Tort system isn’t pushing medical costs

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Michael Steele, chairman of the Republican National Committee, along with others, criticized healthcare reform in 2009 for not dealing with malpractice claims.  Steele and others see the tort system as a significant factor in rising healthcare costs, including malpractice insurance premiums. To be complete, they contend that healthcare reform must include tort reform.

It’s an attractive argument but without supporting evidence. A Government Accountability Office study completed in June 2003 concluded that, while increased losses paid by insurers appeared to be the largest contributor to increased malpractice premium rates, there were other factors as well.

Th first was a decrease in investment income by insurers between 1997 and 2002, which meant premiums had to cover a larger share of losses.  The second was vigorous competition for business in the 1990s that suppressed rates.  Bad decisions made by insurers led to some leaving the market place, resulting in less competition.  The third factor was an increase in reinsurance rates, the fees insurers pay to other insurance companies to spread their risk.

Based on a survey of seven states, the GAO study also found that malpractice insurance problems are not national.  For example, premiums quoted in 2002 for general surgeons in Dade County, Florida were $174,000 per year, while general surgeons in Minnesota paid $10,140.

Significantly, the GAO admitted it “could not fully analyze the composition and causes of losses at the insurer level owing to a lack of comprehensive data.”  Further, a lack of necessary data hindered an analysis of the “problems and the effectiveness of the solutions that have been tried” concerning the malpractice crisis.

In a study completed in January 2006, Michelle M. Mello, J.D., Ph.D., of the Harvard School of Public Health, found no evidence that an increase in claims contributed to the spike in malpractice premiums from 1999 to 2002.  She also found weak evidence of a link between the payments made by insurers and premiums.

Mello stated that the “most reasonable conclusion suggested by the evidence is that increased claims costs, inadvised business decisions, decreased investment returns and other insurance-market dynamics have all contributed to this malpractice crisis.”  As to the tort system increasing costs because it causes doctors to practice defensive medicine, Mello found there were no reliable estimates of the national costs of defensive medicine.

More recently, according to a Massachusetts Medical Society study published in November 2008, 83% of Massachusetts physicians engage in defensive medicine, at a total annual cost of $1.4 billion. The study, consisting of answers to questionnaires from 838 physicians and a liberal extrapolation of medical costs was, by its own admission, “based entirely on self-reported measures whose validity and reliability have not been established.”

So, where are we today? The malpractice crisis may be waning. The Doctors Company, a physician-owned insurance company that covers 45,000 physicians, announced in May 2009 it has provided its members with $60 million in dividends over the last three years.  Its 2009 dividend credit represents a premium reduction of 5 to 7.5 percent.

Another malpractice carrier, the FPIC Insurance Group, reported net income of $32 million in 2008. Strong income translates into generous compensation.  FPIC’s board of directors earn between $115,000 and $127,000 in total annual compensation. Total compensation for FPIC’s CEO in 2008 was $3.3 million and $1.15 million for its chief financial officer.

The challenge in reforming healthcare is for lawmakers to get beyond anecdotal information and look at the facts.  Sure, the tort system needs reform. Mello found that the system does a poor job of compensating patients injured through malpractice and that perhaps only about two percent of malpractice-related injuries become claims.  Also, there is little uniformity in how injured patients are compensated.

The problem with tort reform is that it focuses on limiting remedies for those who have been injured.  The underlying premise is that protecting medical providers from lawsuits and paying less for injuries, regardless of the underlying merit of a claim, is a good idea.

That premise, however, overlooks the unrefuted fact that thousands of people die every year because of medical malpractice. A study prepared by the Institute of Medicine in 1999 entitled, To Err is Human: Building a Safer Health System, reported that between 44,000 and 98,000 people die in U.S. hospitals every year from medical errors, not from the medical conditions for which they were admitted. According to the Institute, hospital error is the eighth leading cause of death in America, with 7,000 patients dying annually from medication errors alone. Medical errors result in more deaths annually than motor vehicle collisions (43,458), breast cancer (42,297) or AIDS (16,516).

I’m okay with reforming the tort system, so long as it’s based on that one little thing that courts require: evidence.

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