Wednesday, October 20, 2004

The Tort Reform Hussle

The medical malpractice (med-mal) insurance industry, some politicians, and even some uncritical doctors, have of late been misleading the public about the efficacy of caps on med-mal awards, a.k.a. ‘tort reform’ for health care cost containment. They are telling the public that med-mal awards are driving the disastrous cost inflation in health care seen over the past several years. Exploiting consumers’ concerns about the affordability of health care, they are misleading the public into supporting the curtailment of their own right to seek full compensation for damages due to malpractice. High rates of inflation in health care costs are the primary cause of increases in med-mal payments, not a symptom; using tort reform to contain health care costs is like trying to make the tail wag the dog.

Although premiums for med-mal insurance have risen sharply in the past few years, this increase is not due to an ‘explosion’ in insurance payments to victims of medical malpractice. In fact, the increase in med-mal payments conforms closely to the overall rate of medical inflation. Increasing premiums are instead a function of the current poor investment environment. Because insurance companies depend on financial investments for the bulk of their profits, premiums for med-mal insurance have historically risen sharply in response to economic downturns. When interest rates and the equity markets are down, insurers increase premiums to preserve industry profitability. Current calls for tort reforms are reminiscent of those heard during the recessions of the mid-1970’s and mid-1980’s.

Med-mal torts do not constitute a significant share of health care costs. Even with recent inflation, the average doctor’s premiums are less than 4% of his revenues and malpractice claims amount to only 1/2 of 1% of total healthcare costs. The average claim is a modest $140,000, and the average settlement is just under $30,000. Less than 5% of awards top one million dollars (and about 3/4 of those are reduced by the courts to an average of $250,000), and though only 1 in 8 injuries due to malpractice are filed, more than 3/4 of filed claims are dismissed. The cost savings realized by eliminating incentives for physicians to practice ‘defensive medicine’ is sometimes cited as a reason for tort reform. But the non-partisan Congressional Budget Office has found no statistically significant difference in per capita health care spending between states with and without limits on malpractice torts. Defensive medicine costs are illusory.

To reduce the number and expense of med-mal claims, the most sensible approach is to improve the quality of healthcare, not to arbitrarily limit the payments to people who have suffered grievous injuries. Properly compensating victims according to a jury’s award isn’t causing a crisis in malpractice insurance; the real problem is a break-down in self-regulation of the medical profession. It is really a small number of incompetent doctors who cause most of the suffering and expense. Fewer than 5% of doctors are responsible for more than 50% of all med-mal claims, but, of those 5,000 doctors who have paid four or more med-mal awards, fewer than 15% have been disciplined by their state boards. Physicians need to more stringently police their own, so that they aren’t in the same risk pool with incompetents who are harming their patients.

Tort reform is not a workable solution to the problems of our health care system. Cost containment will come from comprehensive reform in how we deliver health care services, not tort reform. Several states already have caps on non-economic damages in med-mal cases, including Texas, California, Florida, Missouri, and Nevada. Given that some of the most populous states have caps, one would think that this would have some effect on med-mal premiums nationally, or at least within those states, but states with caps continue to see their premiums go up, even as awards to victims have gone down. Tort reform is a means of helping insurance companies cushion their business cycles, not a means of containing the run-away costs of our health care system. Reforms are certainly needed where high med-mal premiums are driving some physicians out of vital, high-risk specialties, such as surgery or obstetrics, but general caps on non-economic damages don’t address the real needs of these market segments. Government reinsurance assistance, carefully considered legislative reform of medical tort liability in problem specialties, expert pre-litigation review boards, and other creative, targeted approaches will produce real results. Tort reform is just more pork for big insurance at the expense of severely injured patients.


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