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Malpractice Reform: A Good Thing, But Not Good Enough

26 Aug

One of the big claims from the right when it comes to health reform is the need for the country to enact serious tort reform. That is, for a variety of reasons, some people believe that the skyrocketing costs of medical care in America are the result of a legal system that is allowed to operate largely unchecked. Depending on the argument they put forward, they may be right or they may not. Wow. That’s a big assertion for me to put forward, huh?

Here’s the deal. The astronomical awards we hear about on the news–say, for example the recent Merck settlements over Vioxx (not exactly malpractice) or the tales of items left inside someone during surgery–are powerful anecdotes, and they do represent large sums of cash, but they are actually few and far between. The phenomenon of large jury awards is actually quite similar to airplane crashes: There are very few of them (air travel is the safest of all forms of transportation), but when they do happen the casualties are high in a very short period, and that tends to make an impact on the news.

Couple that with weird instances of frivolity (e.g., a women sues McDonald’s when she spills coffee on her lap, because it was hot!) and it’s understandable that people think malpractice is a huge problem. Well, it might be, but not because of the insanely large amounts we hear of being awarded from time to time. In fact, all of the direct costs of malpractice–that is the insurance premiums providers pay, and the awards insurers pay claimants–add up to less than 1% of national health expenditures in this country. That’s to say, we could completely eliminate malpractice insurance altogether without putting a noticeable dent in our national tab.

The better argument from supporters of tort reform has to do with the indirect costs the threat of a lawsuit might well be having on physicians’ provision of care. You may have heard the term defensive medicine used in conversation. Essentially, the argument is that, because providers are worried about being sued for missing something important, they order far more tests and conduct far more procedures than the patient’s condition may actually warrant. It stands to reason. If you’re not penalized for overutilizing medical resources–in fact, in most cases doing so translates into a bigger paycheck–then why not cover your rear?

If physicians didn’t have to worry so much about being sued for malpractice, perhaps they’d start being more responsible users of resources–stop practicing defensive medicine–and the cost of health care would, if not decline, at least not continue to grow at such a fast rate. I’ll admit, it sounds plausible, but there’s a catch. Limiting the threat doctors face in the form of malpractice might eliminate their perceived need to practice defensive medicine, but it does absolutely nothing to address the fact that most doctors continue to be paid on a fee-for-service basis. In other words, they still have a strong incentive to overtreat: it pays better.

It sure would be nice if we had a way to try this idea out and see what happened. Luckily, in 2003, Texas passed Proposition 12, which reformed the malpractice system in the state by capping award amounts among other things. As one might expect, soon after the law went into effect, many doctors chose to locate their practices in Texas. Why not? Their malpractice insurance would be much less expensive. That’s in keeping with the theme of this post, that money is one of the most powerful motivators of human–not just physician–behavior.

But what about health care costs? Did they go down in Texas in the wake of reform? After all, one of the most popular articles in the health care debate focuses on a tiny Texas town that spends more than almost any other place in the country. Surely there’s room for cost savings in McAllen? Fortunately, using health expenditure data from both AHRQ and CMS, we are able to look at per capita health care expenditures in Texas and compare them to those in the United States to find our answer: Costs in Texas are going up just like they are in the rest of the country. And as an aside, if you are wondering why the per capita spending is lower in Texas than it is in the rest of the country, it’s because they have one of the highest rates of uninsurance in the nation.

Does all of this mean that malpractice reform is a bad thing? Not necessarily. It just means that malpractice doesn’t deserve all of the blame for rising health care costs. That’s merely the result of a system that pays doctors more for every test and procedure they do, in conjunction with a pool of patients who are largely insulated from the costs of their care and who want to live forever or until they decide they’ve had enough. Does it mean that we shouldn’t reform the malpractice system in this country? Not at all. But it does mean that we shouldn’t expect to save money by doing so.

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1 Comment

Posted by on August 26, 2009 in Uncategorized

 

One response to “Malpractice Reform: A Good Thing, But Not Good Enough

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