Monday, June 22, 2009

RTRP Health Care: Out-of-Control Costs, Lawyers (UPDATE)

Several of you asked whether the $500-$700 billion of unnecessary tests/ procedures identified in our earlier column can be attributed to “defensive medicine” -- doctors basing their decisions on fear of lawsuits rather than medical necessity.

While there can be no doubt that some portion of the $500-$700 billion is the result of defensive medicine, the available evidence shows that defensive medicine accounts for only a very small portion of the amount.

Largest Estimate: $113 Billion/$66 Billion

The largest estimate given for such costs came from then-President Bush, who claimed in 2004 that 5% of medical costs were the result of defensive medicine. If true, this would account only for a maximum of $113 billion of the $500-$700 billion in medically unnecessary tests/procedures. That’s it.

However, even if this were accurate, the actual number would be much lower than $113 billion because most of the $2.26 trillion is not connected to the delivery of services. Thus, Bush gave a range, which went as low as 2.5%. This would reduce the $133 billion to $66 billion.

But It Could Be As Low As $6 Billion

But there is another problem with this figure. The study Bush relied upon does not appear to be reliable for reaching the conclusion that he reached. That study, by economists Daniel Kessler and Mark McClellan, compared the cost of two types of cardiology-related procedures in states that had enacted tort reform and states that had not. They found a 5% difference in costs between the two groups of states, and then extrapolated that to all medical costs.

Yet, when the Congressional Budget Office attempted to apply the same methods used by Kessler and McClellan to a broader set of ailments, it “found no evidence that restrictions on tort liability reduce medical spending. . . CBO found no statistically significant difference per capita health care spending between states with and without limits on malpractice torts.” The GAO reached the same conclusion.

Similarly, a 1990 Harvard Medical Practice Study of New York physicians found an insignificant relationship between the threat of litigation and medical costs, even though physicians reported that their practices had been affected by the threat of lawsuits.

A study published in the Journal of Health Economics in 1999, found that tort reform related to births by cesarean section did result in costs savings, but those costs savings were only 0.27%. Applying this to costs in general, as Bush did with the Kessler/McClellan study, would result in savings of only $6 billion.
Finally, a congressional Office of Technology Assessment study into the effects of “defensive radiology in children with head injuries and defensive Cesarean sections” concluded that “it is impossible in the final analysis to draw conclusions about the overall extent or cost of defensive medicine,” and then found that less than $54 million could be attributable to defensive medicine in these areas.

Thus, at best you’re talking about $113 of the $500-$700 billion, but more likely the figure is much, much smaller between $6 and $66 billion.

What Is Causing The Rest Of The $500-$700 Billion

So where does the rest of the $500-$700 billion come from? According to a study by Dartmouth’s Institute for Health Policy and Clinical Practice, there is a direct relationship between the availability of services and how much those services are prescribed, whether or not those services are medically necessary. Dartmouth found, for example, that where more medical beds were available, doctors prescribed more hospitalization, even though this was not medically necessary nor did it result in better results for patients.

According to the Dartmouth report, and various follow up reports, there are two suspected causes for this.

• First, there is a lack of clear national standards that results in wildly different treatment being provided in different geographic regions. Indeed, recent studies have shown that many doctors lack adequate information on the risks/benefits of common treatments. This results in both over and under treatment.

• Secondly, flawed payment systems reward doctors for providing more care, whether or not that care results in better treatment or results.

Thus, while tort reform should be a part of any reform, tort reform alone cannot solve this problem.


Mike Kriskey said...

Andrew, I'm neither a lawyer nor a doctor and I have very little knowledge about either area. So I'm just going to ask a couple of questions, okay?

In the states that had passed tort reform, did the laws just put a cap on the money that could be awarded, or did they make it more difficult to sue? I think that's important to know, because although doctors don't want to be sued, once they are I wonder if it makes much difference to them how much money their insurance company ends up paying.

Also, could the estimate of tort reform on the number of C-sections performed be underestimated here? Another factor to be considered is that there are fewer and fewer OB/GYN's to go around because entering that field is like hanging a "sue me" sign on your back, and the resulting scarcity will also drive up costs.

I promise you that I'm going to try to keep an open mind until your series of posts is complete!

AndrewPrice said...


First, let me say that I am in no way suggesting that tort reform is not important -- in fact, we will spend an entire article on that point when we discuss our solutions.

But I am trying to clear up the misconception that somehow THE problem with our medical system is lawyers, and that if we could only get tort reform, everything would be great. That is just not true.

There is no doubt that lawyers are part of the problem. But as you can see, even the most "anti-lawyer" estimates only come to $113 billion. Moreover, tort reform has already been enacted in 44 states, and it has not stemmed "the health care problem." Thus, people need to look beyond just tort reform.

In terms of the types of tort reform that have been enacted, states have both made it harder to sue and have put caps on damages. We'll go into greater detail on this at the end of the series.

As for doctors, they generally don't care about the size of the damage awards because the insurer will pay it. Most of the doctors I've met have been more concerned about reputational harm and loss of time.

According to the CBO, there has been a drop in the availability of OB/GYN services in rural areas. However, they state that this is not statistically significant when compared to the general drop in availability of medical services in those areas.

I did see an article, however, that indicated that med-mal insurance costs for OB/GYN's were around five times higher than those charged to general practitioners.

Finally, an open mind is all we ask. Keep the questions coming. :-)

Mike Kriskey said...

Fair enough, Andrew. I hope I'm not coming across as anti-lawyer. I like lawyers just fine; I just don't trust them, is all. :)

AndrewPrice said...


I don't blame you for not liking lawyers, as a group we're not very likable. ;-)

And I'm not worried about people being anti-lawyer. I think lawyers are far too intrusive in the medical system.

But, I don't want people getting sidetracked by that issue and losing sight of where the real reform needs to take place.

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