Reduce the high cost of medical malpractice

August 6, 2009

diana-furchtgottroth–- Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –-

The next time you take your child to a doctor, scrutinize carefully the doctor’s bill.  What it won’t tell you is that an average of 10 cents out of every dollar you pay goes to the malpractice insurance doctors must have to protect themselves in case a patient sues them.

Malpractice premiums cost some doctors many tens of thousands of dollars a year, not because an individual doctor has a history of making mistakes, but because in some states juries make excessively generous awards knowing that insurance companies pay.

Medical specialties with the highest premiums include obstetrics and neurosurgery.  Malpractice insurance premiums for obstetricians range from $200,000 per year in high-cost states to $20,000 annually in low-cost states.  Resolving a suit takes at least three years, taking physicians’ time away from the practice of medicine.

According to Towers Perrin, a global professional services firm, malpractice litigation costs $30 billion a year, and, since 1975, direct costs of litigation avoidance have grown at more than 10 percent annually.

But that’s less than half the story. To avoid being sued, doctors view patients with two sets of eyes.  One set is the caring, compassionate, medical professional.  The other set is a defensive strategist, looking at an individual who tomorrow may call a lawyer to sue.  And, to be fair, sometimes doctors make avoidable, even negligent mistakes and injured patients are entitled to be compensated for their losses, and perhaps for some pain and suffering.

The defensive strategist dominates medical practice today.  Doctors use excessive tests and other procedures to avoid lawsuits, and stay out of certain areas of medicine—most notably obstetrics.  The net result is higher costs for medical care.

In 2006, the Congressional Budget Office reported that states that had placed limits on malpractice awards in 1986 saw health care spending per person decline steadily through 2000, reaching lower levels than in states without caps.

One example is Texas.  According to Grace-Marie Turner, president of the non-partisan Galen Institute in Washington, D.C., Texas is showing  how to get malpractice costs under control.  Since the state legislature passed a series of malpractice reforms several years ago, medical malpractice costs have plummeted, and the number of doctors moving into the state has soared.

“There is a cause and effect here,” Ms. Turner told me. “Premiums with one malpractice insurance company have fallen by more than a third, allowing doctors and hospitals to reduce their costs.  About 7,000 physicians have moved into Texas over the last four years, and the state has a backlog of applications from other physicians wanting to move there.”

Congress could use health reform legislation to give incentives to states to reduce the costs that lawyers’ fees place on the health system, while still protecting patients.  Fear of lawsuits can diminish patient safety, as hospitals and physicians become wary of keeping records of errors—records that could result in safer procedures being put in place.

Approaches to lowering costs of malpractice insurance include:

Limiting non-economic and punitive damages. Juries now award patients not just real economic damages, representing lost opportunities, but also non-economic compensation for pain and suffering, or mental distress, or punitive damages to teach doctors a lesson.

Limiting lawyers’ fees. Most lawyers take malpractice suits on a contingency basis, where their fees are percentages of their clients’ awards.  This encourages them to seek larger awards.

Modifying or eliminating “joint and several liability.” Now, even if physicians or hospitals are only partly responsible for damages, they can be required to pay the entire amount.

Shortening the statute of limitations. Patients normally have years after the injury happened or was discovered in which they can file lawsuits.  This interval could be shortened.

In his speech before the American Medical Association in Chicago on June 15, President Obama specifically acknowledged the problem: “Now, I understand some doctors may feel the need to order more tests and treatments to avoid being legally vulnerable. That’s a real issue.”

All Americans, even those receiving satisfactory treatment from their doctors, have to pay more because of the threat of lawsuits.  As we look at reducing healthcare costs, Congress should not only look at cutting reimbursements to doctors.  Lawyers should take cuts too.

20 comments

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Indeed, defensive medicine is costing Americans way more than current projections suggest. There are huge hidden costs where folks (patients as well as doctors)sub-consciously avoid making decisions that they fear might result in legal complications.
Medicine is NOT an exact science. If we take away the option to make an informed decision we have a self-defeating system that drives up the cost as well as drives down the success rate.
How do you think most Americans would vote for:
1) Limiting malpractice awards to patients at no more than 150% of the total cost of the medical bills.
2) Limiting lawyer contingency fees to 25% of the total cost of the medical bills.
My guess is 90% of malpractice suits would evaporate; medical costs would immediately come down dramatically; and, doctor care would immediately improve.

While certain specialties do have these problems, the overall expenditures on Malpractice insurance and awards is less than 1% of total medical costs. The 10% figure is only for the high-risk areas. (And why are they so high-risk? Just more suits, or more mistakes?)

