Malpractice Reform and Health Care Costs

Some weeks, I feel like this should be the Congressional Budget Office blog. The CBO is playing a major role in analyzing health care reform, and it published estimates of health care cost savings from malpractice reform on Friday. 

CBO estimates that malpractice premiums represent about 2% of all health care expenditures, and projects that malpractice reform (combination of caps for noneconomic damages, statue of limitations, offsetting awards with other coverage, attributing penalties fairly) could cut this expense by 10%. Thus, malpractice reform could be worth a recurrent savings of 0.2% of annual health care expenditures. (A small percentage of $2 trillion is $4 billion – nothing to sneeze at.

Further, the CBO estimates that a decrease in defensive medicine might additionally reduce medical spending by 0.5%.  Again, the fraction is small –but this is $10 billion.

The CBO’s simulation also demonstrates increased tax revenues as some commercial premium reductions are transferred to (taxable) earnings. Thus, malpractice reform decreases the deficit two ways –by decreasing Medicare and Medicaid spending and by increasing tax revenue.

The published evidence historically has been equivocal about the cost impact of malpractice litigation.  Physicians, predictably, suggest that the secondary costs are huge.  Lawyers, predictably, suggest that the threat of malpractice litigation helps insure quality; some have estimated that malpractice reform could increase national mortality!   Other researchers disagree.

True health care reform will require many significant concessions from providers – who are most aggrieved by current malpractice rules. Given the CBO conclusion that malpractice reform could save as much as $14 billion in health care costs annually, adding federal malpractice reform to health care reform looks attractive.