Healthy Policy

Are doctors quitting because of malpractice?

This is another segment on Tom Baker's The Medical Malpractice Myth, you can view the rest of my series here.

Another oft-mentioned part of the medical malpractice puzzle is the flood of doctors leaving the system because they can no longer afford malpractice premiums.  Here (as opposed to defensive medicine and the number of lawsuits) the picture is somewhat unclear.   The number of doctors in practice has remained steady and even increased.  But some areas of the country don't have enough doctors, especially regions with large population growth and rural areas.  There isn't any direct evidence showing doctors are leaving practice because of malpractice rates.  Nor is there research showing they aren't. 

What's clear is the economics of physician supply and demand are at work in these trends, and in some places, malpractice premiums will have an effect on which doctors decide to stay in practice.

There was this saying in the 19th century that a doctor had a 50/50 chance of helping or hurting you.  We've come quite far from those days, thanks in part to the vice-like grip physicians have historically kept on supply and demand.  This stems from a number of reasons, including gaining professional credibility (and creating associations to grant it), preserving salaries, and excluding other types of medical practice (osteopathy, chiropractic, etc) from gaining respectability. 

But these controls on the number of rears in med school seats any given year have helped retain a regionally  fractured care system.  Most doctors prefer to live in populated areas. Salaries are also higher in populated areas.  And most doctors are able to find a position in said metropolitan areas, thus decreasing the likelihood that economic necessity will drive enough practitioners out to rural areas.

When it's already economically and emotionally unappealing to practice in rural areas, bloated malpractice premiums can act as a proverbial feather to tip someone off the edge of the cliff.  Some doctors will leave their practices because of it.  But is tort reform the answer?  No. Using tort reform to get  at the system's supply constraints is like only taking dessert out of your all-McDonald's diet to lose weight.  You might lose a couple pounds, but the real problem is still there.

That said, one study found that states with caps on damages had a 3% increase in the number of doctors per capita, and states with other tort reforms had a decrease in doctors per capita.  Not convincing research either way, except to say that a very slightly larger number of doctors will stay in practice with tort reform. 

Either way, malpractice itself isn't enough of a problem to send doctors running, nor is tort reform enough of fix to attract them in droves.  The malpractice/tort reform dichotomy is, however, a grand distraction in talking about the actual problems with medicine. 

Juries give outrageous rewards, right? Wrong.

Continuing my series on Tom Baker's The Medical Malpractice Myth, today we'll take at look at juries and frivolous awards.

The idea that juries sit around awarding hundreds of millions of dollars in frivolous medical liability lawsuits is one of the most pernicious aspects of the malpractice myth. That's because Americans are obsessed with lawsuits across the crime spectrum -- from OJ to Michael to that old lady who spilled coffee on herself and sued McDonalds -- and the idea that we're a culture ready to sue at the drop of a hat is quite enduring. What do medical malpractice torts have in common with those cases? Like the McDonalds coffee woman, who received third degree burns from the coffee and tried to settle for a measly $10,000 for her trouble, medical malpractice suits are prone to reaching celebrity-like status.

The claim that frivolous lawsuits are being brought, and its logical extension that juries are awarding unfair amounts, just isn't supported by the evidence. First, researchers found that only 3-4% of injured plaintiffs sue. It's not possible that we’re seeing rash of frivolous malpractice suits because just not that many people ever get to court.

It's important to realize that a good portion of lawsuits are settled out of court (thus by-passing the hundred million dollar jury awards), and a good portion of lawsuits are dropped. It’s extremely difficult to prove negligence caused injury. That's partly because of the complexity of practicing medicine -- experts must testify if a doctor followed (or didn't) reasonable practice 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 very subjective. Researchers took it a bit further though, to be sure that those who are being compensated aren't getting unnecessary amounts.

Despite all these factors, research shows that juries just aren't awarding any more money (adjusting for inflation and the cost of injury) than they did 40 years ago. One of the largest studies of this kind, by RAND, found this:

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 cliamed economic losses (especially claimed medical costs).

Most tort reforms call for a cap on damages. But when you see the research it becomes clear: caps on damages are unnecessary at best. 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.

Tort reform will only make it more difficult for patients to sue (and with only 3-4% suing, that's quite an accomplishment), make it harder for the seriously injured to get adequate compensation, and it certainly won't slow health spending. It's a bad deal for everyone except insurance companies and negligent docs.

Malpractice and Insurance Companies

Today I'll be covering the third chapter in Baker's book, which focuses on insurance companies themselves and their role in rising premiums. You can see my posts on the book so far here and here.

