MANAGED CARE March 2005. ©MediMedia USA
The $60 billion to $108 billion that could be saved through tort reform would help 2.4 million to 4.3 million uninsured get coverage, the government claims.
Depending on which side of the political divide you sit, federal medical malpractice reform limiting noneconomic damages on medical cases to $250,000 would:
- Carve a whopping $60 billion to $108 billion in annual health costs, largely by eliminating the need for defensive medicine. Twenty-eight billion dollars of that amount would be saved by Medicare and Medicaid. Or:
- Perhaps take some of the sting out of the increase in malpractice insurance rates, which account for barely 1 percent of overall health care costs. But the Congressional Budget Office won't go even that far and most critics shrug off the impact as infinitesimal.
In pushing for tort reform, which the newly expanded Republican majority in Congress has shifted to the front legislative burner, the Bush administration has been selling some big gains.
"One of the major cost drivers in the delivery of health care are these junk and frivolous lawsuits," the president said in an election-year speech in Little Rock, Ark. "The risk of frivolous litigation drives doctors — and hear me out on this — they drive doctors to prescribe drugs and procedures that may not be necessary, just to avoid lawsuits. That's called the defensive practice of medicine."
With prominent physician groups cheering him on, Bush also made the case for a cap on noneconomic damages in his State of the Union message in early February, urging "medical liability reform that will reduce health care costs and make sure patients have the doctors and care they need."
And there are numbers to back his case. The Department of Health and Human Services likes to cite a 1996 study by two Stanford economists who said that studying the ways doctors practice in states with a cap and in states without one was startling. Doctors in non-cap states were ordering up extra tests and otherwise trying to protect themselves. The practice was to pad bills by 5 percent to 9 percent. Do the math for all 50 states, they said, and you'd come up with the big numbers that Bush uses today.
"The litigation and malpractice insurance problem raids the wallet of every American," an HHS assistant secretary wrote last year. And by saving $60 billion to $108 billion, he added, you could lower costs and permit 2.4 million to 4.3 million of the insured back in coverage.
(Some say, however, that factors other than malpractice insurance are driving up health care costs. "Lately, the more important factors appear to be the declining investment earnings of insurance companies and the changing nature of competition in the industry," says a recent New York Times article.)
Too many tests
Soldiering with the pro-cap forces, former House Speaker Newt Gingrich likes to cite defensive medicine as an everyday practice, with doctors "ordering more tests or procedures than medically justified to try to protect themselves." And the notion has gained some serious respect from health care experts who have long studied the rising tidal wave of costs.
"Reform in the realm of professional liability could increase efficiency by reducing incentives to practice defensive medicine," noted Paul Ginsburg, head of the Center for Studying Health System Change, in a report he produced for the New England Journal of Medicine last fall. For doctor groups, the case against defensive medicine has become an article of faith. The American Medical Association has made federal tort reform its number one legislative initiative.
The Stanford study that figures so strongly in the administration's arguments, though, has been attracting some extra scrutiny over the past year.
These weren't just average economists. They were MIT-trained Daniel P. Kessler, PhD, and Mark McClellan, MD, PhD. Today, McClellan is head of Medicare, after finishing a stint running the FDA. At the time they were both researchers, they won the 1997 American Economics Association's award in health economics for their work.
When factcheck.org took on the topic of defensive medicine in 2004, the Web site noted that Bush's citation of academic studies is limited to that one scholarly endeavor. There were others, though, that don't get much airtime.
Harvard University School of Public Health "did not find a strong relationship between the threat of litigation and medical costs," noted the CBO. The Journal of Health Economics in a 1999 study looked at Caesarian sections but concluded after comparing cap and non-cap states that defensive procedures added, perhaps, 0.3 percent in extra costs.
And then there was a 1994 study by the congressional Office of Technology Assessment that examined defensive Caesarian sections and defensive radiology tests for head injury patients that concluded: "It is impossible in the final analysis to draw any conclusions about the overall extent or cost of defensive medicine."
When the government's number crunchers tried to come up with a bottom-line estimate on the effect of a cap, they couldn't come up with an educated guess.
"Given the limited evidence, reliable cost savings estimates cannot be developed," the General Accounting Office concluded in 1999.
"In short, the evidence available to date does not make a strong case that restricting malpractice liability would have a significant effect, either positive or negative, on economic efficiency, " the CBO stated.
The American Trial Lawyers Association — and last year's Democratic presidential candidate John Kerry — prefer a different number when talking about tort reform: 1 percent. That's the amount that total malpractice premiums amount to in the overall scheme of health care costs. And placing a cap on noneconomic exposure wouldn't promise to blunt the continued rise of that one line item, say the trial lawyers.
The group delights in dropping quotes from insurance industry representatives where they back away from any quid pro quo on legal reform and malpractice rates.
One sample: "We have not promised price reductions with tort reform," said Dennis Kelly, an American Insurance Association spokesman, whose members include some companies that write malpractice policies.
"Legal reform should reduce costs," Kelly tells Managed Care. "As costs [go down], premiums typically follow, just as when costs increase, premiums typically follow." But he also adds that a cap on damages doesn't go hand in hand with rate cut promises. "Any legal reform depends on how the courts interpret it. In addition there are other factors that have nothing to do with litigation that go into the rates of insurance."
You can expect to hear a lot more about tort reform in coming months. House Republicans have already demonstrated a gung-ho attitude by voting twice last year to back so-called tort reform. Advocates hope the Senate, with a bigger Republican majority to lean on than in the last session, can push it through this year.
What about drug companies?
One potential hang-up: extending medical malpractice protections to the drug companies. Several lawmakers protested when they recently read in the Washington Post that a version of the malpractice bill making the rounds in Washington would also extend protection to drug makers such as Merck, which is staring at an estimated $30 billion liability bill from Vioxx litigation. Back off on that provision, two Democratic lawmakers wrote in a letter to Senate Majority Leader Bill Frist, and the Republicans could find bipartisan support for the bill.
If they're right, the academic argument behind big savings will be quickly put to an uncompromising, real-world test.