Medical Negligence Myth 2: Malpractice Claims Drive Up Health Care Costs

This report is one of a series from the American Association for Justice dispelling commonly believed myths about medical negligence.   It can be found at: www.justice.org/medicalnegligence

MYTH 2: MALPRACTICE CLAIMS DRIVE UP HEALTH CARE COSTS

The direct costs associated with medical malpractice are a tiny fraction of health care costs. According to the National Association of Insurance Commissioners, the total spent defending claims and compensating victims of medical negligence in 2007 was $7.1 billion—just 0.3% of health care costs.7 Any restriction on compensation to victims would thus reap only negligible savings, at best, as it sought to reduce whalready a fraction of costs.

Therefore, those focused on limiting patients’ legal rights have turned to the idea of indirect costs, namely “defensive medicine.” Some claim that doctors are frightened into ordering hundreds of billions of dollars worth of unnecessary tests to avoid litigation. Despite the fact that the cost of all settlements, jury awards, and even the cost of defending claims makes up only 0.3 percent of health care costs, tort reformers allege that this “defensive medicine” accounts for 10 percent of health care costs.

The problem with this concept is that the vast majority of academic and government research has found that:

• “Defensive medicine” is not as prevalent as tort reformers suggest;

• There are little or no savings to be gained from reforms aimed at indirect costs. Researchers have found that “tort reforms do not significantly affect medical decisions”;8

• Much of what can be identified as “defensive medicine” is motivated not by liability concerns but by the desire to generate more income;9

• The threat of liability may actually improve health care outcomes. Researchers have found that a 10 percent increase in malpractice costs actually reduces mortality by 0.2 percent, leading the researchers to conclude that, “while the mortality benefits of malpractice may be quite modest, these seem more likely than not to justify its direct and indirect health care costs.”10

Most claims of “defensive medicine” are derived from a 1996 study that has repeatedly been debunked by government agencies and academic researchers. The study, conducted by Daniel Kessler and Mark McClellan, examined data on the costs of treating cardiac patients covered by Medicare in 1984, 1987, and 1990. The authors took this small subset of data and extrapolated the findings to the entire health care system to conclude that tort reform could reduce medical costs by five to nine percent because doctors no longer felt the need to run tests because of liability concerns. 11

Subsequent academic and government analysis of the study was critical of its conclusions, and the vast bulk of empirical research since has consistently found no such savings. The GAO questioned the validity of the study’s results in 1999, saying, “Because this study was focused on only one condition and on a hospital setting, it cannot be extrapolated to the larger practice of medicine. Given the limited evidence, reliable cost savings estimates cannot be developed.”12

The CBO tried to replicate the authors’ findings but were unable to find a relationship between health care spending and state medical liability laws. The CBO stated it, “found no evidence that restrictions on tort liability reduce medical spending. Moreover, using a different set of data, CBO found no statistically significant difference in per capita health care spending between states with and without limits on malpractice torts.”13

One real and undisputed driver of health care costs that can and should be reduced is medical errors. Each year, 98,000 people die from preventable medical errors in American hospitals, adding $29 billion in additional costs to the U.S. health care system. This does not include the number of patients or associated costs of those severely, but not fatally injured by preventable medical errors.

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7 Insurance numbers from Countrywide Summary of Medical Malpractice Insurance Calendar Years 1991-2008, National Association of Insurance Commissioners (NAIC), 2009 – note, in 2008 compensation and defense costs dropped even lower, to $6.2 billion. Health care costs from National Health Expenditure Data, Centers for Medicaid Services (CMS), U.S. Department of Health and Human Services.
8 Frank A. Sloan and John H. Shadle, Is There Empirical Evidence for “Defensive Medicine”? A Reassessment, Journal of Health Economics, 28 (2009).
9 Limiting Tort Liability for Medical Malpractice, Congressional Budget Office, January 8, 2004.
10 Darius N. Lakdawalla and Seth A. Seabury, The Welfare Effects of Medical Malpractice Liability, National Bureau of Economic Research, September, 2009.
11 Daniel P. Kessler and Mark B. McClellan, Do Doctors Practice Defensive Medicine? Quarterly Journal of Economics, May 1996; President Uses Dubious Statistics on Costs of Malpractice Lawsuits, Annenberg Political Fact Check, January 29, 2004.
12 General Accounting Office: Medical Malpractice: Effects of Varying Laws in the District of Columbia, Maryland, and Virginia, October 1999.
13 CBO, supra note 9.