Health Care Options not accounted for in ObamaCare - Part 3: Tort Reform

For part three of viable health care options, we will look at the very controversial subject of Tort reform.  If you were to research tort reform, you will find countless articles and papers both for, and against, the impact of reforming our court systems as they pertain to medical practice.  Many in the opposition will state that tort reform results in little (less than 1% of total)  of health care, thus stating that tort reform will be inconsequential in lowering cost.  However, many of these stories are one sided and do not look at the big picture.  In addition, it must be remembered, that advocating for Tort Reform is not be seen as the "silver bullet" to making costs affordable, but instead, one of a number of steps that build off each other for the end goal.

First, the impact of medical malpractice on our health care system.  According to the American Academy of Orthopedic  Surgeons,  it is estimated that between $76B - $126B is spent each year on medical liability litigation.  In addition, one year later, the National Association of Insurance Commissioners reported that malpractice premiums have increased by 920% during the past three decades.   Furthermore, in a study by the Massachusetts Medical Society, it was found that the growth rate of medical malpractice premiums grew at 12% per year, four times the rate of inflation, since 1975.  The same study also  found that million dollar verdicts were now the norm, with 52% of all awards exceeding $1M, with the average reward coming in at $4.7M.

We should note that the above costs are hard costs only, meaning that this is just the estimated costs that will get passed on to consumers, in that, as doctor's medical malpractice premiums rise, then the additional cost for those premiums will be added to costs of service.  It does nothing to show the "soft costs" of medical care which we will explore below, and are often the costs that are left out of other reports.

Limitation of Doctors services:  Specifically in rural areas

One of the associated soft costs is how the current medical malpractice system limits the amount, and quality, of medical services, specifically in rural areas.  According to Government Accountability Office (GAO) study GAO-03-836: Medical Malpractice and Access to Health Care, they were able to confirm that physician responses to malpractice pressures resulted in a decrease to access to high risk services such as emergency surgery, newborn deliveries, and orthopedic practices in five states.  This typically happened in more rural areas, meaning that patients typically had travel much further to receive care.  In addition, it impacts the number of doctors who choose to practice in "high risk states", or states without some measure of tort reform.  In the same GAO study,  Jacksonville, FL, alone has seen the loss of 75 ER doctors due to malpractice pressures, while Clark County, Nevada, has seen over 60 orthopedic surgeons move to other regions thus creating access problems there.  The study goes on to give more examples in talking about loss of orthopedic wards,  trauma centers, and other high risk practices through out states such as Florida, Nevada, Pennsylvania, and West Virginia.

As more doctors leave states and rural areas, then the supply of doctors for those services goes down, while the demand maintains or climbs due to population growth.  This results in doctors that do continue to practice these services to raise the cost of their services due to more of the hardship and demand upon their services.  In addition, hospitals and care facilities, must also raise their prices, as more consumers come from wider areas due to lack of access nearby consumer need.

Defensive Medicine

Another main soft cost attributing to higher health care costs is the practice of defensive medicine.  By definition, defensive medicine is the practice of ordering, or performance, of medically unnecessary procedures unlikely to benefit the patient but to protect one from lawsuit.  Since it's hard to tell what is medically necessary or not, the true cost of defensive medicine is hard to "score", but a report by Philip Howard in the Washington Post puts the estimated cost at $100-$200B per year.  Additionally, a Pacific Research Institute study found that the impact of defensive medicine on medical expenditures was estimated to be $124B annually, with another $38 billion in reduced access to health care.   In 2003, the Harvard School of Public Health and Columbia Law performed a study for the Journal of American Medical Association that found that ~90% of doctors in high risk specialties performed some measure of defensive medicine.  In all these incidents, doctors reported ordering test that they considered medically unnecessary as a matter of avoidance behavior, while others reported changing their practices to avoid high risk procedures or patients that they feared would result in legal action.  To really get a look at costs across the nation, look at the results of the Massachusetts medical study above, that showed, just for Massachusetts alone, that the estimated costs of defensive medicine cost $280,925,220 annually (Table 1).  If you take these figures and used across all states according to population, you start to understand the astronomical "soft cost" that defensive medicine enacts on the health care system as a whole.

So how do we fix these issues?  What are the proposals that that will represent the step of tort reform in the total package of health care reform?

