Malpractice Reform Won't Save a Huge Amount

Last Updated Sep 29, 2009 11:47 AM EDT

In an op-ed piece today in the Wall Street Journal, attorney/author Philip K. Howard argues that the Democrats are only posturing on the need for malpractice liability reform (aka tort reform). Their real concern, he says, is to protect trial lawyers who are reliable supporters of Democratic politicians.

Howard is right about the pilot project advanced by the White House, which would have little impact on malpractice reform. He also points out that a legislative proposal by Rep. Bart Gordon (R-TN), a Blue Dog Democrat, to fund pilots in several states was watered down by his colleagues, ostensibly to avoid offending the trial bar. Overall, he says, "what has unfolded so far [in Congress] is a series of vague pronouncements and token proposals."

So far, I am with Howard. Congress has done little about tort reform, and Democrats' link to the trial attorneys is undoubtedly one of the reasons. But while we do need a better and fairer liability system that would protect both physicians and patients, the amount by which tort reform would lower health costs is open to dispute.

Howard cites estimates by the AMA and other parties that "eliminating defensive medicine could save upwards of $200 billion in health-care costs annually." To begin with, no reform legislation, no matter how effective, could eliminate defensive medicine entirely, since most physicians will always (and rightly) try to make sure that they don't do anything or neglect anything that would invite a malpractice suit. But even if we assume that tort reform could save $200 billion, that would be only 8 percent of current health spending. And, according to some observers, the real number is much lower than that.

In a recent Health Affairs article, Henry J. Aaron and Paul B. Ginsburg, two of the country's top health policy experts, write:

Evidence that malpractice litigation and its threat have much impact on the level of health spending is weak and confined to a few specialties. Evidence that it perceptibly raises the growth of health spending is almost nonexistent. The chief shortcoming of the malpractice dispute resolution system is not that some settlements are excessive, but that transaction costs are enormous. Litigation expenses and administrative overhead absorb roughly 60 percent of [liability insurance] premiums.

The total cost of liability insurance, litigation, and defensive medicine have been variously estimated to be under 2 percent of health spending (Congressional Budget Office) and 5 to 9 percent of costs (Department of Health and Human Services). An international study concluded that little of the difference between U.S. health costs and those in other advanced countries can be attributed to malpractice litigation.

So, while there's a strong case to be made for changing our system of malpractice liability-including the fact that fewer than 10 percent of injured patients are ever compensated-tort reform would not significantly restrain health spending. Many physicians think otherwise because they're acutely aware of the need to protect themselves. But while their decisions drive around 80 percent of health spending, only a small portion of that is related to defensive medicine.

  • Ken Terry

    Ken Terry, a former senior editor at Medical Economics Magazine, is the author of the book Rx For Health Care Reform.