Malpractice Premiums: MIA in the Health Care Debate

Health reform efforts have developed into a heated and contentious debate. Despite the position of the AMA in favor of HR 3200 (America’s Affordable Health Choices Act of 2009), physicians are, in fact, quite conflicted on the issue of health care reform. Many physicians are supportive of a single-payor system, while others are vehemently opposed. There is, however, one issue on which nearly all physicians are united: the need for medical-malpractice reform.

Medical-malpractice premiums amounted to about $30.4 billion dollars paid by physicians in 2007.¹ When compared with the total cost of medical care in the United States, this number is relatively small. The full effect of the health care liability problem, however, is seen not only in malpractice premiums, but also in the threat of frivolous or unrealistic lawsuits, which results in the practice of defensive medicine. Although estimates of the cost vary widely, numerous studies irrefutably demonstrate that the impact of defensive medicine is real and significant.

In 2003, DHHS estimated that limits on malpractice awards could save between $70 billion and $126 billion per year,² which would be enough to pay premiums for all those citizens currently uninsured. A study often quoted on the subject is by Kessler and McClellan.³ They found that liability reforms could reduce defensive-medicine practices, leading to a 5% to 9% reduction in medical expenditures without any effect on mortality or medical complications.

By applying those percentages to 2005’s total health care expenditures, we find that the estimated cost of defensive medicine was between $100 billion and $178 billion for that year. When the price of defending physicians against lawsuits is added, the cost to the average US family for defensive medicine in 2005 was $1,700 to $2,000 (with no additional health care value). A study⁴ published in the New England Journal of Medicine in 2006 analyzed more than 1,400 malpractice claims and found that in almost 40% of cases, no medical error was involved.

Defensive Medicine’s Cost

In a survey⁵ of 900 physicians in Massachusetts conducted between November 2007 and April 2008, 83% reported practicing defensive medicine, with an average of between 18% and 28% of tests, procedures, referrals, and consultations and 13% of hospitalizations ordered for defensive reasons. Such practices were estimated to cost a minimum of $1.4 billion per year in Massachusetts alone.

In 2005, JAMA published a study⁶ that investigated how often physicians alter their clinical behavior because of the threat of malpractice exposure. A total of 824 physicians completed the survey. Nearly all (93%) reported practicing defensive medicine. Assurance behavior, defined as ordering tests, performing diagnostic procedures, and referring patients for consultation, was very common (92%).

Avoidance of procedures and patients that were perceived to elevate the probability of litigation was also widespread, and 42% of respondents reported that they had taken steps to restrict their practices in the previous three years, including eliminating procedures prone to complications (such as trauma surgery) and avoiding patients who had complex medical problems or were perceived as litigious.

Very recently, a study⁷ claimed that only $60 billion a year is a reasonable upper-end estimate of what is spent on defensive medicine. How times have changed; $60 billion per year still seems like a lot of money to me. The author acknowledged, however, that the malpractice system does affect the morale of physicians.

As an example, Hawaii’s largest hospital currently has six attorneys on staff to deal with litigation issues, while 20 years ago, there was just one. At the University of Miami’s school of medicine, 14 cents of every dollar collected in fees for patient services go toward medical-malpractice costs.¹
Sen John Kerry (D–MA) and Sen Orrin Hatch (R–UT) rarely agree on anything. Nonetheless, both have said that Congress needs to find a way to eliminate frivolous malpractice cases.

The Burden on Industry

What of the societal consequences? As you may remember, Dow Corning⁸ was a major manufacturer of silicone breast implants. The company was forced into bankruptcy under the burden of litigation judgments and settlements based on accusations of damages due to its product. Scientific research subsequently demonstrated that these claims had no basis. That was no consolation to physicians, to shareholders, and to the families of displaced workers who suffered unnecessarily due to the lottery mentality of our tort system.

Most recently, we have all seen advertisements from law firms seeking to represent those who have been diagnosed with conditions related to asbestos exposure. In fact, asbestos was used extensively before there was any evidence that it was associated with health problems. Owens Corning, USG, and WR Grace are just a few of the major companies that have been forced into bankruptcy.⁹ The entity at most risk of such lawsuits is probably the US government. That means that everyone’s taxes will pay for these suits, whether the government wins or loses.

