Lot’s has been said about the holy grail of tort reform by those in the medical field. The problem is, most of it isn’t true. Physicians and providers are very good at assigning the blame for rising costs on every one else. We are good at describing the “evil” insurance companies, and “greedy” pharmaceutical companies (partly true here), and those “bastard” lawyers. However, this blame game ignores the fact that while all of those players are culpable to a degree, it is the provider that also shares a significant amount of blame for cost increases.
Tort reform is currently the shiny object over in the corner of the room. That’s not to say that it can’t help, but the latest CBO estimates are a savings of 54 billion over ten years, or roughly 5.4 billion per year. In a 2.4 trillion dollar healthcare system, that doesn’t amount to much. Latest estimates are 0.5% savings. I would posit, that perhaps it might be closer to 1% once defensive practices are slowed. However, I don’t think the CBO is too far off here.
Let’s look at Texas, in 2003, they introduced the most aggressive tort reform legislation to date in the US. It is true that this reform, after 2003 lowered malpractice premiums, and increased physician supply to the state. However, Texas, since 2004 has seen a growth in testing expenditures that has outpaced the national average by more than 50% (Arkush, Gosselar, Hines, Lincoln, 2009). Additionally, the same report found that Medicare spending per patient had doubled between 2003 and 2007, in contrast to the decline in Medicare spending that was noted prior to the laws enactment. They also found that Texas has the highest rate of uninsured patients in the country, both prior to the law, and accelerating after the law was passed. The additional physician presence has only increased because of an increasing population as well, and there was only an increase of 0.4 physicians per capita after the law was passed. In addition, ACEP gave Texas an “F” on access to emergency care in 2009. Lastly, the National Board of Economic Research (NBER) commissioned a comprehensive study, which concluded that a targeted reform may have some impact, but that overall, it would be neglible (Lakdawalla, Seabury, 2009). Additionally, they found that for every 10 percent reduction in medical malpractice costs related to liability, there is a 0.2% increase in patient mortality. The NBER article is particularly poignant, and I have posted the summary here, as the article is 60 pages long, and the economic math is quite intensive.
The impact of liability for medical malpractice on the cost of medical care has been one
of the highest profile issues in debates over the U.S. health care system for many years.
Malpractice payments have grown enormously over the past 15 years, but this has likely had a
modest impact on the cost of health care in the US. It may have other significant effects, such as
decreasing the supply of physicians or changing the nature of treatment. Our findings, however,
suggest that limiting malpractice liability is no panacea for rising health care costs.
Moreover, while the mortality benefits of malpractice may be quite modest, these seem
more likely than not to justify its direct and indirect health care costs. Therefore, we conclude
that — for values of statistical life traditionally employed by US regulators —reducing
malpractice costs is not likely to be a worthwhile policy goal in itself. As emphasized by Currie
and MacLeod (2008), however, specific policies must be evaluated on a case-by-case basis, as
they can have unexpected effects on physicians’ expected liability and incentives. In addition,
there may be policies that reduce malpractice costs but have other social benefits; we do not rule
those out, but note that the case for their adoption rests on their auxiliary effects.
At a minimum, our analysis reveals the tenuousness of the case for tort reform, but it is
important to note its limitations. First, we account only for impacts of tort reform on medical costs and mortality, excluding its impacts (if any) on morbidity, physician utility, and patient
satisfaction. These quantities are extremely difficult to measure objectively. In addition, we do
not account for the adjustment costs (e.g., on the utilization of the health care system) that would
be induced by any large-scale reform project. The size and even direction of these excluded
effects is not clear. Finally, even if we ignore these limitations and accept the estimates at face
value, the probabilistic nature of our analysis means we cannot rule with (even approximate)
certainty for or against tort reform over conventionally accepted values of life.
Putting our results together with earlier work suggests that malpractice may have
substantial impacts on the care and costs of specific patient subgroups — like heart attack
patients — but much more modest impacts on the average patient, and on health care spending as
a whole. Future research should endeavor to determine whether tort reform can be targeted
toward these subgroups in a cost-effective manner.
Another important avenue for future work is to evaluate whether malpractice has effects
on more fine-grained outcomes in the health care system, such as morbidity, disability, or the
nature of care delivery. Medical costs and mortality are likely to be the first-order costs and
benefits of changes to the malpractice system, but the auxiliary effects may be quite significant.
If, for example, malpractice risk has had limited impacts on costs but appreciable positive
impacts on average outcomes other than mortality, the malpractice “crisis” may be anything but.
If, on the other hand, it has negative impacts on outcomes, the major costs of malpractice may be
in health rather than in dollars.