort reform = cost control.

    Let’s start with some basics. How much does the malpractice system really cost in the U.S.? The most recent, comprehensive estimate, which was published in Health Affairs in December, estimated that medical liability system costs were about $55.6 billion in 2008 dollars, or about 2.4 percent of all U.S. health-care spending. Some of that was indemnity payments, and some of it was the cost of components like lawyers, judges, etc.; most of this, however, or about $47 billion, was defensive medicine. So yes, that is real money, and it theoretically could be reduced.

    The question is, will tort reform do that?

    That’s actually an answerable question. You could look at areas where tort reform has already happened and see how things have changed. For instance, we could look at Texas, where non-economic damages on malpractice lawsuits were capped at $250,000 about eight years ago. You might remember when Rick Perry and Newt Gingrich said:

    Texas, for example, has adopted approaches to controlling health-care costs while improving choice, advancing quality of care and expanding coverage. Consider the successful 2003 tort reform.

    So what happened to costs of care after that law was put in place? Public Citizen analyzed just that (pdf) using data from the Dartmouth Atlas of Health Care (Selected Medicare Reimbursement Measures):

    Texas is blue, the nation is red, and the law went into place at the dotted line. If anything, Texas’s Medicare spending seems to have gone up faster than the nation’s since 2003. Hardly a persuasive argument for tort reform = cost control.

    Another thing you could do is compare areas with high and low malpractice premiums, and see whether doctors practice differently. Guess what? Someone did. In the same issue of Health Affairs, another study showed that tort reform, which might lead to a 10 percent reduction in malpractice premiums (not small), which might translate into a health-care spending reduction of 0.1 percent. Let me show you that in a chart:

    If the pie represents our total health-care spending, then the blue wedge is defensive medicine. Not as big as you thought, likely. But the red sliver, which I pulled out for easier viewing, is what we could expect to see in savings from tort reform.

    I’m not going to disagree that the malpractice system needs fixing. Likely, too many claims are filed that have no merit. In addition, many more are never brought to trial that absolutely do. I completely support efforts at malpractice reform.

    But it’s not the solution to our high health-care spending. Tort reform does not equal cost control.

     

     

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    • It controls cost for the provider. Reimbursements are made on the DRG level and doesnt matter how many tests are run or procedures are performed. A DRG is a DRG.

      The cost savings can then be used to subsidize other areas and DRG product lines

    • Can you address a common response I hear to the cost-effectiveness of the VA system: they save money because those doctors aren’t exposed to malpractice lawsuits?

      • VA doctors are paid on a salary, much less than “private” doctors.

      • Actually, lawsuits do happen in the VA system. I think the real difference in spending there is based on the fee-for-service model of Medicare, currently, versus a salaried physician.
        May I state, I am a private practice physician, and my wife is a physician in the VA, so while I generally completely discount all anecdotes, especially about medicine, I have a strong opinion.
        Under the fee-for-service system, if you came in with good insurance or Medicare with a funny chest pain that has a one in twenty chance of being angina, I will order an EKG, a nuclear cardiac stress test, then a cardiac cath. I tell you you need these things or else you might die, so you, the rational and perfectly informed consumer ( I hope you can detect my disdain for the Ryan voucher system and libertarian views of the ‘empowered patient’) would, during the three minutes I gave you to consider, sign the consent. When all of those are normal I will send you on your way, perhaps thinking to myself that sure, it seems like a lot, but wouldn’t I feel bad if you fell over dead, and anyway I’d hate to get sued. I think that genuinely, the fact that I own all the equipment and that I just made a lot of money is not truly conscious. I think it is an enormous, perhaps the primary driver, but I believe it’s easy to ignore when you’ve got all these other internal narratives to distract yourself with. When you walk out and fall over dead because you have a big plaque that only a CT angiogram would have caught, I will then say, dang, who could have known, what is CT angiography, I don’t trust that research (and anyone I can’t charge for it).
        When a patient comes to the VA for that work-up, they get put through an evidence based protocol that is limited to proven effective treatments put together by experts. Granted, the salaried physician may not ‘hop to it’ like me, they might even whine, the waiting room will be a little full, and the magazines on the table will be old. It will be, for a Colonel as much as for a private, a much less ‘customer oriented’ experience. But the system-wide comprehensive computer system will hound me to get it done by a set deadline, and it won’t be duplicated, repeated, or ordered if it is not indicated based on specific proven history and findings.

    • Just excellent, so good in fact that here it is on another Forum.

      http://dismalpoliticaleconomist.blogspot.com/2011/06/reforming-medical-mal-practice-will-not.html

    • THANK YOU!!! I have been saying this exact point for the past 3 years or so. Texas is not the only example either. Over 30 states already have some measure of tort reform in place. That should be enough to dissuade anyone of the notion that it is working.

      As you point out, there are very good reasons to support tort reform, but hoisting it up as the savior of our out of control health care costs is a dangerous canard.

    • Dan B. — the VA is not immune from medical malpractice suits.

    • Aaron, I think there is a mistake in your labeling of the pie chart.