“1) Limiting malpractice awards to patients at no more than 150% of the total cost of the medical bills.”

This is just stupid. What about wrongful death? There are no medical bills, the patient died … Amputate the wrong limb? Ditto, there is no repair, so no medical bills to pay 150% on.

“2) Limiting lawyer contingency fees to 25% of the total cost of the medical bills.”

Malpractice is a particularly difficult area of litigation. Hospitals and MDs support each other regardless of justice, and much expert testimony and research is required. This is trying to make justice too expensive to pursue.

Posted by Butler | Report as abusive

The problem with malpractice cases is that they put physicians on trial for the human condition not for what was or wasn’t done medically. Ask a lawyer whether they would rather sue for a young mother that dies of breast cancer where everything was done properly or a 90 year old where a mistake was made. The young mother makes a compeling story to a jury. Hire an expert witness to say a mistake was made and presto big settlement or award.

Posted by Reid Schroeder | Report as abusive

Employers have to pay into a workman’s compensation pool and employees get specific defined reimbursements for specific defined accidents. Everyone knows what the rates are and everyone pays the same amount. Why can’t we do this for the practice of medicine?

Posted by Guy Thompto | Report as abusive

@Guy Thompto – Intriguing!

Laws are a problem. Number one, they’re often written by lawyers, and they want money for lawyers – lots of complex, big-ticket suits. Before you dump on a jury for thinking everybody is entitled to win the lottery (which, granted, they tend to think), look at the law and how the law forced the judge to instruct the jury.

They seem to have morons writing the laws where I live; not enough grasp of logic and English to set forth anything.

Posted by Pete Cann | Report as abusive

Working in Pharmacy in 2 different region of the US gives me a some what different view on malpractice. In NJ were ppl were scared of malpractice suits. Every one from cashiers to pharmacy directors at major hospitals were much more aware of there actions. State inspections and internal auditing was serious business and I feel that medicine was safer for it.

The state were I live now has numerous “malpractice limitations” which makes bringing law suits to court much more difficult and has vary low limits to awards. In 4 years I have seen just ONE state inspection and when I talk about internal auditing ppl just look at me funny. Personal accountability is low too. In NJ If i made a mistake I knew it was in my best interest to bring it up even if it could harm a pat, here its considered prudent to leave a minimal paper trail and “forget” things.

There has to be a common sense “middle ground. A place were medical practitioners and staff of all types are held accountable legally and financially(not by some silly neutered state board because lets face it, dollar fines walk the walk while board mandates are just talk) but were if the make a small but critical mistake they don’t have to worry about being financially ruined.

Posted by Eron | Report as abusive

Thirty-eight states have some form of medical tort reform. What happened to them? Only Texas was mentioned and she said costs went down. Did the insurance costs? Nearly all states that instituted reforms saw no reduction if malpractice insurance. In Missouri, rates did not decrease only did not climb quite as fast. The malpractice settlements today are less than 10 year ago even adjusted by inflation. This whole discussion is another side show to divert the discussion from healthcare reform. Can anyone provide me facts on how insurance companies add value to medical services in this country and reduce my costs? Look at the organizational structure of health insurance companies and you will find more vice-presidents than in any other industry. Not a one of them providing direct medical service to our country.

When 59 yr, had what should have been rather simple eye surgery, starting with cataract. I ended up 100% blind in 1 eye. 3 years later, discovered a surgical screw was left in my eye in error and now, cannot ever have an MRI done because of the screw in eye. Thank goodness I have great vision in other eye. I belong to an HMO which is arbitration,which I think is financially useless. Also most difficult to find a medical specialist to testify against another doctor. AND finally the process and questions etc. are emotionally more than draining. SO I gave up and signed off. HOW MUCH IS AN EYE WORTH???
NO more periphrel vision and light is a bother, eye glasses more expensive now and I could go on and on.
I feel like the doctor and I should have had a verbal meeting maybe couple months after this happened. Would have helped me and I hear he had a tough time after this also. I agree with much of what I read as far as someone getting millions for slilpping on a banana peel, but also feel that a few people that have permanent brain damage or loss of limbs etc. deserve more because they have a life to live with the new damage. SO where do we go?

Posted by Journe | Report as abusive

Nobody is perfect in what they do including doctors. The patient and their families must also share in the risk as they are the ones that order the surgery. We, at one time, had specific listings and amounts that would be paid for the loss of certain things. This limit control has to be reinstated. It also would help if the sueing party would have to post bond to cover court costs in case they lost. Clearly, we need limits..