Baker explains the malpractice insurance business:

Liability insurance goes through a boom-and-bust cycle. In the early years of the cycle, insurance companies take a pessimistic view of future losses and set aside more reserves than they need. Toward the end of the cycle, they take an increasingly optimistic view of future loses and don’t set aside enough reserves. As a result, they begin charging prices that are too low in relation to the risk. Because medical malpractice claims take so long to resolve and contain such a high percentage of high-value claims, the shortfalls in the reserves to pay medical malpractice claims accumulate over a number of years. When the insurance climate shifts back toward a pessimistic view of future losses, insurance companies need to increase their reserves, sometimes quite dramatically to make up for the underreserving of the past, and prices rise accordingly. This means the swings of the malpractice insurance cycle are more dramatic for medical malpractice insurance than for most other kinds of insurance.

The key here is that the market is fairly unpredictable and susceptible to drastic price 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.

But doctors are poorly equipped to deal with price increases in malpractice insurance. That's because income and pricing for doctors is fairly inelastic -- their hands are tied at many levels -- hospitals, managed care organizations, and government payments. In these cycles, some doctors will have a difficult time affording malpractice insurance, especially small practices.

Besides doctor's inability to absorb premium increases, the current system doesn't do enough to prevent injury. The fact is, the vast majority of patients injured do not sue. Doctor's have a strong incentive to hide malpractice, and due to the complicated nature of medical practice, most families don't know if something went wrong. And some sue just to find out what really happened.

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.

On the defense? Not exactly.

Yesterday I wrote my first post on Tom Baker's book The Medical Malpratice Myth. I talked about how the number of people injured every year is drastically larger than those who bring suits, as well as the fact that all malpractice spending (premiums, legal representation, awards, etc) amounts to less than one half of one percent of all health care spending.

A commentor was keen to pick up on another malpractice talking point -- the notion of "defensive medicine". So where does defensive medicine fit in the malpractice spending puzzle?

As far as we can tell, "defensive medicine" is one of those tiny puzzle pieces with the really strange shape (you know, the one that seems to have 2.5 sides?) -- you can't figure out where it goes until you've trudged your way through the majority of the puzzle.

That's because defensive medicine is notoriously difficult to study. First, researchers have to decide what constitutes defensive medicine. Then they have to tease out whether the effects of those actions were harmful or helpful. Given the fact that 100,000 people die per year because of medical error, some instances of defensive medicine will be helpful because they'll help reduce that number. Others will simply be unnecessary tests or more invasive procedures to ensure "certainty", leading to increased spending and even more risk.

The research that has been conducted indicates, for the most part, that defensive medicine has little effect overall and that states with tort reform have slightly lower rates of spending than those without. But one thing is clear -- malpractice fears aren't sending shock waves through the system.

Malpractice -- it's worse than you think

I recently picked up The Medical Malpractice Myth by Tom Baker, thinking I'd enlighten myself about the whole tort-reform/medical error debate. Baker is one of few scholars to take a substantive look at the research surrounding medical malpractice in the United States. The book is his attempt to explode the idea that frivolous lawsuits are paralyzing our system and increasing health care costs:

Adding together all the premiums of all the different kinds of liability insurance together results in a big number -- about $215 billion in 2003 -- but that number is hardly exploding, and the medical malpractice share -- $11 billion --- looks pretty small by comparison. It looks even smaller next to the $1.5 trillion plus we spent on health care that year. Something that amounts to less than 1 percent of health care costs simply cannot have the impact that the medical malpractice myth would have us believe.

The stat missing from this paragraph is that more people are killed (cw is 100,000 people a year) due to medical error every year than auto and workplace accidents combined. There are much fewer lawsuits than we would actually expect given the number of patients injured every year. A look at the above numbers -- only $11 billion out of $215 billion in the insurance liability industry is for medical malpractice -- shows that the rate of death and injury isn't being reflected in premium costs.

Further, Baker actually overstates the amount of health care spending dedicated to malpractice costs -- it's not less than one percent, it's less than one half of one percent. So it's not just that we're seeing significantly fewer law suits than experts would predict, it's that the current malpractice spending in light of all health-care spending is laughably small.

That's why fixes like tort-reform won't make a difference except to make it even more difficult for injured patients to sue. Given the already infinitesimal spending on malpractice (and that stat includes premiums, legal costs, and awards), limiting lawsuits won't make a dent in health care spending, nor will it be powerful enough to rope in costs.

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