Tuesday, October 13, 2009

Litigation Increases Medical Costs, but Lawyers Block Reform

The following excerpts come from Trial Lawyers Inc which is - for lack of a better word - a blog of the Manhattan Institute For Policy Research. The title below is Hyperlinked to the article in full. I encourage everyone to read it.

Litigation Increases Medical Costs, but Lawyers Block Reform

In his nationally televised speech before both houses of Congress on September 9, President Obama made news by acknowledging that medical-malpractice litigation "may be contributing to unnecessary costs" in the U.S. health-care system. The president's comments were in keeping with popular opinion: 72 percent of Americans think that fear of lawsuits compromises doctor decisions, and fully 83 percent want any health-care reform to address medical-malpractice litigation.

Notwithstanding the president's remarks and popular opinion, Congress has been laboring to expand medical liability against nursing homes, medical-device makers, and military doctors—changes that would be expected to drive up, not down, health-care costs. The reason is simple: with massive campaign contributions and lobbying clout, the organized plaintiffs' bar—whom the Manhattan Institute has dubbed "Trial Lawyers, Inc."—has bought Congressional leaders' support. In the last election cycle, the trial lawyers' political action committee gave over $2.5 million to Congressional Democrats, making the plaintiffs' bar the second largest donor after the electrical workers' union (see graph). Overall, lawyers and law firms gave almost $234 million to federal campaigns in 2008, including almost $127 million to Congressional candidates—more than any other industry group and significantly more than all health-care-related contributions combined (see graph).



In noting that malpractice lawsuits "may be contributing to unnecessary costs" [emphasis added] in the health care system, the president was needlessly cautious. Thoughtful analysts of varying political stripes understand that litigation matters in explaining America's high cost of health care. The respected left-leaning health economist Uwe Reinhardt, for instance, singles out "our uniquely American tort laws" as one of four "prominent" reasons for "excess" health spending.

Trial lawyer lobby groups—the American Association for Justice and its assorted allies like Public Citizen and the Center for Justice and Democracy—regularly argue that litigation is an insignificant contributor to health care cost escalation because it only accounts for a tiny fraction of health costs. In making this argument, such organizations play the "denominator game": the tiny fraction they point to takes the total $2.2 trillion in U.S. health expenditures as its denominator and an absurdly narrow definition of health-care litigation as its numerator.

To begin with, such groups typically use as a numerator medical-malpractice losses as reported by insurance companies—numbers that ignore legal defense costs as well as the fact that most major health systems in the U.S. cover at least a portion of their medical malpractice losses without insurance. More comprehensive estimates by the insurance consulting firm Tillinghast Towers-Perrin place the total direct cost of medical-malpractice litigation at $30.4 billion annually—an expense that has grown almost twice as fast as overall tort litigation and over four times as fast as health-care inflation since 1975 (see graph).

This direct cost represents only a portion of the cost imposed by medical-malpractice lawsuits. "Defensive medicine"—"the application of tests and procedures mainly as a defense against possible malpractice litigation, rather than as a clinical imperative"—is widespread. In a 2005 survey published in the Journal of the American Medical Association, 93 percent of doctors said they had practiced defensive medicine and 92 percent said they had made unnecessary referrals or ordered unnecessary tests or procedures. The cost of defensive medicine likely exceeds the total cost of malpractice liability itself because doctors themselves bear the cost of any potential litigation (even if their insurance companies cover their losses, doctors must endure the time, stress, and reputational effects of dealing with the lawsuit), while they bear little cost for imposing extra tests and procedures (since patients with low-deductible health insurance are not price-sensitive, in part because the expenses are borne by their insurance companies).

Putting an estimate on the cost of defensive medicine is difficult. Many studies have extrapolated from a 1996 study by Stanford economists Daniel Kessler and Mark McClellan which found that tort reforms lowered costs by 5 to 9 percent without worsening health outcomes. Based on this study, PriceWaterhouseCoopers estimated that 10 percent of all health care spending is consumed by medical-malpractice-liability-related defensive medicine and insurance costs-a total sum of $210 billion, or almost one-third the difference between the cost of U.S. health care and that in other developed nations.

