–- 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.

– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. –

It’s welcome news that President Obama will turn his attention to immigration reform this year, as was announced on Wednesday by Deputy Assistant to the President Cecilia Muñoz. Economic recovery will happen more quickly if both high- and low-skill immigrants are permitted to enter the United States and work legally.

Two years ago, when Congress was considering comprehensive immigration reform, both President Bush’s Council of Economic Advisers and the Congressional Budget Office, headed by Peter Orszag, an economist closely identified with the Democratic Party, estimated that the benefits of additional immigrants outweighed the costs. If Congress allowed more immigration, then American taxpayers would come out ahead financially.

Yet, after Congress refused to pass President Bush’s plan to allow most undocumented workers to receive work visas and wait in line for citizenship, the Bush administration’s immigration policy deteriorated into a series of arbitrary raids on different companies, rounding up undocumented workers and deporting them, in many cases separating husbands and wives, parents and children.

We can do better. Although the unemployment rate reached 8.5 percent last month, the jobs are going to come back, and, as has been the case in the past, native-born Americans will want jobs that are different from those of immigrants, according to economics professor Giovanni Peri of the University of California at Davis.

Congress needs to overhaul immigration law and create an expanded temporary worker program with a path to citizenship, along with more verification to prevent workers from working illegally, and monitoring of tourists and students so that they do not overstay their visas.

A rational immigration policy would have numerous advantages:

• Undocumented workers would pay taxes to federal and state governments rather than to grey-market check cashing services.

• Payments for health care through insurance could be collected more easily, rather than burdening hospital emergency rooms with immigrants without health insurance.

• Foreigners who want to work here could pay the government for visas rather than pay smugglers for unsafe, illicit transportation.

• Improvements in security. Legal visas and bank accounts would make it far easier to identify and track potential terrorists, dubious financial transactions, and those who simply overstay visas.

A rational immigration policy would solve several real problems the United States faces with regard to immigration. The international economy is tremendously dynamic; our immigration system is not. Temporary workers must spend months applying for admission, and due to the pile-up in April of every year, may not even get a visa.

Few low-skilled workers have a legal and reliable method to enter this country and work legally, and few Americans want to do the jobs, such as fruit picking and cleaning, that these workers want to pursue. And even high-skilled workers trained at U.S. colleges and universities, often at taxpayer expense, might have to wait years and spend thousands of dollars to become permanent residents of the nation.

Mr. Obama might want to consider transferring the authority of setting quotas from Congress to the Labor Department. The Labor Department already has the presumptive authority to judge whether demand for foreign labor is justified, through its foreign labor certifications. If the Labor Department is allowed to determine whether or not a foreign worker would displace a native one, it could also be allowed to calculate visa quotas.

High-skilled workers educated in America ought to be able to stay; otherwise, our investment in their education becomes lost to another country. If the Labor Department determines that a foreign worker would not displace Americans, that worker should not be barred from entering the country due to an arbitrary quota. And people who want to enter this country in order to work in jobs Americans are not willing to take ought to have an easy, legal way to do so.

Mr. Obama has the opportunity to craft a sensible and dynamic immigration system. All Americans should wish him success.