Will malpractice reform solve the health care cost crisis?

Posted by Nolan Miller on Sep 24, 2009

Filed Under (Health Care)

I was going to write about whether the high cost of U.S. health care might be driven by medical malpractice.  I was going to say that the best information we have says that malpractice increases health care costs, but only by a small amount.  And, while there seems to be isolated effects on access (e.g., a particular region has a shortage of obstetricians), that effect seems to be rather limited as well.

Then David Leonhardt wrote his Economic Scene article for the New York Times this week saying exactly what I was going to say.  He even cited the same studies I was going to cite.  In the context of the cost of care, the key points from the article are:

  • Total Direct Cost of Malpractice Insurance: The combined cost of malpractice insurance, which includes jury awards, settlements and administrative costs, come to about $10 billion a year.  This is about one-half of one percent of medical spending.
  • Costs of Defensive Medicine: Malpractice concerns seem to induce doctors to order more care.  A conservative (upper bound) estimate of the cost of this care is about $60 billion per year.  This is about 3 percent of annual medical spending.

So, even if we could eliminate all of the costs of malpractice and defensive medicine, it wouldn’t really solve the cost problem in US health care.

One point that Leonhardt did not raise that I find intriguing is the following.  One of the major drivers of the growth of health spending in the US has been increases in the use of imaging technologies such as CT scans and MRIs.  And, there is evidence that some of the growth in use of imaging technology is driven by defensive medicine.  A 2005 JAMA study by David Studdert and coauthors presents survey evidence in which 43 percent of physicians reported ordering imaging in “clinically unnecessary circumstances.” And, a 2007 study by Kate Baiker, Elliott Fisher, and Amitabh Chandra in the journal Health Affairs found that states with higher malpractice costs are associated with increased use of imaging technology for Medicare beneficiaries.  Now, the way defensive medicine is detected and its impact quantified is by comparing areas with relatively high and low malpractice liability, and it isn’t easy to come by datasets that are amenable to such analysis.  It is entirely possible that, if defensive medicine leads doctors to order more scans in geographic area, ordering a scan might become common practice in nearby areas and, eventually, all areas.  The same is true for doctors who order defensive scans on particular types of patients.  If practices that start out as defensive medicine quickly become generally accepted, then the cost of medical malpractice might be much larger than what we are able to detect in the data.

Even if fixing the malpractice system would not fix the cost of the US health care system, there are still good reasons to think about reforming it.  The current system does not seem to do a very good job of actually preventing medical errors.  As Leonhardt notes, the US has more medical errors than similar countries, and only a small proportion of them (2-3 percent) result in a malpractice claim.   On the other hand, the system often holds doctors responsible for adverse events that are not due to their negligence and makes them liable for, in many cases, huge judgments.  The current system also has the potential to create an adversarial relationship between doctors and patients that is not conducive to improving patients’ health.  I, for one, would rather have my doctor worried about making me well than avoiding a lawsuit.  

So, the current system fails to protect patients’ health, fails to compensate them for losses (whether due to negligence or bad luck), and distracts doctors from working toward improving patient outcomes.  This, rather than the potential to solve the health care cost crisis, would seem to be the compelling case for malpractice reform.

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