      In your text you write that the spending on malpractice insurance premiums would drop by about 10%. But then in your pie chart you label that 10% sliver as the amount of savings from reduced defensive medicine. That sliver should be labeled “Reduced Malpractice Premiums from Tort Reform”. You give the impression that defensive medicine only accounts for what looks to be about 1/10000th of total health care costs. I can tell you from first hand knowledge that this is not the case. Defensive medicine accounts for a significant portion of what physicians do on a regular basis. As a matter of routine, physicians prescribe medicine and order tests out of fear of prolonged legal actions. One “missed” test/pill can turn a quick settlement into a full-fledged jury trial. Even if the physician wins, the damage is already done.

      Tort reform is less about reducing the total cost of malpractice insurance and more about diminishing people’s propensity to sue in the first place.

      • David,

        No, defensive medicine accounts for about $47 billion a year. That’s the blue wedge.

        What the study showed is that reducing premiums 10% changes doctors’ defensive practices enough to reduce health care spending by 0.1%. That’s the red sliver. The bottom line is that doctors likely don’t change their behavior, even after tort reform.

    • I just don’t aggree with the comparison of Texas to national “select” medicare reimbursements per enrolle as an analysis on the effectiveness of tort reform. If Medicare reimbursements have not really changed (and if anything, gone up) over the past decade, why would we expect these to decline due to tort reform?

      The best way to look at this would be to compare malpractice premiums in Texas before and after tort reform. If premiums have gone down, then the reform was a success. If they haven’t gone down but the increase has stayed at or below the rate of inflation, then you could argue it’s at least helped stem the healthcare cost inflation component correlated to malpractice premiums. If the premiums have continued to go up, then it’s a failure.

      Tort reform will only reduce health care costs – beyond eliminating the defensive medicine costs approximated in your pie chart – if payors reduce reimbursements or halt their growth because providers have smaller overhead costs.

      • I agree. This post does not distinguish between the two different ways tort reform could save us money: (1) through reducing the amount of defensive medicine and (2) through reducing prices for health care services.

        To clarify (2), lower malpractice premiums will lower the overhead costs of providing care; lower costs of providing care will translate into lower prices for health-care services.

        The only problem is that prices are set independent of the actual costs of providing care (thanks, RUC!), so prices will probably not go down soon after tort reform.

        Thus, tort reform will not save huge amounts of money because the real cost-saving potential (number 2 above) is stymied by our health-care system’s current price-setting mechanisms.

      • The defensive medicine argument is simple. I order unnecessary tests that I think have little value for the patient but add up in costs because I am afraid that if I don’t, and there is an adverse outcome, and I am sued, then I will suffer in the lawsuit. The idea of tort reform, in this argument, is to immediately change physician behavior (unnecessary test ordering) by removing a source of fear that drives that test ordering.
        Please note, I find this argument weak. I think, like the conservative argument that the housing bubble was caused by fear that the CRA scared banks so bad they threw lending standards out the window so the government wouldn’t be mad at them is ludicrous and flies in the face of everything we know about what actually happened. Fear, at least currently, is not the problem with America’s economy, I think, greed is. Fear only comes up once in a very blue moon, but greed is all the damn time.

    • Mr. Carroll,

      Excellent analysis on your part. Thorough, succinct, and quite professional. Expect it to be overlooked or lampooned under a bevy of “death panel”-ish rhetoric; rhetoric that will be aided and abetted by the well-compensated masters and mistresses to the God of Synergy on cable television, talk radio, and in the D.C.-Big Apple pundit class of rags, mags, and pseudo-think tanks.

      The Cons attack tort reform for political reasons. The Cons view the legal profession as one of their greatest financial adversaries. The Cons see lawyers pour money into Democratic campaigns. So, the Cons reason, if tort reform is imposed, the lawyers will lose money. Ergo the lawyers will contribute less to Democrats. Ergo the Democrats will be unable to match the Cons’ Citizens United-fueled campaign coffers. Ergo more Cons will win on Election Day in national and state races.

      For the record, I am not a lawyer. There are no lawyers in my family. I do not lobby for any legal organizations. I have friends who are lawyers. I have enemies who are lawyers. A lawyer, Peter Angelos, owns the Baltimore Orioles. Baseball is my favorite game (no, I am not George Will). The Orioles have disappointed baseball fans for more than a decade.

      Perhaps the Orioles’ performance will change this year.

      But the Cons’ attack against the legal profession’s funding of Democratic campaigns via tort reform legislation will not.

    • Whoops, I mis-stated the argument (possibly because it had been incorrectly presented to me that way recently). My understanding is that VA doctors are covered under the Federal Torts Claims Act. But individual doctors are sheltered from the costs of malpractice insurance and (I assume that this is the leap that arguers are making) therefore don’t have to practice defensive medicine. Or perhaps that another department of the government absorbs those costs so they are not reflected in the true cost of VA health care (related to the argument that TriCare costs aren’t included in glowing analysis of VA practice).

      Has no one else heard these? I don’t think that they are the case, but I was hoping that there would be a quick link that would provide me with a more complete analysis.

