Why Medical Malpractice Reform Will Increase the Deficit, Not Reduce It

Tort restrictions will add to the deficit and will reduce the financial incentive of institutions like hospitals to operate safely, when our objectives should be deterring unsafe and substandard medical practices.
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When people talk about medical malpractice "reform," they are usually not talking about reducing the epidemic of medical errors in hospitals or instituting proven measures to actually reduce injuries, deaths, claims and lawsuits. No, they're usually talking about making it more difficult for patients injured by medical negligence, including catastrophically-injured children, to be compensated.

Despite the enormous hardships on innocent patients caused by these measures, or the fact that they shift compensation burdens onto others, there is an argument circulating that these measures are worth enacting because they will reduce the deficit.

Well, no they won't. In fact, they will likely increase it.

In October 2009, the Congressional Budget Office (CBO) presented an analysis (in the form of a 7-page letter to Senator Hatch) on "the effects of proposals to limit costs related to medical malpractice ('tort reform')," finding that "tort reform could affect costs for health care." CBO said that even if the country enacted the entire menu of extreme tort restrictions listed, including a Draconian $250,000 cap on non-economic damages, it could go no further than to find an extremely small percentage of health care savings, "about 0.5 percent or $11 billion a year at the current level -- far lower than advocates have estimated."

On March 10, 2011, CBO provided a new analysis of H.R. 5, a bill before Congress that is considering these measures. CBO now says that enacting H.R. 5 would reduce total health care spending even less -- 0.4 percent. Yet to find even this small amount, CBO ignored factors that would not only lower this figure but also likely increase the deficit.

For example, CBO acknowledges but does not consider in its cost calculations the fact that these kinds of extreme "tort reforms" would weaken the deterrent potential of the tort system, with accompanying increases in cost and physician utilization inherent in caring for newly maimed patients. CBO notes, "The system has twin objectives: deterring negligent behavior on the part of providers and compensating claimants for their losses ..." In fact, CBO wrote, "imposing limits on [the right to sue for damages] might be expected to have a negative impact on health outcomes." Yet it brushed aside the fiscal impact of this not because it is untrue, but because there are too few studies on the topic.

However, of the three studies that address the issue of mortality, CBO notes that one study finds such tort restrictions would lead to a .2 percent increase in the nation's overall death rate. If true, that would be more than 4,000 additional Americans killed every year by medical malpractice, let alone the hundreds of thousands of additional patients injured. How could this possibly be an acceptable trade-off?

Ten years ago, the Institute of Medicine put the costs of medical errors at between "$17 billion and $29 billion." Nowhere does CBO consider those costs, let alone the additional costs of caring for these newly-maimed patients as a result of new liability limits

There will be new burdens on Medicaid and Medicare, as well, none of which were considered by CBO. If someone is brain damaged, mutilated or rendered paraplegic as a result of the medical negligence but cannot obtain compensation from the culpable party through the tort system, he or she may be forced to turn elsewhere for compensation, like Medicaid and Medicare. None of these increased costs are considered.

What's more, whenever there is a successful medical malpractice lawsuit, Medicare and Medicaid can both claim either liens or subrogation interests in whatever the patient recovers, reimbursing the government for some of the patients' health care expenditures. Without the lawsuit, Medicare and Medicaid will lose funds that the government would otherwise be able to recoup. Again, none of these lost funds are factored in by the CBO.

After CBO issued its original October 9, 2009 letter, members of the CBO staff agreed to meet with me and a panel of experts to discuss these issues. Among the things I learned at this meeting were:

  • It may be true that liability restrictions will create new burdens on state and federal deficits since the costs of injuries are not eliminated by enacting "tort reform," but merely shifted onto someone else -- including the government. However, no good study had yet been done on this phenomenon and according to CBO, if a study doesn't exist about a problem, it need not consider it even though savings could be significantly less than what they say.
  • Also, CBO arrived at these numbers by plugging selective studies into CBO's internal econometric models that no one ever sees. For example, I specifically asked how CBO could find a 0.2 percent savings due to lower medical malpractice insurance rates for doctors, when years of historical experience show this to be untrue. When Senator Jay Rockefeller (D-WV) asked CBO for a "complete empirical analysis of the cost savings associated with medical malpractice reforms," CBO's response was another seven-page letter. No empirical analysis, no econometric models, no data.
  • I have testified in Congress on this topic twice since January, and both times, I have tried to make clear that taking away the rights of the most seriously injured in our society has been and continues to be a failed public policy. This is the wrong way to respond to the important economic problems that face this country. Tort restrictions will add to the deficit and will reduce the financial incentive of institutions like hospitals and HMOs to operate safely, when our objectives should be deterring unsafe and substandard medical practices while safeguarding patients' rights. And effective insurance reforms are the only way to stop the insurance industry from abusing its enormous economic influence, which it uses to promote a legislative agenda that bilks taxpayers and severely hurts the American public.

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