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Malpractice Reform Is No Panacea For Rising Health Costs

New findings indicate that putting limits on malpractice awards and enacting similar tort reforms are unlikely to do much to curb the nation’s surging health care costs. In fact a new study, published last week in Health Affairs suggests that costs associated with medical malpractice are far less than the $650 billion figure (26% of all money spent on health care) cited by some Republicans who have made tort reform a cornerstone of their vision for “bending the cost curve” in health care. The newly calculated figure, $55.6 billion, represents just 2.4% of health costs.

According to NPR, “Longtime malpractice and patient safety researcher Michelle Mello of the Harvard School of Public Health [one of Health Affairs authors]” said that “some of the figures used during the recent health overhaul debate were ‘quite imaginative.'”

The $650 billion figure is derived from a Gallup survey of doctors nationwide that was sponsored by Jackson Healthcare; a for-profit staffing and hospital management company established by entrepreneur Rick Jackson. The survey was co-released with the Center for Health Transformation (a conservative group founded by Newt Gingrich). In this survey 73% of physicians told pollsters that they practiced some form of “defensive medicine””–i.e. the unneeded tests and treatments doctors order to reduce their risk of being sued–in the past 12 months to protect themselves from frivolous lawsuits. Some 80% of costs attributed to the medical malpractice system are due to “defensive medicine.” The net result, Jackson told Healthcare Technology News;  “One in four dollars spent on health care in America now pays for unnecessary tests and treatments that physicians order to keep from being sued.”

Trying to calculate the costs associated with medical liability is notoriously difficult. The enormous difference between the new estimate from the team led by Mello (which also included Atul Gawande) and the figure bandied about by conservatives during the debate over health reform is a clear indication of the problem. Still, the Republican line has always been that if Congress institutes tort reform, dramatic savings in health care costs will result from a drop in defensive medicine. No longer worried about catastrophic lawsuits that could devastate their practices, physicians will only perform tests and procedures they deem necessary.

It turns out that this isn’t quite accurate either. Another Health Affairs study (the September issue focuses on malpractice issues) finds that doctors worry about malpractice suits and practice almost as much defensive medicine in states like Texas where reforms are in place as in those that have no limits on malpractice awards.Even if tort reform led to a 10% reduction in the premiums doctors pay for malpractice insurance, the reduction in defensive medicine would result in a savings of less than 1% of total medical care costs in every specialty.

The idea that malpractice reform will significantly drive down health care costs was challenged as early as 2004 when the Congressional Budget Office published an “issue summary” entitled; “Limiting Tort Liability for Medical Malpractice” that examined the benefits of malpractice tort reform in reducing defensive medicine costs and cost of malpractice insurance. The CBO paper first of all recognizes the uncertainty inherent in the issue:

“If malpractice is judged inaccurately or is not clearly defined, doctors may carry out excessive tests and procedures to be able to cite as evidence that they were not negligent. Likewise, if malpractice is defined clearly but too broadly or if awards tend to be too high, doctors may engage in defensive medicine, inefficiently restrict their practices, or retire. Conversely, if doctors face less than the full costs of their negligence-because they are insulated by liability insurance or because malpractice is unrecognized or undercompensated-they may have too little incentive to avoid risky practices. For all of those reasons, it is not clear whether trying to control malpractice by means of liability improves economic efficiency or reduces it.”

According to Kevin Drum, writing for Mother Jones in February, “large damage awards are actually pretty rare and don’t make up a huge proportion of total malpractice payouts. Capping them changes the picture, but it doesn’t change it that much. But it does substantially cut into trial lawyer income.

“Which, of course, is the whole point. If you want to annoy trial lawyers, you should cap damages. If you really want to reform malpractice law, however, look elsewhere.”

Where is that “elsewhere?” Drum says that in California, for example, a law passed in 1975 limited non-economic damages in malpractice cases to $250,000. “Adjusted for inflation, that cap is now about the equivalent of $60,000,” he writes. Even so, until 1988 malpractice insurance premiums in California continued to rise just as fast as in other parts of the country. But then in 1988, California also began requiring state approval of insurance rate increases–and malpractice premiums leveled off.

That’s just one idea for reducing health care costs associated with medical liability. Conservatives like Rick Jackson and Newt Gingrich support creating specialized health courts, like the worker’s compensation boards, to hear malpractice claims and decide on monetary awards. This kind of system would include removing the doctor from personally being liable for his medical mistakes. It would also remove malpractice cases out of the civil court system where, critics argue, anti-doctor juries hand out outlandish awards for pain and suffering.

But other research has found that jury trials are not really the problem. Huge multi-million dollar awards are rare–the Center for Justice and Democracy has compiled a “Mythbusters” issue paper that examines civil jury trials and found that the average medical malpractice jury award is $400,000 (vs. $631,000 handed down by state judges.) These awards are typically greatly reduced in post-trial settlements and appeals–in Illinois, for example, settlements averaged just 43% of the original verdict. The jury system actually seems to work quite well in medical malpractice cases–in fact according to the U.S. Department of Justice, plaintiffs succeeded in only 22.7 percent of jury-decided medical malpractice cases, while winning before judges 50 percent of the time.

