January 28, 2010

Defensive Plaintiffs

A "seminar commenter" on a previous post made an extraordinary claim; he wrote:

Tort reform is a non starter, not because Dems have no backbone, but because tort is a very small factor in health care cost issues. Unless you consider 0.01% of total health care costs an issue.

Actually, tort reform is a "non starter" because of the truly staggering level of political donations (mostly to Democrats) lawyers make to candidates who oppose tort reform; as RealClearMarkets reports:

The reason the president and congressional Democrats don't address malpractice is clear. In the 2008 election cycle, lawyers gave $233 million to political candidates: 76% went to Democrats and 23% to Republicans. Politicians know better than to bite the hand that feeds them.

That seems a more likely explanation of Congress' inaction than the explanation offered by the commenter and his trial-lawyer sources, that "tort is a very small factor in health care cost issues."

Defenders of defensive medicine

The commenter appears to get his talking points from trial lawyers (I have no idea whether he personally is one); oddly, however, he gets them wrong.

A very recent release from the American Association for Justice -- which used to call itself the Association of Trial Lawyers of America (ATLA), until they realized how most of us view John Edwards and his cronies -- claims that:

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.

So even the trial lawyers admit the direct costs of medical-malpractice trials are 30 times what the commenter claims. We can chalk this error up to faulty memory; however, the ATLA itself plays fast and loose with its own figures.

ATLA uses the figure of $2.2 trillion for the size of the health-care industry, comparing the $7.1 billion they claim is the direct cost of malpractice-litigation judgments, settlements, and lawyers' fees. But that total-cost figure includes many areas of health care that don't need malpractice liability insurance; they either need other types of insurance or no insurance at all.

According to a Kaiser Foundation report (source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group), only 52% of the $2.241 trillion goes to Physician/clinical service (21%) or Hospital care (31%); the rest comprises:

• Investment
• Government public health activities
• Program administration
• Retail - Rx drugs
• Retail - Other products [I'm guessing medical devices -- DaH]
• Home health care
• Nursing home care
• Other professional services

This pie-chart illustrates the breakdown:

National Health Expenditures Distribution 2007

So comparing apples to apples, the direct cost of malpractice judgments, settlements, and attorneys' fees on those entities that are subject to malpractice lawsuits is 0.6%, not 0.3%. That's still a small percent, of course -- but it's only the beginning of the story.

What the trial lawyers dance around (and what the commenter ignores entirely) is that the direct costs of malpractice litigation are but a tiny fraction of the total costs imposed upon the health-care system by the threat of litigation.

What are the missing components in the lawyers' calculations?

• Skyrocketing malpractice-insurance rates
• The costs of defensive medicine

Insurance: malpractice aforethought

The monetary cost of the risk of a huge verdict far outweigh the actual awards themselves; a high-risk litigation environment causes insurance companies to jack up their rates -- for the same reason that living on a flood plain or in "tornado alley" jacks up your insurance rates for those disasters.

Doctors pay stunning premiums for malpractice insurance, in some cases more than $200,000 annually for physicians in certain specialties, such as obstetrics or anaesthesiology -- and far more for hospitals -- even for doctors and hospitals with excellent records; see the RealClearMarkets piece linked above.

Virtually every doctor and hospital is guaranteed to be sued several times in his career... no matter how good and careful a doctor he is. This is due not only to shysters like John Edwards pushing bogus cases to force a settlement, but also to the unreasonable expectation of perfection that too many Americans hold about our admittedly wonderful health care: Even when told that a certain procedure carries a certain risk, if that risk becomes a reality, the pressure is on to go ahead and sue anyway. With a sympathetic plaintiff and a runaway jury, who knows how many millions of dollars the patient might win in "jackpot justice?"

Several estimates have found that the cost of malpractice insurance alone is about 10% of the total cost of doctor and hospital care in America, or $110 billion; again, see RealClearMarkets. This is money directly out of the pockets of doctors and hospitals... which naturally means costs directly passed along to all patients.

Defensiveness

But the heaviest costs of malpractice litigation are indirect:

• The actual monetary cost of "defensive medicine;"
• The opportunity cost of overtaxing medical resources by unnecessary use of equipment and needless prescribing of scarce pharmaceuticals;
• The doctor-patient time lost to increasingly onerous paperwork... documentation required to make a strong defense in court in response to the inevitable lawsuit;
• Doctors refusing to accept high-risk patients, knowing they will incur far more lawsuits from such patients than from low-risk patients;
• And worst of all, doctors abandoning entire specialties (such as obstetrics) associated with an unreasonable number of lawsuits -- and doctors fleeing states that strongly encourage malpractice lawsuits, or retiring early. Likewise students opting for another profession, one that's actually thriving... such as being a lawyer.

"Defensive medicine" comprises unnecessary tests, procedures, documentation, and hospital stays ordered, not because the doctor honestly believes they will help treat the medical problem, but rather to "immunize" doctors and hospitals from bogus malpractice lawsuits.

