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Published 2/1/2010
Douglas W. Lundy, MD, FACS

CBO revises assessment on impact of tort reform

Reform could reduce budget deficit by $54 billion over 10 years

It seems that orthopaedic surgeons have found another friend in Congress—or at least in the Congressional Budget Office (CBO). Douglas W. Elmendorf, the director of the CBO, recently wrote to Rep. Bruce Braley (D-Iowa), explaining why the CBO revised its assessment of the effect that the medical liability crisis has on the economy.

In December 2008, the CBO estimated that reforming the medical liability system would save the federal government $5 billion during the 2010–2019 cycle. Less than a year later, however, in October 2009, the CBO estimated that tort reform would reduce the federal budget deficit by $54 billion during same time period—a figure 10 times greater than previously reported!

What made the difference?
In his letter to Rep. Braley, Mr. Elmendorf stated that two main types of costs are associated with medical liability—direct costs and indirect costs.

Direct costs include the costs of medical liability insurance premiums, settlements, jury awards, and any legal or administrative costs not covered by liability insurance.

Indirect costs include the “the use of healthcare services through changes in the practice patterns of providers.” This statement could be interpreted to include the costs associated with the practice of “defensive medicine” such as the tests and procedures that physicians order to lower their risk of being sued for medical malpractice. This, apparently, was the elephant in the middle of the room that was being ignored.

The letter from CBO summarized many studies on the medical liability situation and came to the following conclusions based on their research:

  • Tort reform lowers medical liability insurance premiums. The effect of tort reform not only decreases the payments that providers make to their insurance companies, but also increases the companies’ certainty of future payments.
  • Little research that examines the interaction between tort reform and health outcomes exists. Most research has focused on the effect of tort reform on healthcare costs. Understandably, Congressional leaders are concerned about the effects of tort reform on both healthcare costs and outcomes.
  • The correlation between healthcare error and medical liability claims is not as strong as perceived. Stated another way, many medical liability claims do not have reasonable grounds for a case of medical negligence, and many true medical errors do not result in medical liability lawsuits. This conclusion is supported by a number of sources, including the Harvard Medical Study.

Very significantly, the CBO clearly believes that a strong link exists between the presence of effective medical liability tort reform and the utilization of healthcare services. According to the letter, studies suggest that the use of diagnostic imaging is directly related to the presence of medical liability reform. This supports the view that physicians increase utilization of imaging services when they feel an increased threat from medical liability.

The CBO also found that the most effective method of tort reform was the application of caps on noneconomic damages. The American Association of Orthopaedic Surgeons (AAOS) has long held that these caps are the most effective method to reduce the malpractice crisis and increase access for patients.

Why the issue needs revisiting
In concluding his letter, Mr. Elmendorf gave the following four reasons supporting the appropriateness of the CBO’s reassessment of the economic effects of medical liability:

  • Tort reform would have a greater effect on medical liability costs than previously realized. “CBO currently estimates that the nation’s direct costs for medical malpractice—which consist of malpractice insurance premiums and settlements, awards, and legal and administrative costs not covered by insurance—would be reduced by about 10 percent (relative to the amounts under current law) if the common package of tort reforms was implemented nationwide. CBO’s previous estimate was that tort reform would lower malpractice costs nationwide by about 6 percent.
  • Tort reform would affect the utilization of healthcare services, in essence decreasing the effect of defensive medicine. “The combination of direct savings in malpractice costs and indirect savings in healthcare services would reduce national health spending in response to the proposed reforms by roughly 0.5 percent.”
  • The perceived effect of reduced healthcare spending was previously underestimated. “In CBO’s latest estimate, the reduction in spending owing to changes in providers’ practice patterns significantly outweighs the induced increase in insurance purchases.”
  • The subsequent changes in utilization of healthcare services would affect the federal payers to a greater effect than the private insurers. “The most important reason for the difference is that, according to empirical evidence, utilization of care in Medicare would be reduced more than would utilization of care as a whole,” in part because most Medicare services are provided on a fee-for service basis and because the use of services by Medicare beneficiaries is less likely to be influenced by premium payments and cost-sharing by patients.

Orthopaedic surgeons can take heart that this revised estimate from the CBO supports what physicians have been saying for some time now: effective tort reform, mainly demonstrated as caps on noneconomic damages, will substantially decrease medical liability costs. The CBO considers that these legislative changes will substantially decrease the federal deficit over the next 10 years, a position that physicians can gladly support. The AAOS will continue to advocate for medical liability reform to improve patient care and lower the cost of medical care for patients.

Notice of Mr. Elmendorf’s letter to Rep. Braley was first publicized to AAOS members in the Jan. 4, 2010 issue of Headline News Now.

Douglas W. Lundy, MD, is chair of the AAOS Medical Liability Committee. He can be reached at lundydw@resurgens.com

Editor’s note: Articles labeled Orthopaedic Risk Manager are presented by the Medical Liability Committee under the direction of contributing editor S. Jay Jayasankar, MD.

Articles are provided for general information and are not legal advice; for legal advice, consult a qualified professional.

E-mail your comments to feedback-orm@aaos.org or contact this issue’s contributors directly.

Additional Links:

Letter to Rep. Braley

Letter to Sen. Hatch

Letter to Sen. Rockefeller