In response to the latest study, Republican leaders are backing away from their tort-reform-as-panacea position: The Hill reports that “The Republican chairman of the Congressional Healthcare Caucus this week said that medical liability reform is no cure for the nation’s skyrocketing healthcare spending.

“Rep. Michael Burgess (R-Texas) argued that the cost of malpractice to the healthcare system is ‘a huge sum of money,’ but also conceded that limiting malpractice claims won’t translate into instant healthcare savings.”

Burgess wrote in an e-mail to The Hill, “Defensive medicine is a learned methodology, and one that cannot be unlearned quickly, and I believe this contributes significantly to the reason why costs do not decrease quickly and steeply immediately after medical liability reforms are passed.” He added, “Our nation’s healthcare system is very complex, and I have never suggested that medical liability reform is a silver bullet.”

Defensive medicine–or the unnecessary use of tests and procedures–is, as Burgess suggests, a “learned methodology” that is seemingly ingrained in physicians from the minute they begin their professional training. In June, a study in the Archives of Internal Medicine found that 91% of surveyed physicians (from a range of specialties and primary care practices) believe that they and their colleagues order more diagnostic tests and procedures than are needed in order to protect themselves from malpractice suits. Is this overwhelming fear of liability a realistic concern? Or is defensive medicine sometimes used as a justification for over-utilization of care that generates more income for a practitioner or his institution? Or, do doctors sometimes order unnecessary tests because their well-heeled and/or well-insured patients want them and they just want to keep their customers happy?

Back in 2004 the CBO report did question the motivation of those doctors who claim that they order excess tests and procedures to avoid lawsuits:

“Proponents of limiting malpractice liability have argued that much greater savings in health care costs would be possible through reductions in the practice of defensive medicine. However, some so-called defensive medicine may be motivated less by liability concerns than by the income it generates for physicians or by the positive (albeit small) benefits to patients. On the basis of existing studies and its own research, CBO believes that savings from reducing defensive medicine would be very small.”

This motivation is hard to document. But a recent investigation into Caesarean section rates in California hospitals definitely adds weight to the CBO’s suspicions. As background, I wrote in March about how the rate of C-section deliveries has risen 50% since 1996, hitting an all-time high of 32% of all deliveries.

Many doctors claim that defensive medicine is one of the driving forces behind this record C-section rate. Obstetricians pay some of the highest premiums for malpractice insurance of all doctors and nearly 77% of obstetrician/gynecologists have been sued at least once in their career; almost half have been sued three or more times. Interestingly, according to obstetrician Amy Tuteur, writing on the blog KevinMD, there is no correlation between the number of lawsuits or the size of awards and this rising rate of C-sections. The problem, she writes, is that “every obstetrician expects to be sued at least once in a professional lifetime.”

Well, maybe not every obstetrician–just a lot of the ones who work at for-profit hospitals. In a recent analysis conducted by California Watch, a project of the Center for Investigative Reporting that focuses on state-based stories, reporters found that for-profit hospitals across California are performing cesarean sections at higher rates than nonprofit hospitals. Not surprisingly, economic factors figure into the equation: According to the analysis, average hospital profits on an uncomplicated C-section were $2,240, while profits for a comparable vaginal birth were $1,230.

“The statewide database revealed significant differences among 253 hospitals inCalifornia,” according to the California Watch analysis. “Women, whose pregnancies were deemed to be low-risk, had a 9 percent chance of giving birth by C-section at the nonprofit Kaiser Permanente Redwood City Medical Center, for example. At the for-profit Los Angeles Community Hospital, women had a 47 percent chance of undergoing a surgical birth. When you factor in moms who needed to have C-sections for medical reasons, the Los Angeles hospital’s rate jumps to 59 percent.”

In the end, the rise in defensive medicine comes at exactly the same time as incentives in our current payment system have increased for doctors to ratchet up testing, procedures and other billable services–the “perfect storm” of over-utilization. It will be nearly impossible to separate the two motivations–especially for doctors who have been confusing the two for so many years. The calls for malpractice tort reforms have been coming for such a long time now that no amount of studies showing their lack of effectiveness in reducing health care costs will convince supporters otherwise.

A solution may ultimately come through health reform legislation. Evidence-based medicine is one of the goals of reform, with clear, consistent guidelines increasingly available for treating many conditions. Often derided as “checklist” or “cookbook” medicine, these kinds of guidelines, provided by a federally-funded research group, could end up being the best defensive medicine out there. One idea is to institute tort reforms that would grant doctors some protection against liability if they can demonstrate that they followed treatment guidelines issued by a national comparative effectiveness center.

In the meantime, those who have created hysteria over malpractice lawsuits need to take a heavy dose of reality. The health care costs associated with malpractice are nowhere near as high as Republicans once claimed–although they still require addressing if only because the issue clearly is a top concern of doctors. The truth is that doctors practice defensive medicine not only because they fear lawsuits; even with tort reforms in some 40 states, the practice is ingrained in their culture and frankly, makes economic sense. Changing incentives to discourage over-treatment and over-testing will go a far longer way in reducing health care costs than a fundamental reform of medical malpractice laws.

by Naomi Freundlich