Tort reform, despite its many proponents, is not the cure-all to high medical costs. Torts, medical malpractice suits, and lawyers are the common scapegoats that lawmakers, hospitals, doctors, and insurance companies cite as the primary culprit for runaway medical costs. It isn’t true. Rising healthcare costs and premiums are due to a variety of factors, not just malpractice suits. Unfortunately, lawmakers often cite litigation costs as a scapegoat for all sorts of society’s ills, and healthcare costs are no exception.
Rather than simple scapegoating, rising costs are due to (1) the inefficient economics of providing health care and (2) high error rates.
The Economics of Lawsuits
Most law firms that focus on representing victims of medical malpractice (i.e. the plaintiffs) represent their clients on a contingency fee retainer. Contingency fee means that the law firm does not charge the client for attorney’s fees or costs. In exchange for providing representation, the law firm takes a portion of the judgment or settlement. In a contingency fee arrangement, law firms absorb the risk of losing when they represent clients on a contingency fee basis.
Contingency fee arrangements are convenient for clients. Unfortunately, medical malpractice suits are also very expensive, most cost $50,000 at a minimum. With these high upfront costs, many law firms are very discerning in the cases they accept because of the huge risk. The combination of (1) contingency fee arrangements and (2) high litigation costs dissuade many law firms from prosecuting frivolous lawsuits. Therefore, the medical malpractice costs that are built into the healthcare system are there because doctors and hospitals are providing substandard care.
The Economics of Providing Healthcare
Conversely, the economics of providing health care encourages physicians and hospitals to overcharge and over-provide services. According to a study by the Congressional Budget Office (“CBO”), “defensive medicine” (the practice of over-ordering tests in anticipation of litigation) is motivated more by the income it generates, than preempting possible lawsuits. Doctors (aside from those in “HMOs,” like Kaiser Permanente) are paid per procedure. Meaning the more tests they order, the more money they make.
The economics of providing health care incentivizes doctors to over-order and over-proscribe. Comparatively, law firms are dissuaded from pursuing claims that don’t have a significant chance of success and of exceeding the base costs of litigation (i.e. $50,000).
Hospital Error Rates
The Institute of Medicine of the National Academies found in a recent study that one-third of patients admitted to a hospital suffer harm during their stay. The Institute estimates that up to 98,000 patients die a year due to preventable medical errors and omissions. The Institute’s findings were also supported by the RAND Corporation which conducted an exhaustive analysis of the healthcare industry and found that a greater emphasis on patient well-being is needed.
Defensive Medicine: A Cloak to Overbill Patients
Healthcare lobbyists push back against these findings by arguing that no amount of healthcare reform is going to end the scourge that is lawsuits. Doctors practice defensive medicine because of an ingrained fear of being sued. Doctors argue they need to order additional tests to preempt arguments by lawyers that second-guess their decisions. The result is that patients are stuck with higher bills because they have no choice but to trust their doctor is ordering tests with their best interests in mind.
However, numerous studies contradict these assertions. The Government Accountable Office found in 2003 that no major study has analyzed the prevalence of defensive medicine because every study has been limited to clinical situations. Clinical situations are unique because they involve cutting-edge medical practices. Therefore, doctors are well-advised to proceed cautiously. Moreover, the Congressional Office of Technology found that less than eight percent of all medical tests can be attributed to defensive medicine. Both of these studies illustrate that defensive medicine isn’t a wide-spread practice among physicians and therefore is unlikely a significant factor contributing to rising healthcare costs.
Civil Litigation’s Role
Civil litigation serves an important part in checking bad behavior. It discourages companies from selling dangerous toys or medicine. And, if discouragement fails, it punishes bad behavior. A popularly cited case as “litigation run amok” is the famous McDonald’s spilled coffee case. Everyone knows that a woman was burned by McDonald’s coffee when it spilled in her lap, she sued and received a multi-million dollar settlement.
The decision was widely panned by the media and uninformed. What those 30 second T.V. spots failed to note is that (1) McDonald’s heated its coffee significantly higher than industry standard, (2) that it had been sued 700 times before for the same exact issue but never changed its practice, and (3) that the plaintiff suffered third-degree burns over her thighs and groin and suffered permanent nerve damage. It took that last case to finally convince McDonald’s that seven-hundred-and-one victims is one too many.