    • If what is being stated is indeed so important, then why:

      1) Do doctors have a medical malpractice registry that the public can’t view? Seems as exemptive as our Congress from the same laws they impose on We The Sheeple.
      2) Am I seeing many more ads from companies such as reputation dot com where they purport to save reputations, including professionals such as doctors?

      Yes, medicine is not a perfect science. The “people factor” is in there too, where a patient may ignore doctor’s orders. It also stands to reason that the public may not have the luxury of prescreening every doctor before a visit, such as a trip to ER.

      The bottom line? An informed public with appropriate transparency could well reduce health care costs. I’ve experienced one bad quack who self-prescribed various sched drugs and lost his DEA#. He lied to me that the standard of care was given, but missed a diagnosis which could’ve been severe and cost me additional money for medicines and pain and suffering that could’ve been avoided. Yes, I could’ve gotten a boatload out of him but chose not to. Others shouldn’t have to go through the same garbage.

    • Those of us who actually listened when the debate about tort reform began in earnest in the early 2000s are STILL shaking our heads over the disconnect in logic.

      Recall the original argument: Large increases in malpractice insurance premiums (which may or may not have been related to malpractice suits) were burdening physicians because DOCTORS COULDN’T PASS ALONG THOSE HIGHER COSTS TO PAYERS (mostly insurance companies and patients).

      But if doctors were unable to pass along their suddenly higher costs for malpractice insurance premiums, how were they going to pass along the supposed savings that resulted from premium reductions following tort reform? And if they couldn’t pass along the savings, how was tort reform going to save patients and payers money?

      Proponents suggested the savings would come from reduced costs of defensive medicine. What they never explained was why a doctor would suddenly change his approach to medicine simply because — should he be successfully sued for malpractice — his insurance company’s losses would be limited to $250,000 for pain-and-suffering instead of, say, $1 million.

      Are we to believe that doctors who are committing malpractice 1) are aware that they are committing it when they are committing it, and 2) adjust the severity of the malpractice they commit based on the total possible cost should they lose at trial?

      • Thank you. This is what I’ve always thought.

        I’m not a doctor (a lawyer, actually, but not a malpractice one), so I’m newer to the debate. But this is what has puzzled me — people make the argument, “physicians are being driven out of business by malpractice premiums, so we need tort reform to lower malpractice payouts and thus premiums. That way doctors can stay in business.”

        How is this anything other than a blatant admission that tort reform will not change overall healthcare costs?

    • The blue wedge (the costs of defensive medicine) does not at all correspond to my own personal experience, or those of my family or friends.

      Defensive medicine — the two extra tests, multiple extra visits and exams required during pregnancy of our three kids, scheduled c-sections, lab workups — it’s a heck of a lot greater percentage than just 10%.

      I would venture to guess that most people, if they are truly honest, would be able to reflect upon unnecessary tests, waivers (administrative costs of issuing, filing, presenting, etc.), lab workups, x-rays, MCATs, CAT-SCANs… 10% is just not an accurate measure of reality. Sorry.

      • I suspect that nobody in your family has received care for cancer or other major diagnosis. The lion’s share of healthcare costs are incurred by a small number of people with dire conditions.

        Defensive medicine may account for a larger portion of routine medical costs like those incurred by your family, but routine medical costs are such a small part of total medical costs that this sort of waste does not in the end account for more than a small portion of total costs.

    • Would like to know if saving from money spent on malpractice insurance could be passed along to payers, patients, and medicare/medicaid.

    • anyone that has ever reviewed any hospital or dr. office can easily point to two astounding figures. Malpractice insurance being 40% of all expenses, and 60% of all claims being paid. this entire paper sidesteps that single most important thing. the 60% comes from medicaid denying the claim. Currently, if you go to see a Dr. and have a headache: he must send you to get an MRI. a 1k procedure. many don’t and if in the future you get diagnosed with anything brain related you can sue for delay in diagnosis. I’ve dealt with dozens of Drs and hospitals with the same issue.

    • Tort Reform is needed. I think your analysis does not address the “meme”. Look at this recent article below. It sort of says the opposite of what you are arguing. Defensive medicine is very common. Although it is small change, $50 billion is still a ton of money.

      http://ti.me/jqeNxu

    • Reducing malpractice costs won’t change physician behavior because every physician is afraid of ANY lawsuit. Just because there is a cap on the damages won’t make the physician any less afraid.

      Also, so much of this extra ordering has become standard of care at this point. There’s also a market reason for ordering everything–Americans have been conditioned to believe that more healthcare means better healthcare. If the physician doesn’t order alot, the patient will just leave and go to another who will.

      Tort reform is a complete red herring placed by those who don’t want you to look at the real drivers of high costs: no physician controls on ordering, high drug costs, and high administrative costs (1/3rd of all healthcare costs are administrative).

    • Let’s not forget that in most states the cap is on exemplary or punitive damages, etc. There is typically no cap on actual economic damages or P&S, and the like. This significantly dilutes the effectiveness of the cap in reducing the fear factor. An egregious malpractice resulting in irremediable paraplegia of a ten year old still results in a pretty huge award! That presents the practitioner with a big imponderable, with the result that we still have a triple feature — Fear, Son-of-Fear and Fear meets Abbot and Costello — playing in the theater of the medical mind.