Reforming Medical Malpractice

The President finally made some concession to reforming the legal process of medical malpractice claims. Surprising, since the 3 bills before the House and 1 in the Senate, each over 1,000 pages long, do not say 1 word about this. Unfortunately the reason usually touted for reforming this, that is, defensive medicine, is wrong.

The impetus for reform seems to be the supposed savings from correcting the overutilization of medical testing. As I previously explained in my blog "Econ 101 and the Health Care Debate," the savings that would result from this are small. So, as much as I hate to conceed any argument related to this issue, that is not going to help.

So, why should we reform malpractice? Well, the simplist reason is that 60% of the malpractice premiums doctors pay goes to attorneys, and 40% goes to the patients who have supposedly been harmed by malpractice. That's really all you need to know.

Attorneys frequently claim that any limits on filing or damages in this type of tort case are unconstitutional, and that all citizens have the right to sue anyone for anything, anytime. But this ignores the fact that, historically, the rules for filing and proving cases has changed multiple times in the past. Under the current rules in most states, filing a case for a plaintiff is very cheap. But that simple act then generates huge costs in trying to defend the case. In fact, about 80% of cases that go to court are won by the physician. Many cases never come to trial, but the cost of reviewing records, getting depositions and retaining expert witnesses is substantial. So most of the money goes to defense attorneys. Some changes that require plaintiffs to have reviewed medical records and had understandable opinions from an expert witness before the case is even filed would save huge amounts of money. Expecting a jury of "peers" to make fact decisions on complex medical testimony is not very realistic.

But from the physician's point of view, there are multiple other factors that should be of more concern. The system is simply unfair. Any physician can be sued regardless of the facts and the cases drag on for years. Frequently in the past physicians have been willing to settle just to be done with the case rather than risk an unpredictable jury trial. On the other hand, a rare case may settle or be decided for a large amount. Thus, since it is cheap to file a case, this causes a "lottery" mentality for the plaintiff's attorney. Meanwhile, the physician's reputation is suspect, applications for credentials may be denied and the cost of malpractice insurance goes sky high.

The threat of a claim causes a very real barrier between physicians and patients. To the degree that defensive testing is done, it leads to lack of trust. Even more significant is the fact that physicians and hospitals are afraid to report any adverse events for fear of liability, even when doing so may help to identify and correct systems problems that could prevent errors. Most patients, and some attorneys, do not seem to understand that a bad result in itself does not mean malpractice. This is very different from most accidents or product liability cases for the simple reason that patients come to physicians because there is already something wrong.

Consider the economics of malpractice for a primary care physician. Most physicians will see about 100,000 patient visits in a career. The current average reimbursement for a visit under Medicare varies with location but is about $56. So, if a physician does a good job, he or she will get a thank you and a check for $56. But if there is 1 bad result among 100,000, the penalty could be as much as that doctor could make in an entire career. To argue that that is what insurance is for, misses the point. And the current premium for a primary care physician in this area is $40,000 per year. Since the average salary is about $150,000, if this premium were less it would be a substantial improvement in income. Some specialties, such as obstetrics, could have insurance premiums of over $100,000.

Reforming the system would be more just for everyone, patients, doctors, even plaintiff's attorneys.