Legal Reform in Health Care: Realistic Cost Analyses

The Congressional Budget Office’s letter to Senator Hatch affirming the cost savings of legal reform in health care legislation gained all the headlines, but there have been other reports on tort reform that warrant attention.

Lawrence J. McQuillan and Hovannes Abramyan of the Pacific Research Institute released a white paper last week, “The Facts about Medical Malpractice Liability Costs,” a quick read on the various factors that contribute to the tort costs in health care: “There is a lot of talk in Washington about cutting wasteful health care spending and, more specifically, cutting costs associated with medical malpractice liability. The dollar figures used by various groups and lawmakers often diverge widely. This paper presents what we know, and don’t know, about medical malpractice liability costs.”

In their own analysis, the two authors arrive at a total for medical malpractice tort loss figure in 2008 of $5.9 billion.

Meanwhile, the Manhattan Institute’s Center for Legal Policy has released an update to its “Trial Lawyers Inc.” series, “HEALTH HAZARD: Litigation Increases Medical Costs, but Lawyers Block Reform,” responding directly to the usual talking points from the more-litigation-the-merrier crowd:

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.

For a prime example of this “denominator game” being played, see last Friday’s release from the trial lawyers lobby, which refers to savings as “paltry.”

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