Tuesday, January 27, 2004

Malpractice Awards - The Cause of High Health Care Costs?

You may be forgiven for believing so if you listened to president Bush speak on Monday in Arkansas. He blamed the malpractice system for high medical care costs. One of his main arguments was this:

""Hear me out on this: (unnecessary lawsuits) drive docs to prescribe drugs and procedures that may not be necessary, just to avoid lawsuits. That's called the defensive practice of medicine.""

And all this defensive yet unnecessary medicine costs more, thus causing the health care expenses to rise. Or so says the president.

What to do about this? The Republicans and the American Medical Association, AMA (sort of like a trade union for physicians) favor caps on malpractice awards, or at least the part of the awards that goes to compensate the victim for pain and suffering. Bush also seems to believe that there are too many:

""junk" lawsuits [that] cost taxpayers because they drive the federal government's health care costs up by $28 billion a year."."

Does this mean that we should reduce the patients' ability to sue their providers and limit the total awards to some smaller sum than is currently possible? In other words, should we get rid of 'frivolous' law suits and 'excessive' awards? And would this then reduce the costs of health care?

To answer these questions, it's good to know why we have a system of medical malpractice suits in the first place. Its major goals are to compensate the victims of medical malpractice and to discourage doctors, hospitals and other medical providers from committing acts of malpractice; malpractice beind defined as acts of omission (not doing the correct thing) and acts of commission (doing the incorrect thing). If we make suing doctors and hospitals harder, and if we reduce the awards going to the victims, we'll cut back on the probability that the victim will be adequately compensated and we'll increase the probability that a negligent doctor or hospital will get away with this negligence altogether. What other safety precautions would the president apply to protect the victims and to deter future malpractice? I see none in the proposals.

Oh, but we are told that many of the current malpractice suits are frivolous. Maybe then it would be acceptable to cut back a little on the patients' rights and the providers' restraints? Maybe. But consider the results from a study carried out by the Harvard School of Public Health in the 1990s: The researchers retrospectively studied the actual medical records of hospital patients in New York state during the mid-1980's, and found out that medical malpractice had taken place in one admission out of each one hundred. Only a tenth of those affected by malpractice had actually sued their practitioners, and less than one half of this tenth won their cases. In summary, only five per cent of those with a good case had actually been awarded malpractice compensation.

Now, it's possible that many patients also sue without proper cause, given that roughly 40% of all doctors will be sued at least once during their lifetimes. Some suits are indeed frivolous, and some frivolous suits get awards because of the inherent randomness of the legal process. It would be nice to reduce these suits while retaining and even encouraging the rights of those with a real grievance to sue. The trick is how to do this.

What about the large court awards for medical malpractice? The average award size has grown over the years, that's true. President Bush sees the cause for this in the greedy trial lawyers who take cases on contingency basis (client pays nothing if the suit is unsuccessul, then a certain percentage of the total award for successful cases): the bigger the award, the more the lawyers get paid.

"Lawyers walk away with up to 40 percent - 40 percent! - of every settlement and verdict," Bush said."

The legal system is indeed a pretty inefficient way of compensating the victims. The problem is that the Bush alternative would not only reduce some of these inefficiencies but also reduce the patients' ability to seek compensation. As an example, if contingency suits are banned, poor patients will find it very hard to procure legal help, as they need to be able to pay whether the suit is successful or not.

The president may have spoken against trial lawyers for political reasons, but he was silent about other reasons for the high malpractice awards for reason of ignorance, most likely. The awards are not high simply because lawyers are seeking maximal payments for themselves. They are also high because doctors and hospitals carry insurance against malpractice awards, and the juries know that the money they allow to the victims is not coming from the pockets of the individual provider standing in the dock, but from anonymous, big and wealthy insurance companies. No need to cry for the lost educational opportunities of the poor doctor's children, or to fear that a small local hospital will shut down due to the financial problems of paying the award.

The whole existence of medical malpractice insurance is an anomaly. Insurance is supposed to protect us against unforeseen random events outside our influence. Surely malpractice is none of those things. Strictly speaking, malpractice insurance makes no economic sense. Its existence protects doctors, hospitals and other medical providers, true, but we don't in general sell people insurance against their own mistakes or crimes.

One unintended consequence of the malpractice insurance system is the protection it offers to the true 'rotten eggs' in the medical professions. Only a small number of doctors, for example, is responsible for most large awards; yet all doctors help them out by subsidizing them through malpractice insurance. This is not good for the goal of discouraging providers from committing further malpractice, and it makes nonnegligent doctors and hospitals take the side of those who actually should not be allowed to practice any longer. Something that should have been seen as a fault-based approach to compensating the victims and punishing the offenders has now been transformed into a general business problem for all doctors and hospitals.

So yes, the system does need urgent reforms. Whether the ones president Bush is backing are in fact the right ones is highly debatable. I believe that we are at risk of throwing away the baby (compensating victims and deterring further malpractice) while keeping the bathwater (high health care costs).

And what about the bathwater? According to the president, we would save lots of money if physicians no longer had to practise defensive medicine. Actually, studies have shown that whatever is said by the politicians, doctors don't practise that defensively to begin with. This makes sense as most malpractice studies are not about something the doctor didn't do (omission), but about something the doctor may have done wrong (commission). Doing more things on top of something that's wrong isn't going to reduce the likelihood that a provider will be sued. Given the absence of evidence on any current costs of defensive medicine, we can't assume that the health care costs would be lowered by changes in the malpractice awards system.

Reducing the size of the payments could decrease the doctors' insurance payments, of course. It's a totally different question whether doctors would pass these savings to their patients or not.