During Tuesday’s State of the Union, President Obama once again attempted to show how “bipartisan” he can be by claiming to still be “willing to look at other ideas to bring down costs, including one that Republicans suggested last year: medical malpractice reform to rein in frivolous lawsuits.”
While this might make Obama look open to Republican ideas, it unfortunately plays into a myth, a basically worthless policy idea from Republicans that really isn’t a serious cost control idea at all. There is little evidence that the Republican push to cap medical malpractice liability would actually reduce defensive medicine or make a real impact in overall health care spending.
Dr. William Hsiao examined the traditionally Republican proposal of liability caps as part of his official proposal for the Vermont state legislature on reforming their health care system, and Hsiao found it would do extremely little to reduce costs in the state. From the report:
There is relatively little evidence supporting the assertion that traditional tort reform could produce significant reductions in healthcare spending, despite physicians frequent claims otherwise. The CBO’s most recent estimates of the impact of national tort reform are based on a conventional reform package that includes capping awards for non-economic damages at $250,000, caps on awards for punitive damages of $500,000 and limited statutes of limitations. The CBO found that this package of reforms would reduce national medical liability insurance premiums by 10 percent. Given their estimate that the direct costs of medical liability are 2 percent of health expenditure, the CBO estimates this type of tort reform would reduce U.S. health expenditure by 0.2 percent, attributable to lower direct costs for medical liability. As a result of recent research on the impact of positive defensive medicine on medical expenditure, the CBO also reports that an additional decrease of 0.3 percent in national health expenditure attributed to reduced defensive medical care would occur with this tort reform package.22 Similar estimates of the impact of tort reform derive from other empirical research using different data sources and time periods. The estimated range of savings derived from a 10 percent decrease in malpractice premiums is 0.13 percent to 1.2 percent of total healthcare expenditures.
Vermont is a relatively low-cost malpractice state and there are no state-specific studies estimating the prevalence and cost of defensive medicine. From literature and national experience, we estimate that conventional reforms such as capping non-economic damages will would result in an overall decline of 0.6% in overall healthcare spending.
For several reasons implementing piecemeal reform does not represent a particularly palatable option for improving Vermont’s health system. Incremental reform efforts would not create a large impact due to the persistence of high administrative costs associated with each stage of claims processing. Tort reform also does not alter the current premium setting system which aligns premium rates with investment returns, and not with Vermont’s medical malpractice profile. This premium variance alone, apart from premium levels, reduces physician welfare and system effectiveness. Moreover, attorneys are incentivized to accept claims that will produce large awards or have the highest likelihood of receiving payment, instead of cases caused by the highest level of negligence and led to the most severe injuries. Meanwhile, recent evidence using a nationally-representative survey of about 4,700 doctors found that physicians in states with tort-reform report similar levels of concern about malpractice lawsuits and use of defensive medicine as their counterparts in states without reforms. The fact that traditional liability reform does not alter the perceived threat to physicians could put in jeopardy not only savings from defensive medicine but also the practice pattern changes that are a necessary part of the savings from moving to an integrated delivery system.
I have no problem with President Obama embracing Republican ideas, but only if they are actually good ones. Endorsing a worthless Republican proposal and pretending tit has worth simply to prove that you are super-bipartisany does substantial damage to the serious debate about what is one of the most important policy and fiscal issues facing our country.