Malpractice Reform Won’t Do Much to Reduce Health Spending

The following originally appeared on The Upshot (copyright 2014, The New York Times Company).

Among the many ideas that have been tossed around for decades on how to bring down health care spending, none may be as well known as malpractice reform. Many people believe that it’s the key to removing waste from the health care system and making the practice of medicine better. But a growing body of evidence shows that belief is most likely mistaken.

The rationale for malpractice reform as cost control is somewhat complex. It assumes the existence of “defensive medicine,” meaning that doctors order additional tests, or perform extra procedures or recommend more visits, all because they think those actions will protect them from being sued. Doctors fear an “epidemic” of lawsuits so much that they practice wasteful medicine to shield themselves from nuisance cases, this theory goes.

It’s important to acknowledge, though, that there’s not much evidence of a malpractice crisis at all. According to the National Practitioner Data Bank, the number of malpractice payments made on behalf of doctors has beendropping quite steadily for the last 10 years.

But let’s be clear. The malpractice system in the United States isn’t cheap. A 2010 study published in Health Affairs estimated the costs to be more than $55 billion a year in 2008 dollars. About $5.7 billion of that was for indemnity payments, or the money paid to plaintiffs for damages. An additional $4.1 billion was for administrative expenses, including legal fees and the cost of the legal system in general. The remaining $45.6 billion was for defensive medicine.

While that’s not a small amount of money, it’s still not a huge financial component of overall health care. The study pegged the malpractice system’s costs at 2.4 percent of health care spending. Some dispute the findings on defensive medicine, though, believing that the actual number is much higher. Even then, it’s still a relatively small part of total health care expense.

Regardless, if we believe that a fear of lawsuits drives health care spending, then it is theoretically possible that reform could reduce physician concern and lead to a reduction in waste. Research doesn’t support this theory either, though.

In 2003, for instance, Texas passed a law that capped noneconomic damages at $250,000 per year. The idea was to decrease the number of suits, lowering overall indemnity payments, which would lead insurance companies to decrease premiums for malpractice insurance. This, coupled with reduced claims, would make doctors feel safer, and therefore reduce their practice of defensive medicine.

Health care spending didn’t go down in Texas, though. In fact, Medicarespending per beneficiary went up more quickly in Texas after the change than it did in the rest of the country.

This mirrors just-published work in The New England Journal of Medicine. Researchers examined how emergency-room care changed for beneficiaries in Texas, as well as in Georgia and South Carolina, which passed similar laws in 2005, compared with neighboring states without similar laws. They concluded that malpractice reform did not significantly change indicators like how often imaging was used to rule out problems, how much was spent on average and how many patients were admitted to the hospital.

Another study took a different approach. Researchers examined more than 15 million medical insurance claims in 30 states with varying levels of risk of malpractice suits. They compared how the same conditions were treated in states with high malpractice-suit risk and in states with low risk, to model what costs would be if more physicians were practicing in low-risk areas.

The effects were surprisingly minimal. They found that even if malpractice premiums fell by as much as 30 percent (which would be huge), overall spending on defensive medicine would drop only 0.4 percent.

There are a number of reasons this might be so. The first is that even as caps are put on damages, and indemnity payments are reduced, the savings arenot always passed on to physicians in premium reductions that might cause them to change their behavior. Sometimes those savings are pocketed by insurance companies, as they appear to have been in Florida since malpractice reform passed there in 2003. If that happens, there’s no reason to believe doctors will practice much differently.

The second reason is that although fear of lawsuits is often part of why defensive medicine is practiced, it’s not the only reason. When studies are done estimating how much of medical practice is defensive, they often assume that malpractice reform would change decisions that are defensive even in part. But that’s most likely not the case. Only practice that is entirely defensive is likely to be changed.

There are many reasons to order tests, procedures and visits. The most glaring one is that usually physicians are paid for doing so. Other times, physicians want to play it safe not only because they might be sued, but also because they think it’s in the best interests of their patients to double- or triple-check some detail.

A recent study in JAMA Internal Medicine examined not only how many orders were defensive in nature, but also what relative amount of the rationale for them was defensive. The study asked doctors to rate their own orders using a “defensiveness score” from 0 (not at all defensive) to 4 (completely defensive).

Although defensive orders were not uncommon, completely defensive orders were. They accounted for less than 3 percent of overall costs. If we’re being honest, this is the waste we might trim by malpractice reform — and while 3 percent of medical spending is nothing to turn up our noses at, a one-time reduction of that amount, even if achievable, won’t do much for the long-term problem. Meanwhile, other orders may also be “defensive,” but if they’re also being issued for reasons unaffected by legal reform, they would continue to made in the future.

This doesn’t mean there aren’t real problems in the malpractice system. A significant number of initial claims are dropped, withdrawn or dismissed, suggesting that they may be without merit. Such suits are difficult for physicians, and can negatively affect them and their practices. They also cost a significant amount of money to defend. And, it can’t be overlooked that there are still far too many cases with merit that never move forward.

There are many legitimate reasons to reform the malpractice system. It just doesn’t appear that reducing health care spending is one of them.


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