Crib Sheet: Malpractice and Tort "Reform"

Why crippling the system won’t fix it.

By Kate Steadman
Thursday February 9, 2006

While on the campaign trail in 2004, President Bush chose to ignore the health care crisis except in one key area: medical malpractice. His perfectly controlled messages painted a dark picture: runaway juries giving away hundred million dollar awards to undeserving plaintiffs, doctors retiring by the thousands under the weight of malpractice insurance, and defensive medicine—doctors, fearing lawsuits, running every possible test and procedure—bankrupting the system. His solution to this mélange of medical crimes? Tort “reform,” which means, mostly, capping the amount of damages a plaintiff can win in court.

If you believe his assertions, tort reform seems reasonable—until you realize that every one of these claims depends on misinformation. Juries have given the same award amounts (after adjusting for inflation and medical costs) as they have during the last 40 years. Malpractice premiums have risen because of the insurance boom and bust cycle, and spending on all aspects of malpractice amounts to less than one half of one percent of health care spending.

So why do the Bush Administration, doctors, and insurance companies continue to put forth this amalgam of misinformation? It unites their common interests, which are as little government intrusion as possible, ensuring a coalition of special interests, and preserving physician salaries. But for the rest of us, it amounts to a raw deal. Here’s why.

Myth #1: Patients sue at the drop of a hat

Medical malpractice claims are notoriously difficult to process. That’s partly because of the complexity of practicing medicine—experts must testify whether or not a doctor followed reasonable standards. It can also be tough to determine the exact cause of injury, and even then deciding how to assign a monetary value to injury can be subjective. It’s important to realize as well that a good portion of lawsuits are settled out of court (thus bypassing the hundred million dollar jury awards), and a good portion of lawsuits are dropped.

Given all these barriers to suing, it’s no surprise that researchers estimate only 3-4% of injured patients file a claim. The other important thing to realize here, besides the fact that a minute number of patients actually sue, is that a rather large number of patients get injured. Researchers estimate that between 44,000 and 98,000 people die from medical treatment each year. That’s the equivalent of a jumbo jet crashing every day. Patients don’t sue at the drop of a hat – medical malpractice claims are much lower than they could be given the substantial number of people injured.

Myth #2: Juries give outrageous awards and therefore can’t be trusted

After adjusting for inflation and the increased cost of medical practice, research shows that juries just aren’t awarding any more money than they did 40 years ago. One of the largest studies of this kind, by RAND, concluded: “Our results are striking. Not only do we show that real average awards have grown by less than real income over the 40 years in our sample, we also find that essentially all of this growth can be explained by changes in observable case characteristics and claimed economic losses (especially claimed medical costs).”

While there are certainly instances of frivolous lawsuits and awards, they’re clearly not enough to skew the fact that damages have increased less than income. In fact, judges decide in favor of patients more often than juries, and there’s evidence that juries actually have a bias towards doctors.

Myth #3: Defensive medicine is bankrupting the system

So maybe there aren’t that many malpractice suits. But doctors are afraid of being sued, so they practice defensive medicine at an enormous cost to our system, right? Wrong. Although extremely difficult to measure, the attempts made so far have found little evidence that malpractice is behind sky-rocketing medical costs. One study estimated that malpractice costs (including premiums, lawyer fees, medical costs, and “defensive medicine”) amount to less than one half of one percent of all medical spending in the U.S.

The research that has been conducted indicates, for the most part, that defensive medicine has little effect overall and that states with tort reform only have slightly lower rates of spending than those without. But one thing is clear—malpractice fears aren’t sending shock waves through the system. For instance, Harvard researchers compared cesarean rates to the actual hospital rates of malpractice suits and found that, controlling for all other factors, a woman who gave birth at a hospital with high malpractice rates was 30% more likely to have a c-section. But researchers also found that giving birth at a hospital with a high c-section rate (not necessarily malpractice rate) increased the risk of having a c-section 10 times. Hospital culture and practice influence doctor behavior much more than their fears of being sued.

Myth #4: Malpractice premiums are up again because of outrageous awards

We already learned that there’s no trend towards outrageous awards, so something else must be driving malpractice premiums upward. The push, rather than the result of greedy and incompetent juries, is caused by the nature of the insurance industry itself. The key here is that the insurance market is fairly unpredictable and susceptible to drastic price increases. That’s because insurers must guess how much they’ll pay out almost 10 years before they’ll actually do so. This results in a boom and bust cycle, as insurers overvalue their future costs resulting in lower premiums, and correspondingly undervalue resulting premium increases. Premiums increased substantially in 2002 as the insurance market realized it had undervalued the claims it would pay out, the stock bubble burst, and interest rates declined.

The malpractice insurance industry as it exists doesn’t make sense. Business-wise, insurers must predict their costs up to 10 years before they’re incurred and the industry is very susceptible to changes in medical practice, the market, and the number of lawsuits (which has remained fairly steady so far). For doctors, it causes pain when premiums increase and it fails to provide a sufficient incentive to reduce error. For patients, it discourages full compensation for injury. It’s a bad deal all around.

Myth#5: Tort reform will solve our medical problems

Most tort reform proposals involve limiting the amount of money patients can receive in medical malpractice trials. But a review of the research makes it clear: caps on damages are unnecessary at best. Given the already infinitesimal spending on malpractice, limiting lawsuits won’t make a dent in health care spending, nor will it be powerful enough to rope in costs. The main problem with the current tort system is that not nearly enough patients are compensated for their injuries and it doesn’t sufficiently punish doctors causing medical injury (in fact, many stay in practice). Further, it doesn’t provide the most important incentive: to practice safe medicine. Making it harder to sue will result in more medical error and even higher costs to our health care system.

Doctors aren’t bankrupting the system with defensive medicine, nor are greedy patients and juries handing out outrageous awards. Insurance companies aren’t raising premiums because of a rise in plaintiff awards, either; it’s just the consequence of their natural business cycle.

The current administration and its allies will continue touting tort reform as a panacea for our health care system, but you’ll know better. The only thing tort reform will do is prevent the seriously harmed from receiving adequate compensation, and make it much tougher for injured patients to sue (and with only 3-4% suing, that’s quite an accomplishment). It’s a bad deal for everyone except insurance companies and negligent doctors.

Kate Steadman, a native of the reddest of red states, Kansas, graduated from the University of California, Santa Cruz in June with a B.A. in sociology and pre-med requirements fulfilled. Kate has worked at the National Women’s Health Network in Washington, D.C. and the Venice Family Clinic, the largest free clinic in the nation, in Los Angeles. She has an unhealthy fascination with health care and will be moving to Washington, D.C. to work in health policy. When she’s not reading about health issues, she enjoys staring at her computer, listening to NPR, and knitting. Kate is also the author of the regular CampusProgress.org column Critical Condition.