The High Cost of Medical Malpractice

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The next time you visit your doctor, scrutinize the bill carefully. What it won't tell you is that about ten cents of every dollar paid for health care goes to the malpractice insurance doctors must have to protect themselves in case patients sue them.

Malpractice premiums cost doctors 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 will pay.

Medical specialties with the highest premiums include obstetrics and anesthesiology. Insurance premiums for some doctors in high-cost states can reach $200,000 per year, whereas premiums in low-cost states are closer to $20,000 annually. Resolving a suit takes at least three years, distracting physicians' efforts from the practice of medicine.

According to Towers Perrin, a global professional services firm, malpractice litigation costs $30 billion a year and has grown at more than 10% annually since 1975. But that's less than half the story. To avoid being sued, doctors use excessive tests and other procedures to avoid lawsuits, and stay out of certain areas of medicine. The result is higher costs for medical care.

The 1,000-plus page health-care bill under consideration in the House of Representatives mentions the word "malpractice" only once, on page 263, in the context of "malpractice geographic indices" for determining physician reimbursements for Medicare services. Yet crafters of the health care bill cannot find a single section to limit costs of lawsuits.

Rather, Democrats have sponsored three bills to broaden the scope of malpractice suits.

The Medical Device Safety Act of 2009, the subject of Senate committee hearings this week, would allow suits to proceed against manufacturers of medical devices, such as pacemakers, that comply with Food and Drug Administration requirements, giving juries in each state the right to set different safety standards-not just henceforth, but going back to 1976.

The Fairness in Nursing Home Arbitration Act of 2009 would invalidate any pre-existing arbitration agreements set up between nursing homes and residents, encouraging residents to sue even when they agreed not to do so.

And the Carmelo Rodriguez Medical Accountability Act, cosponsored by Florida Republican Mel Martinez, would allow members of the armed forces to sue the United States for damages caused by negligent care.

Even though President Obama acknowledged defensive medicine's role in higher health costs in his speech before the American Medical Association, he did not propose any solutions. In fact, he specifically repudiated capping malpractice awards on the grounds that it would be "unfair to people who've been wrongfully harmed."

The reason the president and congressional Democrats don't address malpractice is clear. In the 2008 election cycle, lawyers gave $233 million to political candidates: 76% went to Democrats and 23% to Republicans. Politicians know better than to bite the hand that feeds them.

Rather than attempting to expand litigation opportunities, Congress could use health reform legislation to give incentives to states to reduce malpractice costs, while still protecting patients.

Some states, such as Texas, are 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 numbers of doctors moving into the state have soared.

"There is a cause and effect here," said Grace-Marie Turner, president of the non-partisan Galen Institute in Washington, D.C. "Premiums with one malpractice insurance company have fallen by more than a third, allowing doctors and hospitals to reduce costs. About 7,000 physicians have moved into Texas over the last four years, and the state has backlogs of applications from other physicians wanting to move."

Congress could give incentives to states to reduce the costs lawyers' fees place on the health system while still protecting patients. Here are some approaches.

Limits on non-economic and punitive damages. Juries award patients not only real damages, but also non-economic compensation for pain and suffering, mental distress, or punitive damages.

Limits on lawyers' fees. Most lawyers take malpractice suits on contingency, where fees are percentages of clients' awards, encouraging them to seek larger awards.

Modify "joint and several liability." Even if physicians or hospitals are only partly responsible for injury, they can be required to pay all damages.

Shorten statutes of limitations. Patients normally have years after the occurrence or discovery of injury to can file lawsuits.

Dr. Jonathan Javitt, ophthalmologist and adjunct professor at Johns Hopkins University School of Medicine, suggested that if patients agreed to binding arbitration as a means of settling malpractice disputes, the variability and sometimes outrageous excesses of jury awards would be eliminated in favor of more evenhanded compensation systems for those injured by medical negligence.

While laws requiring arbitration are likely unconstitutional, laws upholding patients' rights to agree to arbitration as a condition of care would likely serve to attract frequently-sued specialists into regions that have been abandoned because of costs or unavailability of malpractice insurance.

It makes no sense that even as Congress searches for ways to pay for health care reform, all Americans, even those receiving satisfactory treatment, are paying more because of the potential for medical lawsuits.

Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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