Well the first step is the limitation on erroneous pay outs in the areas of "pain and suffering".  As detailed above, the average payout of verdicts is now reaching $4.7M, which has led to an era of "jackpot legal lotteries" within our justice system.  Instead, it would seem prudent to allow unlimited damages for "actual" damages, but to limit the amounts of verdicts for these so called "pain and suffering" claims.  Several states have already led the way with these enactments.  Within Texas, Proposition 12, which placed a limit on jury awards for medical cases had the direct impact of reducing the number of claims by 50% and allowing more than 3,000 physicians to return to the state.  By providing more physicians to come to the state, the laws of supply and demand come back into effect.  With more doctors competing for business, and providing more access to service in rural regions, prices come down to reflect the new market conditions.  Likewise, California also enacted the Medical Injury Compensation Reform Act of 1975, imposing a $250K cap on non-economic damages.  Since the passage of this act, medical liability premiums have been 75% lower when compared to the rest of the nation.  By the Congressional Budget Office's (CBO) own study, if nationwide jury limitations were imposed, $54B in savings would be realized over the next decade, which is almost 10 times more than previously expected.  Of that $54B, $13B would come in the form of revenue realized by health care costs decreasing for employers, thus driving up wage increases and taxable income.  In the same strain, a study by Daniel Kessler and Mark McClellan, showed that in states with tort reform already enacted, that an overall reduction of 5-9% was seen in medical expenditures with no substantial effects on mortality or medical complications.

Another reform effort is the elimination of the "joint and several liability" precedent now in effect.  Under joint and several, a claimant is able to recover the entire amount of an award from any one of the parties, regardless of their degree of responsibility for the injury.  By eliminating this precedent, parties would only be responsible for payment based on their degree of responsibility.  Why should parties be subject to higher pay outs based on their ability to pay, when they may have only a fraction of responsibility.  In effect, this would help to limit the amount of liability that a person must have, thus further reducing risk and premium increases.

Another form of reform, largely unpopular with the trial lawyer special interests that back the Democratic party, is the limiting or cap on lawyers fees that attorney's can collect on a damage award.  When awards are granted, on average, only $.15 of every dollar actually go to the claimant.  Lawyers can often collect up to 50% of settlements in contingency fees (average is 1/3rd).  By allowing for these huge payoffs, lawyers are more likely to seek exorbitant amounts of damages in order to line their own pocket book and at the expense of the client.  Likewise, since clients often can sue with no risk to themselves, they will be more likely, sometimes even persuaded, to partake in frivolous suits in hopes of a big payoff.  If we were to cap the amount of contingency fees allowable, lawyers would be less apt to engage in these sorts of suits, thus again, limiting the amount of malpractice claims.  In fact, a study posted in New England Journal of Medicine showed that 40% of all claims showed no neglect or fault (3% no actual injury, 37% no error).  40% reduction would also help clear up our clogged and back logged legal system, which is just another soft cost not attributed as directly impacting the taxpayer.

Lastly, we should establish a specialized court system to specifically handle cases of medical malpractice.  Let's be frank, accidents happen, short cuts sometimes result in loss of life or preventable injury, and those people deserve to be compensated.  However, in today's systems, we leave the merit of such claims to jury's of medically uneducated people leaving court cases to often become a case of emotional involvement and who makes the best argument.  While I fully back a jury system of trials, there are cases in which the jury should be comprised of peoples specifically trained as subject matter experts in the issues involved.   I am in no way a medical expert, but if involved in a medical malpractice case, it would be up to me to help determine fault, and amount of responsibility, each party had.  How can the common man be expected to make such determinations?  Instead, it would be better to have specialized medical courts with juries comprised of medical personnel and judges with medical knowledge serving the bench.  These courts would be better equipped to understand the severity of malpractice claims, thus rewarding accordingly.  Shift the responsibility to judge onto those people best equipped to do so.  When we take the emotional aspect out of the trial system, focusing on medical fact and known science, we would have the ability to better expedite judgements, and penalties,  based on the knowledge of the system.  Such cases could then be modeled after hospital "mortality hearings" that follow the death of a patient in which a group of doctors discuss and analyze the care that was granted to the deceased to see if appropriate care was given.  Expand this mentality to all medical cases, thus allowing, not only true, fair judgements on case merits, but also an establishment of medical precedent to prevent failures in the future.

While there are other methods that we can help reduce health care costs, these three parts represent what I believe to be the heavy hitters.  Other methods of cost reduction would be directly born from these measures (such as tax code revisions, etc), but with these three, we would set our country on a path to true reform. 


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