Would Tort Reform Lower Health Care Costs?

During Wednesday’s address to Congress, President Obama proposed including malpractice reform in his health care plan. The move was widely interpreted as an olive branch to Republicans, who have long argued that capping jury awards in medical malpractice cases would limit the use of “defensive” treatments and significantly lower health care costs.

As a senator, Obama had introduced legislation “aimed at reducing both medical errors and lawsuits through a program known as Sorry Works, rooted in the idea that injured patients value an apology as much as money,” and expressed some support for creating so-called ‘safe harbors’ for clinicians who follow best practices.

Republicans reacted to Obama’s speech with hostility, dismissing his “demonstration projects in individual states” as incremental and ultimately inadequate solutions. “I have to characterize [Obama’s proposal] as a very disingenuous proposal,” Sen. Jon Kyl (R-AZ) said today on the floor of the Senate. “Everybody knows that there is a huge amount of money that could be saved in health care delivery if we did something to reform this jackpot justice system.” Watch a compilation:

But are “frivolous lawsuits” the real cause of high health care costs? The short answer is no. Malpractice costs represent less than half of 1% (0.46 percent of total health care expenditures) and malpractice settlements have grown modestly with inflation. In fact, in states that have adopted caps on jury awards, doctors are prescribing too many aggressive and intensive treatments that increase costs, but don’t improve outcomes.

When Texas capped non economic medical malpractice damages to $250,000 in 2003, most conservatives argued that the reform would free doctors from having to prescribe unnecessary treatment. It didn’t happen. According to the Dartmouth research on disparities in health care spending, many Texan doctors are still prescribing aggressive treatments that don’t improve outcomes. In fact, as of 2006, Texas was still at the top of the list of high-spending states.

In an interview with the Wonk Room, author Maggie Mahar suggested that the reasons why doctors prescribe so many unnecessary treatments are far more complicated than the fear of lawsuits:

It may be that he saw a case like this once before and it went sour, and he doesn’t know why and so he wants to be extra careful. It may be that he has been seeing Ms. O’Connell for years, she is a dear person and he really cares for her and he just wants to make sure that no stone is left unturned. Could be that he has been seeing Ms. O’Connell for years, she is a pain in the ass, and he knows that if he doesn’t order every treatment that her neighbor says he needs, he’s going to be hearing from her. And it could be that he is afraid of being sued. If I were the doctor, I wouldn’t be able to untangle my motives and say to what degree fear of malpractice suits is driving my actions.

If liability concerns aren’t a major driver of overtreatment, then what is? Experts believe that the current reimbursement structure does more to shape practice patterns than fear of liability. “The current health system reimburses doctors, hospitals, and other health care providers based on the number of visits and procedures that are done. As a result, health care providers’ revenues and profits increase when they deliver more services and the cost of health care goes up,” Ellen-Marie Whelan, a Senior Policy Analyst at the Center for American Progress, wrote in a recent report.

Indeed, as Dr. George Lundberg — the former editor of the Journal of the American Medical Association — concludes, “at least 30% of the $2.5 trillion expended annually for American health care is unnecessary. Eliminating that waste could save $750 billion annually with no harm to patient outcomes.”

The current reform legislation attempts to re-align the incentives in the current system. It encourages providers to coordinate primary care services, expands pilot programs that reimburse providers in bundles and for episodes of care and allows the Secretary of Health and Human Services or the Center for Medicare and Medicaid Services to expand successful models. These changes will lower health care costs by far more than .046%.