The Truth About Malpractice Lawsuits

President Barack Obama tapped into a large vein of public support when he suggested recently that he is open to reforming medical malpractice laws. It's common currency in the U.S. that litigation drives medical inflation by forcing doctors and hospitals to resort to "defensive medicine," overtreating patients to avoid lawsuits.

The evidence suggests a much smaller effect. Study after study shows that costs associated with malpractice lawsuits make up 1% to 2% of the nation's $2.5 trillion annual health-care bill and that tort reform would barely make a dent in the total.

A comprehensive new report from Northwestern's Kellogg School of Management, using a database of employer-sponsored health plans covering 10 million Americans, looked at the impact of tort reform measures already enacted in more than 30 states. The authors concluded that comprehensive, nationwide reforms would lower overall health-care costs by 2.3% at most. "That's significant, of course, but still fairly small," says Kellogg professor Leemore S. Dafny, a co-author of the study. As President Obama told a joint session of Congress on Sept. 9: "I don't believe malpractice reform is a silver bullet."

Doctors see things differently. They pay malpractice premiums that can run up to $250,000 a year for specialties such as neurology or obstetrics. It's "a huge issue for us," says Dr. Steven M. Safyer, CEO of Montefiore Medical Center in New York. "I would say about 5% of our costs are directly attributable to malpractice premiums and another 5% to defensive medicine."

A 2004 study by the Congressional Budget Office came up with much lower figures, however. The CBO estimated that malpractice premiums and awards to patients represent less than 2% of overall health-care spending. The CBO also concluded that any reductions in medical overtreatment from tort reform would be negligible. "So-called defensive medicine may be motivated less by liability concerns than by the income it generates for physicians," the government economists concluded.

Fair to Patients? That makes sense, says Kellogg's Dafny: "We have some expectations about medical care that make it difficult to roll back the services that have always been delivered." Most doctors are paid by the number of services they provide. Since insured patients rarely pay the cost of additional treatments or tests, there is little pressure on doctors to scale back, even when the fear of being sued is removed.

Look at Texas, which enacted some of the most extensive malpractice reforms in the nation in 2003. The number of lawsuits in the state has fallen by half since then, and malpractice premiums are down 30%. But health-care costs in Texas are still among the highest in the nation and are growing at a faster rate than in most other states. "I think tort reform is a good idea as a carrot to get doctors to go along with more significant health-care reforms," says law professor Charles M. Silver of the University of Texas at Austin. "But as we've proved, it isn't the answer on its own."

Whether tort reform is fair to patients is another point of contention. The Institute of Medicine, an independent adviser to the government, estimates that as many as 100,000 Americans die yearly from medical mistakes. But only about 4% of injured patients or their families sue, according to a Harvard study. And only 1 in 5 lawsuits awards the patient. "The amazing thing is that more patients don't sue," says Paul H. Keckley, director of Deloitte's Center for Health Solutions.

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