As far as actual money out of the system due to defensive medicine -- that is, due to the threat of malpractice litigation -- estimates range from huge ($60 billion per year) to gargantuan ($200 billion per year). Consider those the "direct" indirect costs imposed by trial lawyers.

But there are even vaster and more indirect damages caused by the congressional majority's love affair with lawyers. The first hidden cost is in resource depletion: Simply put, we have limited resources available for medical tests, such as X-rays or CAT scans. While a patient with no serious injury is being CAT scanned, just so that the doctor and hospital won't be dragged into court later, that particular sanner is unavailable to other patients with more serious injuries. From the Washington Times piece:

Medical resources are scarce In a hospital There are only so many CT scan machines and only so many radiologists to read them. When fear of lawyers causes practically every patient with a bump or bruise who enters the emergency room to get a CT scan whether it's clinically warranted or not, critically ill patients who need the scan inevitably must wait their turn.

While radiologists read unneeded tests, precious minutes tick by with patients suffering from possibly fatal conditions such as subarachnoid hemorrhage (bleeding in the brain) or septic shock (overwhelming infection) waiting quietly in the queue.

Similarly, if a doctor prescribes drugs for patients who don't really need them, because the doctor fears that some persuasive lawyer will convince a jury that he knows best, and the drug would surely have saved the patient's life -- then supplies of that vital drug will become scarce, and it may not be available for patients who really do need it. (It also drives up the price of drugs by the elementary rule of supply and demand.)

One hidden cost that few think about is that doctors must overdocument everything he does, just in order to defend himself when he's sued; all the paperwork extensively cuts into the time he can actually spend with his patients. From the Washington Times piece:

Another opportunity cost of jackpot justice is its effect on the time doctors can spend with patients. Patients often may wonder why doctors spend so little time with them in the hospital. Doctors are not out playing golf or eating bon bons. They are in back rooms writing notes, documenting everything they have done and everything they plan to do.

Every day, a detailed assessment and plan is needed to outline all actions and the reasoning behind them to protect doctors from lawsuits, acknowledging every lab value, test, consult. If nothing changes from one day to the next, doctors must take the time to write the same thing again. If it is not written down in the chart, it never happened.

While some medical cases can be quite complex and such inordinate documentation can help organize the case more clearly in the doctor's mind, often this is not the case. Primarily this degree of documentation is done out of necessity to keep the pesky lawyers at bay. In fact, by wasting valuable physician time that could be better spent actually seeing patients, it can be counterproductive to a patient's well-being.

Finally, fear of litigation produces yet another nasty effect... defensive dumping: Doctors are already refusing to accept high-risk patients, those with serious ongoing conditions or many allergies to drugs and "contrast agent" dyes, because they know a higher percent of them will have problems and complications from treatment -- and that means a corresponding increase in malpractice lawsuits, no matter how proper the treatment was.

Similarly, some medical specialties (obstetrics, for example) are inherently more legally risky; veteran doctors staring at spiraling malpractice premiums -- and especially newly minted doctors right out of residency, who haven't yet chosen a specialty -- will be driven to pick those that don't carry quite as much risk of spending several weeks (or months) in court. Worse, some potential med-school students will look at the costs and legal risks associated with being a doctor and opt for some other career entirely.

Malpractice tort costs amount to a "tax" on the practice of medicine -- and a subsidy for malpractice trial lawyers. What you tax, you get less of; and what you subsidize, you get more of; does America really want fewer doctors and more lawyers?

Finally, states that are litigation-happy, like New York and California, will watch as a flood of doctors leave and head towards states that have already enacted tort reform, like Texas. Great for citizens of Texas; bad for the rest of us. Make the pain universal enough, and we may have to start importing doctors from third-world countries, as the United Kingdom must now do.

Bottom line

It's impossible to make a precise estimate of how much money, resources, and doctor-patient face time tort reform would save; it depends upon what reform, how strong, and where the reform applies: Reform in California, where the health-care industry is virtually run by lawyers, would save a lot more money than a similar reform in Texas, which has already limited the extent to which lawyers can loot the system. But most academic estimates are in the range of $100 billion to $300 billion per year.

That makes tort reform one of the top targets for reducing the cost of medical care in the United States -- and well worth demanding in any so-called "reform" bill.

Unless the American people are willing to cough up donations in the hundreds of millions of dollars range, Democrats are not going to act on that demand; therefore the only viable strategy is to defeat those Democrats in the voting booth, where the opinion of an ordinary American voter is worth just as much as the opinion of a John Edwards clone.

Cross-posted on Hot Air's rogues' gallery...

Hatched by Dafydd on this day, January 28, 2010, at the time of 6:51 PM

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A “seminar commenter” on a previous post made an extraordinary claim; he wrote: Tort reform is a non starter, not because Dems have no backbone, but because tort is a very small factor in health care cost issues. Unless you consider 0.01% ... [Read More]

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