Posted by f belz | Report as abusive

As a physician I can tell you that I feel like I am trapped between wanting to practice medicine which is in the patient’s best intersts medically, and his intersts financially, and lastly my interests medico-legally. As an example, “standards” promulgated by nationally recognized medical organizations suggest that a pre-operative ECG (EKG) is not indicated in someone based on their age. This is because the expense of obtaining even this simple test on the number of people who turn out to be “normal” out weighs the “expense” of possibly harming the few who might benefit from the test.
The one(s) who are harmed and then sue the doctor find no problem in finding both attorneys and experts to testify on their behalf, jam up the courts, put the doctor through 2-3 years of hell, cost the malpractice insurance companies a bundle in defense costs, and then collect a huge bounty. Result: I now order the test to protect my interest, the patients and/or insurance companies pay more, and insurance premiums climb.
Without serious reform of malpractice laws, the situation will only worsen. Unfortunately the trial lawyers and their colleagues own most of the legislative bodies in the country. Can you imagine how bad it will be if Obamacare gets imposed on the medical profession and there is no constraint on the legal profession? Only the most foolish or cavalier would consider practicing medicine and putting themselves in that no win situation. Of course if the government gets it’s way and becomes the de facto medical insurance company, then maybe it should also be the de facto malpractice insurance comapany as well! Thoughts?

Posted by Donald W. | Report as abusive

Yes. Limit the fees lawyers make and the rates insurers charge. You could even cap the fees doctors charge the patients when they botch a procedure? Did I just say something wrong?

Posted by Hil | Report as abusive

The cost of medical malpractice is such a gigantic issue for the republicans.
Diana Furchtgott-Roth suggests that “Congress could use health reform legislation to give incentives to states to reduce the costs that lawyers’ fees place on the health system, while still protecting patients.”
Why weren’t the incentives legislated during the bush era? Are you just throwing up issues to stop health reform?

Ms. Furchtgott-Roth’s claim that malpractice costs 10 cents on the dollar is absolute nonsense.

Total Malpractice Premiums collected in the US from Physicians and Hospitals are estimated at $10 Billion a year. Sounds like a lot? Compare that to the total US health care bill of $2.2 Trillion, and you are looking at LESS THAN 1/2 of one percent or closer to 1/2 of a cent on every dollar spent on health care.

Ms. Furchtgott-Roth’s estimates appear to be off by only a couple orders of magnitude and then some.

Posted by Ivan | Report as abusive

Why don’t we limit all lawsuits and let people take their chances. I mean so what people die from a dangerous product, if we had less liability that dangerous product would cost less and the company would make more money and isn’t that what people like the author are interested in. More profit for companies or doctors and less protection for consumers. I mean obviously with less oversight and liability of course care would get better…
Heck let’s just get rid of lawsuits and let people take their chances. Lawsuits bad for profits, let’s remember when Ford decided it was cheaper to deal with wrongful deaths than to fix the Pinto. Plus why shouldn’t doctors be making money hand over fist like they used to.

Posted by Frank Castle | Report as abusive

Sounds like everyone is confusing costs. Doctors are generally constrained in charges by insurance company’s price schedules which are calculated as a percentage of Medicare fees. Malpractice fees are indeed high but are not directly able to be passed on to patients but are part of business overhead for doctors. The cost of malpractice insurance may only be $10 billion but that doesn’t take into account unneeded testing such as bloodwork, MRI,PET scan, CT that has resulted in “intensity creep” across the entire medical landscape. Ask your friends who have gone to the ER for a headache or abdominal pain and probably 95% had a CT. These are only a few categories of cost that will continue to increase unabated without some different malpractice approach.

So this republican hack wants to block our 7th Amendment rights to the point she’s lying about what this has done to Texas??

You know, the state that leads the nation in uninsured? Where health care insurance premiums have risen, not plummeted, every year???

Posted by herewegoagain | Report as abusive

I was intrigued to know how much doctors make compared to the cost of the malpractice insurance premiums. After a few minutes of pulling numbers from various sites, I came up with a pseudo conclusion. We are in a crisis, partly due to the cost of the premiums. For example, in Florida there is becoming issue with keeping OBGYNs employed. The average salary in 2009 for an OBGYN is about $220,000. Sounds like a fair salary at first, however, I researched the cost of insurance for this profession and found the the average premium was $264000 in 2003. How can an OBGYNs stay employed if their malpractice insurance is more than they make?

