Malpractice Reform: A Good Idea, But Impact on Costs Likely to be Disappointingly Small

Today’s Managing Health Care Costs Indicator is
$55.6 billion


Or maybe it isn’t.

The September Health Affairs   has a series of articles on the impact of malpractice liability on overall health care costs.   The headline article uses published literature to estimate the total costs of the malpractice tort system – and calculates this at $55.64 billion.  You can see that the overwhelming majority of this cost, $45.6 billion (82%), is the cost of defensive medicine.  11% is legal costs, and 7% is actual payments to patients who are found to have suffered from provider negligence. 

Two other articles, that might be overlooked in the press coverage, put this number in perspective.  

An elegant study from the University of Southern Maine  looked at 400 million paid claims  (35 million completed episodes) from Cigna – and used an episode grouper software program to identify cost per case for different conditions and physicians who had differential malpractice risk category assignments and thus different malpractice rates.  (This represents risk as defined by insurance company actuaries, which is likely very different than a physician’s perception of her risk of being sued.   See below for more on that). 

One headline from this study is that defensive medicine is not fiction –it really exists.  There were many combinations where there was a positive correlation between resource utilization and malpractice risk. The researchers confirmed this by ascertaining that the increased utilization was often in evaluation and management or imaging, where we would expect defensive medicine costs to be higher. 

Another headline could be that the cost of defensive medicine is often overstated.

This study showed that a 10% reduction in malpractice rates was associated with about a 0.132% decrease in the overall cost of care.  Decreasing malpractice insurance rates by 30% would only decrease medical costs by 0.4% in this model. Of course, perhaps physicians’ beliefs about their likelihood of being sued are not highly correlated with their actual likelihood of being sued.

The Center for Study of Health System Change  reports on a physician survey – and found that physicians practicing in a “low risk” environment, one where malpractice reform led to fewer suits, lower damages and lower malpractice premiums, retained a high level of malpractice concern.  Hence, simply reforming malpractice insurance might not actually lower the cost of defensive medicine as long as physician angst remains high.

None of this suggests that we shouldn’t commit ourselves to malpractice reform – we should.  If nothing else, we’d like to see a system where patients who have suffered harm receive more than 7% of the total costs!  But we shouldn’t count on malpractice reform by itself causing such profound changes in physician habits that we will solve our cost problem by this intervention alone.