In fact, the first version of HR 3200 contained provisions for malpractice reform. That lasted about one day. It took only that long for the trial lawyers’ lobbying influence to extract from the bill any mention of tort reform. Party leaders have acknowledged the same.

On a conference call for physicians held by White House staff, participants were told that President Obama recognizes that medical malpractice is an issue and that it is under study. In his address to the joint session of Congress, President Obama announced his intention to initiate several pilot programs to explore approaches to medical-malpractice reform.

Ironically, it can be argued that diagnostic radiology has benefited significantly from the practice of defensive medicine. As an objective diagnostic tool, imaging is seen as means not only to diagnose, but to document medical conditions. On the flip side, due to the sheer number of patients who have imaging performed, diagnostic radiology has a high liability exposure.

Surely everyone (including physicians) agrees that patients who have been harmed by gross negligence deserve compensation. That is not the real issue. There are reasonable solutions besides a runaway tort system that benefits only trial lawyers and drains the health system of precious resources.

Alternative Solutions

A handful of states have passed malpractice-reform measures. Limits or caps on awards have received the most public attention. Other ideas, however, have proven to be reasonable and successful; they include:

• caps for legal fees;
• no-fault insurance;
• losers paying the legal costs (the system used by most other developed nations);
• significant penalties for frivolous lawsuits;
• qualification requirements for expert witnesses;
• caps for punitive damages;
• punitive-damage awards paid to charities or other agencies, rather than to the plaintiffs or their attorneys; and
• independent experts’ review of bad medical outcomes.

We are looking to Europe and Canada for examples of government-run health care, yet our congressional leaders fail to study the cost-saving effects of removing litigiousness from the health care system, as the Europeans have done.

We have a generational opportunity to reform health care. As the partisan rhetoric subsides, a consistent priority that we all recognize is cost. Any true reform has to address unsustainable health care inflation. The facts are irrefutable: Defensive medicine is a potent driver of increases in the health care price tag. To claim that medical malpractice and defensive medicine do not significantly contribute to the cost of health care is, at best, disingenuous.

The time is now to address problems in our health care system, including medical malpractice. Reform will require change for everyone: patients, health care providers, taxpayers, and even trial lawyers.

Howard Fleishon, MD, MMM, is a member of North Mountain Radiology Group (Phoenix, Arizona), a hospital-based radiology practice, and he serves on the ACR® Council Steering Committee.

1. Searcey D, Goldstein J. Tangible and unseen health-care costs. Wall Street Journal Web site. http://online.wsj.com/
article/SB125193312967181349.html. Published September 3, 2009. Accessed October 28, 2009.
2. Hellinger FJ, Encinosa WE. Impact of state laws limiting malpractice awards on geographic distribution of physicians. Agency for Healthcare Research and Quality Web site. http://www.ahrq.gov/
RESEARCH/tortcaps/tortcaps.htm. Published July 3, 2003. Accessed October 28, 2009.
3. Kessler DP, McClellan MB. Do doctors practice defensive medicine? Q J Econ. 1996;111(2):353-390.
4. Studdert DM, Mello MM, Phil M, et al. Claims, errors, and compensation payment in medical malpractice litigation.
N Engl J Med. 2006;19(354):2024-2033.
5. Goodnough K. Study shows defensive medicine now widespread. Advance Web site. http://advance.uconn.edu/2009/
090223/09022302.htm. Published February 23, 2009. Accessed October 28, 2009.
6. Studdert DM, Mello MM, Phil M, et al. Defensive medicine among high-risk specialist physicians in a volatile malpractice environment. JAMA. 2005;293:2609-2617.
7. Leonhardt D. Medical malpractice system breeds more waste. New York Times Web site. http://www.nytimes.com/
2009/09/23/business/economy/23leonhardt.html?scp=1&sq=%2b%22American+Medical+Association%22&st=ny. Published September 22, 2009. Accessed October 28, 2009.
8. Chronology of silicone breast implants. Frontline Web site. http://www.pbs.org/
wgbh/pages/frontline/implants/cron.html. Accessed October 28, 2009. 
9. Plevin MD, Kaliush PW. A history of the companies that have sought bankruptcy protection due to asbestos claims. Mealy’s Asbestos Bankruptcy Report Web site. http://www.crowell.com/documents/DOCASSOCFKTYPE_ARTICLES_424.pdf. Published August 2001. Accessed October 28, 2009.