Breathtaking cost savings claims are nothing but hot air

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By Consumers Union on Tuesday, February 23rd, 2010

In Sunday’s New York Times, Newt Gingrich rolled out a new estimate for the savings we would get if we just passed tort reform. He says we can save “more than $600 billion a year in unnecessary care” if we give states incentives to pass tort reforms, create a new kind of “health court” for medical malpractice cases, and cap “pain and suffering.” “Doctors who incorporate best medical practices should be protected from lawsuits altogether,” he suggests.

This caught my eye, because this is by far the largest estimate of cost savings due to tort reform that I’ve ever encountered. Starting with the sober Congressional Budget Office, we get an estimated savings of $11 billion per year (including savings due to reductions in unnecessary “defensive” medicine). And if you don’t believe this CBO, perhaps you would prefer the estimate from the previous administration’s CBO:

When CBO applied the methods used in the study of Medicare patients hospitalized for two types of heart disease to a broader set of ailments, it found no evidence that restrictions on tort liability reduce medical spending. Moreover, using a different set of data, CBO found no statistically significant difference in per capita healthcare spending between states with and without limits on malpractice torts.

In response to the tepid savings estimate by the CBO, Dr. Lawrence McQuillan of the conservative Pacific Research Institute (and coauthor of “The Facts about Medical Malpractice Liability Costs” and “Tort Law Tally”) tallied up savings at a robust $242 billion per year. Relying on the American Medical Association, the Wall Street Journal says that eliminating defensive medicine will save “upwards of $200 billion” annually. Still far short of $600 billion.

Where did that breathtaking number come from? A search on Gingrich’s own health policy website turned up a report that estimates at about $600 billion the total cost savings we might expect from prevention (avoiding hospitalization by treating conditions early) and from eliminating all fraud, waste, unnecessary care, redundant paperwork, medical errors, and inefficient communication among doctors. So I think we can safely say that Gingrich got it wrong–and hope this number doesn’t take flight over the coming days.

So what? The main reason to pass tort reform is the cost savings. Real people who have been harmed by medical care lose their rights to compensation, so society at large (not just doctors and insurance companies) should expect an equally serious benefit to offset that loss by each individual. So the numbers matter. They matter a lot.

There are a lot of studies. Back in August the New York Times (on a better day) asked Tom Baker, author of “The Medical Malpractice Myth” to explain why he believes, like the CBO, that tort reform won’t bring down costs. It’s a pretty convincing interview, but if you don’t believe him then maybe you will believe Richard Posner, (the unreformed free-market pre-Keynsian Posner of 2005).

I’m not a doctor or a lawyer, but as a journalist I’ve reviewed medical malpractice cases at the local courthouse, and I can tell you that we’re not talking about compensating people who have minor injuries or no injuries. Those are weeded out quickly by the courts. We’re talking here about surgeons who left stuff inside people, or cut off the wrong limb, or doctors who seriously misdiagnosed an illness or provided the wrong medication or a dangerous dosage. People become permanently disabled. Babies die. Families are devastated. These are the people who are compensated by our court system and therefore are most affected by tort reform, and this is why we shouldn’t give up their rights until we implement real safety measures that improve the quality of care and reduce errors.

In his excellent issue summary for Slate, Ezra Klein identifies exactly the kind of “prevention first” initiatives that should be promoted before tort reform gets any consideration.

Anesthesiologists used to get hit with the most malpractice lawsuits and some of the highest insurance premiums. Then in the late 1980s, the American Society of Anesthesiologists launched a project to analyze every claim ever brought against its members and develop new ways to reduce medical error. By 2002, the specialty had one of the highest safety ratings in the profession, and its average insurance premium plummeted to its 1985 level, bucking nationwide trends. Similarly, feeling embattled by a high rate of malpractice claims, the University of Michigan Medical System in 2002 analyzed all adverse claims and used the data to restructure procedures to guard against error. Since instituting the program, the number of suits has dropped by half, and the university’s annual spending on malpractice litigation is down two-thirds. And at the Lexington, Ky., Veterans Affairs Medical Center, a program of early disclosure and settlement of malpractice claims lowered average settlement costs to $15,000, compared with $83,000 for other VA hospitals.

Surprise, surprise. The best way to reduce the unnecessary costs associated with malpractice lawsuits is to provide better care. That’s a reform we can all support.

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