Some of my readers may remember a post I put up back in July titled Lawyers & ObamaCare: A Nice Return on Their Investment where I pointed out that Obama took in nearly $43 Million Dollars in contributions from lawyers during the 2008 election cycle making him the top recipient of campaign contributions from lawyers. I can't overstate the corrosive influence that the Trial Lawyers' Associations have on the political process in this country. Nutshell: its killing the Republic.


  1. I don't think Barack Hussein Obama cares what happens to the Republic, so long as he gets his suitcases full of money... the Chicago Way.

  2. I'm supposing that the tort reform in question here would involve some sort of "cap" on what lawyers can charge, and/or on what claimants can ask for. Doesn't this ruffle your libertarian feathers just a little bit? It sure does mine!

    I instinctively cringe whenever I see the government get involved, or get asked to get involved, in regulating things on behalf of "the little guy". Every time it does, a little piece of freedom flies out the window.

    Sure wish there were a way to solve the (medical malpractice abuse) problem that didn't violate individual rights -- some kind of free market solution. None comes to mind right off hand, though.

    Having said all that, however, I'll admit I'm not a lawyer and I haven't studied this matter well at all, so perhaps I'm seeing it wrong? Is there such a thing as a "cap" -- on anything -- compatible with libertarianism? With liberty? Just asking.

  3. Susan: You make a valid point in saying that a cap on damages is anti-libertarian. But in the litigation world, damages are broken down into basically 3 distinct components 1) actual damages, 2) future damages and 3)Punitive or "exemplary" damages. Its in the 3rd class where most of the mischief occurs in the form of multi-million dollar punitive assessments that bear no relationship to the harm inflicted (other than the jurisdiction where the plaintiff brings suit. E.g. Much better for the plaintiff to be able to sue in the Bronx rather than Staten Island or say Manhattan). Most cases settle out quickly meaning months to a year or two). Its the cases we read about in the papers that lead to ridiculous expectations among certain plaintiffs and a fairly small group of predatory lawyers. So capping punitive damages would likely go a long way in keeping costs down.

  4. L.A.,

    Thanks for explaining what you mean. I guess I've just got a tenacious libertarian streak, because I'm still not comfortable with allowing politicians to decide what individuals can and cannot charge for their services, or what anyone must be satisfied with when being compensated for damages (even punitive damages).

    I thought you might be interested in what Gary North had to say when I asked him yesterday afternoon what free market solution to this problem he might offer. Dr. North is not a lawyer (or a physician), but he is an Austrian school economist and historian, and a strong libertarian. (He was Ron Paul's congressional researcher back in the '70's.)

    He gave me the following three-part answer in his usual cryptic style:

    1. Close all tax-funded law schools.

    2. Make lawyers liable for lost cases taken on speculation. If they were going to get one-third of winnings, make them pay one-third of losings.

    3. End all licensing of lawyers.

    Now, like I said, I'm not a lawyer or doctor either, and I've never sued anyone or been sued, so this is uncharted waters for me; therefore, although I trust and respect Dr. North's opinions very highly, quite honestly, I'm not in a position to know whether these three suggestions are the whole, or only, answer or not (but if I know Dr. North, they'd go a long way!). But I do know that even when the good guys ask for regulation for good purposes, I just instinctively get very, very nervous. Which means, bottom line, that while I'm willing to keep an open mind on this and listen more, for the time being, at least, I think I'd have to go with a no on any tort reform based on compensation caps. Good for health care costs, bad for liberty.

    Respectfully in disagreement (to the degree I understand the issue),

  5. Best to allow damages to be determined by the judge, not the jury.


  6. In reforming the US healthcare system, does Hong Kong offer any ideas: