Posted
Oct 2009
Tort Reform No Miracle Cure
Limiting liability has limited impact on healthcare costs
Based on the Research of Ronen Avraham, Leemore S. Dafny And Max M. Schanzenbach
The lawyers can relax. There’s no need to follow Shakespeare’s advice to kill them after all.
In fact, when assessing out-of-control U.S. healthcare costs, malpractice and related litigation are just “a drop in the bucket,” according to Kellogg School Assistant Professor of Management and Strategy Leemore Dafny.
“These costs, all told, have been estimated to be only about 2 percent of healthcare expenses,” says Dafny, an economist and expert in healthcare competition.
Her own research, drawn from various “demonstration projects” already implemented at the state level, indicates that the most common legal reforms would collectively reduce health insurance premiums by 2 percent. This is “real money,” she admits, given that private insurance premiums now top $800 billion, but still no “silver bullet” solution to the overall healthcare crisis.
The data appear in “The Impact of Tort Reform on Health Insurance Premiums,” a new working paper she has co-authored with Ronen Avraham and Max Schanzenbach, colleagues from Northwestern University’s School of Law. The research evaluates the effect of tort reform on employer-sponsored health insurance premiums of more than 10 million Americans annually between 1998 and 2006.
“To the extent that defensive medicine is driving up costs, malpractice reform is not going to curb it very much.”
Quick fix unlikely
Dafny’s findings offer little cheer to anyone seeking a quick legal fix to the challenge of making healthcare more widely affordable.
“This is a very long-term problem and it’s going to take quite a while to see any appreciable difference unless we have some major and drastic reforms,” says Dafny, adding that even some of the proposals that President Barack Obama outlined in his Sept. 9 national address on healthcare would require four years to phase in. “It sounds like a long time, but these things take a long time,” she says.
The ideal — and exceedingly difficult — goal of healthcare reform is to vastly expand coverage to include an estimated 46 million Americans currently without health insurance while simultaneously reducing costs. Some, including President Obama, have considered legal reforms as one way to help make the numbers add up. Dafny’s research suggests that this line of thinking is unlikely to produce anything other than a very modest advantage.
Tort reform — changes to the legal system that, in the case of healthcare, would limit the liability damages of physicians and insurance companies — has been a perennial hot-button issue. Some have argued that such reform would reduce the threat of liability that can drive doctors to prescribe tests and procedures that may not be medically required, but which keep the patient happy and safeguard the practitioner against lawsuits. Tort reform advocates have long argued that this “defensive medicine” contributes to the overall cost burden in the healthcare system without providing much real benefit.
But until now little aggregate empirical data existed to support the claims of either tort reform proponents or detractors. Dafny’s research clearly shows that such reforms would be limited.
“Tort reform’s impact is significant — meaning we can measure it — but significant and small,” says Dafny, who has been among the economic experts talking with senior members of the Obama administration to share research-based recommendations about the best way to improve the nation’s healthcare system. “To the extent that defensive medicine is driving up costs, malpractice reform is not going to curb it very much.”
So what is more likely to have a bigger impact on fixing healthcare? Dafny believes several pieces are critical, including creating incentives that encourage stakeholders to be more aware of cost, which in turn should lead to more thrifty behavior. One possibility is to mandate the purchase of insurance through a regulated exchange. Households choosing less generous coverage would pocket the savings, and the government could provide income-based subsidies. All would be required to have a certain minimum package of benefits. Even this scenario, though, presents challenges, Dafny says: “What we consider a ‘minimum of care’ is still going to be costly to provide.”
Looking elsewhere
Ultimately, she says, fixing the system will require a shift in expectations.
“I think Americans will have to come to accept more limits, more gatekeepers, more utilization review than they have in the past,” Dafny says. “We’ve been content to say that 46 million people don’t have any coverage and the rest of us have everything.”
Bringing those uninsured on board is “untenable,” she adds, if we expect to provide them with the type of care enjoyed by the currently insured.
As the healthcare debate continues, Dafny’s research is part of the discussion. With malpractice reform being such a hot topic, she says it’s important to consider the hard data.
“So many people have blown out of proportion the impact that tort reform could have,” Dafny says. “Now we know. We’ve done some tests and it turns out that it’s not going to be a huge fix. We’ve got to look at something else.”
5 Comments
Oct 5 2009
The problem with much research is that it answers the wrong question or doesn’t provide context. Even Shakespeare’s quote, in context, is favorable to lawyers.
Tort reform is much broader than “limit(ing) the liability damages of physicians and insurance companies.” Among the problems of medical malpractice is that good doctors get sued for the wrong reasons and bad doctors don’t get sued at all ( usually because they have good bedside manners ) and the litigation results are skewed in favor of the lawyers and those who have artful lawyers. Ask medical friends about the proceedings of “mortality and morbidity conferences” at hospitals and they might tell you that doctors popular with their patients are often held in contempt by their colleagues and vice versa.
Medical malpractice is geared to results, not to protocols, and the liability is assessed by juries not competent to make proper judgments or either guilt or value. Worse, tort lawyers play to juries’ prejudices rather than facts. Patent law has suffered from similar problems, being too complex for typical juries and special masters have been established. Surely, medical malpractice should be defensible by the safe harbor that a given accused doctor followed the protocols of good practice and just got a bad result.
Bad results often have some statistical expectation even with best practices. That is the bane and cause of defensive medicine where, for example, ER doctors demand CT scans for all entrants with headaches because a lay jury will hold them liable even though medical sense would use other criteria to reduce the number of scans needed.
An unsung problem is that doctors will avoid some treatments that will expose them even though the patient may not have reasonable alternatives. Is it an accident that Ted Kennedy flew over the Mass General Hospital, avoided the Cleveland Clinic and landed at one surgeon at Duke University? Doctors have different expectation values but even the second tier or below have great medical value but exposure based on results.
When Shand Morahan was still in Evanston, I consulted with them and encountered an ability to reduce medical mal insurance for anesthesiologists by a large factor provided the practitioners followed something called the Harvard Protocols. Their adoption not only reduced bad results but reduced even more the accusation of malpractice. If I recall correctly, the insurance could be provided at 30% of that offered by others (w/o the Harvard Protocols, which they didn’t know about when Shand did.)
Lay juries should be replaced with expert panels, good practice should be a safe harbor defense, and punitive damages should not be shared by a plaintiff and her lawyers. The purpose of punitive damages is to deter bad behavior not to reward the first plaintiff and lawyer to expose bad practices. Let punitive damages go to the state or the class or some other good purpose except for incentivizing dice-rolling in litigation. These are “tort reforms” that might have some merit rather than the much-less-effectual mere limiting of damages.
Oct 7 2009
Had to be rude to point this out but if the healthcare sector is roughly $2.5 trillion of our GDP, then saving 2% through tort reform is $50 billion per year, or half a trillion dollars using the ten year horizon used to evaluate programs in Washington. Even by the Obama regime’s profligate standards, that’s real money.
Tort reform is a necessity since it is nothing but waste that could be better spend on providing insurance to the 10-15 million (not 46 million) American CITIZENS who want but are without long-term health insurance. Moreover, lawsuit payouts would soar if the government takes over health care, as the will to fight lawsuit extortion would end with the end of private insurance.
Oct 18 2009
I agree with the comments made by Stuart and Raymond above.
Once a doctor has been through this meat grinder, they question their ability and start second guessing what they do. I know several who have said it is not worth it any longer and retire. It is a great waste of talent. If a doctor is not competent and really messes up because of doing something stupid that’s one thing. Going after a doctor because a person did not get a perfect result is another. Nothing is for sure. Get the lawyers out of it and set some reasonable claim limits. The courts should require a much higher threshold to move a case forward. Possibly an expert panel as Raymond suggests. Maybe we need a good samaritan law to protect doctors who try to do their best.
Attorneys spend a lot of money every year advertising on radio and television trying to drum up business. People are educated to run to them the minute something goes wrong to get the “money they deserve”. Make one call and your troubles are over. Maybe these ads need to be banned as well. The attorneys are the ones who profit. The medical professionals and the attorney’s clients all suffer. Are we really entitled to compensation because something went wrong in our lives?
Nov 6 2009
Raymond, 2 percent is indeed real money. However the majority of states have already implemented these reforms. In addition, the estimates only apply to self-insured plans, which according to the Kaiser Family Foundation/Health Research & Education Trust Survey is 57 percent in 2009.
The CBO recently used the estimates from our research to revise their cost estimates for reform proposals. They predict that federal tort reform would reduce total national healthcare spending by 0.5 percent.
A link to an article about these revisions is http://www.washingtonpost.com/wp-dyn/content/article/2009/10/09/AR2009100904271.html. You can read the letter from the CBO director (who was my economics instructor back in 1992!) here: http://www.cbo.gov/ftpdocs/106xx/doc10641/10-09-Tort_Reform.pdf.
Nov 9 2009
Sorry Leemore, but your whole argument just got blown away by the House of Representatives:
http://www.cnn.com/2009/OPINION/11/09/frum.trial.lawyers.victory/index.html
The democrat health plan is designed to eliminate the caps on tort claims. Why? Because the trial lawyers are the #1 source of funding for the democrat party, you don’t argue with your paymaster.
I guarantee you that tort expenses will be much higher under the democrat plan. Why? Because there will be no private health insurers to fight the claims. The government will be an easy target to “roll”. Especially when the democrat Congress tells the bureaucrats to pay up with our tax dollars.
This is just another example of why the democrats are pushing this plan instead of focusing on issues like jobs and the economy. It’s payoff time for democrat interest groups, which will translate into a huge democrat fundraising advantage on election day, Think Chicago politics spread nationwide.