I don’t know about you, but premiums for all my insurance has risen since 2003. I can only imagine what the premiums are today. I do not know any OBGYNs personally in Florida, but I would be curious to know their current premiums. If you disagree with these numbers I encourage you to do your own research.

I also found that in 2003 there were several pieces of legislature that recognized the crisis. The bills intended to limit the “pain and suffering” damages to $250,000 per claimant. That means a person could sue for their medical costs plus an additional $250,000. This would be the case for the person, Journe, that lost an eye. I feel terrible for their loss. But medical care is not a exact science, unfortunately.

Ivan’s post regarding the costs are a bit confusing. This article stated that malpractice cost 10 cents on the dollar or about $10 billion per year. One of Obama’s figures is $2.2 trillion for ten years. That is the initial “downpayment” for the Obama plan. He is comparing one year to ten year costs.

Any thoughts?

Posted by andrew | Report as abusive

If you want to increase the number of doctors, why not require all medical schools to accept all qualified applicants compared to the 30-35% they do accept (approx 16000 of 46000 last year). Med schools are controlled by the AMA which keeps the number of doctors low to maximize their incomes. This is a total violation of the free market. What other education based profession is limited by the organized union of that trade? Isn’t this totally un-American? Given that 30% of people who die in hospitals die from mistakes, how is limiting the number of doctors, who would still have to make it through med school, saving lives.

Posted by Michael | Report as abusive

I’ve searched far and wide for the source of the factoid cited by Ms. Furchtgott-Roth (“10% of your medical bill goes to pay for malpractice insurance”) and only find her assertion of this number, with no supporting study, source or documentation.

This is a remarkable premise, without any support, and which is several times every reputable estimate (e.g. Congressional Budget Office estimating all costs of malpractice insurance, premiums, payouts, administration) at less than 2% national health care costs.

By comparison, the GAO estimates actual fraudulent medical billing by doctors to be 3% to as much as 10% of all health care spending. Therefore dismantle Medicare?

And, keep in mind that any enterprise that produces some social benefit may also have some cost, so even the less-than 2% of actual costs driven by malpractice insurance is simply not, in economic terms, a “dead weight loss” –though the full amount of medical billing fraud (which is far more than the medicare number alone) is certainly a dead-weight social loss.

So who is distorting the proportion of the real issues, and real drivers of health care costs?

Throw in unnecessary drugs from big Pharma, to treat “ADHD”, cosmetic problems, unnecessary arthroscopic surgeries, etc. and you would get a far, far multiple than all costs of malpractice related insurance –and without serving the social good that malpractice torts do serve: to provide at least some, “buck stops here” mentality of accountability for health care professionals when it comes to patient safety.

The larger questions posted here could involve much discussion, but there are just too many “spun” factoids distorting the debate. And Ms. Furchtgott-Roth’s “10% of your bill goes to malpractice insurance” is one of them — unless or until Ms. Furchtgott-Roth can demonstrate any real basis for same.

I also find it disturbing that an individual who is a paid consultant to many industry groups (through her company Furchtgott-Roth Economic Enterprises) keeps getting bylines as simply a “Senior Fellow at the Hudson Institute” as though she is some disinterested academic.

Paid public relations people may sometimes have good ideas, but someone who is in the business of representing large corporations in their legislative agendas (including influencing public opinion) should not be passed off as simply a “research academic” as this byline implies.

Also, if Ms. Furchtgott Roth was producing valid, economic scholarship, she would have some citation or authority for her remarkable, outlier “10% of your medical bill=malpractice insurance” factoid –which from everything I’ve read and researched, is simply not true.

Posted by Attorney in NY | Report as abusive

In the US we have about 1,100,000 lawyers; the number of trial lawyers and corporate lawyers engaged in medical malpractice field I estimate at about 100,000. We have a system of justice where anybody can sue anybody and, if losing, can just walk away. Great Britain, Japan, and Germany have a total of some 35,000 lawyers; how come? Well, in those countries when you sue somebody and lose you automatically must pay all the costs of the defendant and of the courts, direct and indirect. Since the trial lawyers here carry the Democrat Party in their pockets there is no hope on any tort reform in the future. Total cost of health care is about $2.6 trillion/year; the cost of malpractice insurance and unnecessary defensive medicine tests is at least 25% of that total. We need tort reform more then we need what the Democrats have cooked up under the phony name of health care reform – which is government takeover applied in steps over the next 10 years.

Posted by MarcJeric32 | Report as abusive