The Root of High Costs – Medical Malpractice

In segment 3 on the high costs of healthcare, I briefly mentioned medical malpractice as a possible factor. However, it was too complicated a subject to be included in that segment, so it will be discussed here.

While there is general agreement that the medical malpractice system is costly to the US economy, there is less agreement on whether these costs have a significant impact on overall healthcare costs.

According to statistics referenced on https://truecostofhealthcare.org/malpractice, spending in the US for medical malpractice (including legal costs) was estimated to be about ten billion in 2010, an amount which is less than one percent of the three trillion spent on health care in the US in 2016. By now It’s logical to assume that ten billion is outdated and the figure is much higher.

However, the National Conference of State Legislatures (NCSL) estimates that medical liability costs, including settlements, legal fees and administrative costs, range from $55.6 billion annually (2.4 percent of total health spending) to $200 billion annually (10 percent of health care spending). Even 2.4 percent of total health costs should be considered a significant portion of healthcare costs. 10 percent is totally unreasonable.

Average annual per capita medical malpractice costs for physicians from 2012 – 2016 were highest in New York, followed by Pennsylvania, New Jersey and Rhode Island. Currently, there are no limits on monetary damages in malpractice cases in New York, although proposals have been debated in the past (legalmatch.com).

Nonetheless, these high costs cited above may not account for what’s known as the practice of “defensive medicine,” which is defined as physicians over-treating patients as an abundance of caution, so as to protect themselves from lawsuits. These are exactly the kinds of costs that result in higher health insurance premiums for everyone (see segment 3).

Physicians who defend defensive medicine say it’s the uncertainty of dealing with potentially life-threatening conditions that probably causes them to be overly cautious with ordering extra tests and additional consultations. If a doctor is worried that he might be missing something, and in his or her mind there is anxiety with getting sued, that doctor is likely to engage in the practice of defensive medicine.

However, if defensive medicine was exclusively about the fear of being sued for malpractice, then it should be easy to show that, in the states with higher malpractice costs, far more medical tests and procedures are done. So far, that does not seem to be the case. Therefore, the issue is a complex one, although no one is denying that defensive medicine exists.

Whether the actual costs related to malpractice are 10 billion, 56 billion or 200 billion, depending on where one gets their statistics, a number of states have taken notice of the costs and have enacted tort reform laws aimed specifically at reducing the cost of medical malpractice (https://truecostofhealthcare.org/malpractice).

By 2013, 33 states had enacted some form of tort reform aimed at limiting the costs of medical malpractice. Typically, these laws are designed to cap damages (the amount a plaintiff can collect in a suit). Other reforms involve tightening statutes of limitations for filing claims and screening cases before they go to trial. There does appear to be some evidence that medical malpractice costs have dropped over the last 14 years, and tort reform could be a factor in those reduced costs.

It should also be noted, that those who support the patient’s right to sue for unlimited damages are typically plaintiff’s attorneys. Those proponents say that the healthcare system should focus on improving the quality of medical care, not placing caps on damage awards. However, evidence indicates the medical malpractice system does not reduce medical errors or improve patient safety.

Evidence from several studies suggests that tort reforms have the potential to reduce healthcare spending significantly with no adverse impact on patient health outcomes (https://pubmed.ncbi.nlm.nih.gov/21595327/).

The current malpractice system in the US is based on a contingency system. Plaintiffs can file a suit without incurring any upfront legal costs. If the suit results in a settlement or jury verdict in their favor, they typically receive one-third of the settlement, minus court costs and expenses. Critics of this system feel plaintiffs should have some “skin in the game” before they file a suit against a physician or hospital. As it stands now, there is no cost to filing a suit, even a case that is weak on its merits.

Those who defends the contingency system say that plaintiffs of lesser financial means should not be denied their right to sue and confront those alleged to have harmed them in court.

Not all countries use the contingency system for filing malpractice claims. In a tort liability system, such as the US, patients are compensated when negligence is proven to be the cause of the injury. Plaintiff’s attorneys receive one-third of the award. However, in OECD countries (Organization for Economic Cooperation and Development), most notably in Sweden, a no-fault system is utilized, whereby patients are compensated without proof of the providers’ fault. The US’ tort litigation system has been criticized for being inefficient, unfair, and costly to both patients, health care providers and the health care system in general (https://openknowledge.worldbank.org/handle/10986/26120).

Based on the costs related to medical malpractice, one can easily conclude those costs have a bearing on overall healthcare spending in the US. If the data supports that tort reform can lower medical malpractice costs, and those savings can have a calming effect on healthcare costs and health insurance premiums, then more states should consider reforms to rein in costs. It is possible to maintain a patient’s right to receive compensation for a medical injury, and also save costs through common sense policies that protect patients from healthcare costs that threaten their financial integrity.