A missing piece of the puzzle for controlling health care costs has been medical liability reform. The threat of lawsuits forces doctors to practice defensive medicine and order medically-unnecessary tests that add to health care costs. A 2010 Health Affairs study found that the broken system added $55.6 billion in additional costs annually. Also, medical liability has forced doctors in high-risk fields like obstetrics and neurology to either quit or limit their practices, reducing the availability of care.
The Patient Protection and Affordable Care Act (PPACA) did nothing to genuinely address medical liability reform. With health care costs continuing to rise, we can’t ignore this cost driver.
Writing in Bloomberg View, former Director of the Office of Management and Budget (OMB) in the Obama administration, Peter Orzag acknowledges that the medical liability system is a driver of increasing Medicare costs:
Most of the costs in the U.S. health-care system are incurred in a small number of expensive cases. The top 25 percent of Medicare beneficiaries ranked by cost, for example, account for 85 percent of total spending. And the expenses in those cases are driven significantly by the recommendations that doctors make to pursue one treatment path and not another.
In making these choices, doctors are influenced by various things, including medical-school training, traditions among their peers, financial incentives (which are distorted by fee- for-service payments) and, yes, the medical-malpractice system. Improving the criteria for what constitutes appropriate care could significantly change doctors’ behavior and also save money, recent research by Michael Frakes of Cornell Law School suggests.
Frakes compared states that based medical malpractice liability on “customary practice” versus other states that rely on standardized practices developed by national medical bodies. He found “that standardization in malpractice laws may lead to greater standardization in practices.” Orzag concludes that “health-care costs could come down if all states’ malpractice laws protected doctors who followed national standards of practice.”
Another reform is capping medical liability damages. Texas did this in 2003 and became a doctors magnet.
Hopefully Orzag’s column will put medical liability reform back into the discussion.
For more on medical liability reform, check out the U.S. Chamber’s Institute for Legal Reform.