Published 12/1/2012
Daniel J. Stinner, MD; Jordan C. Apfeld, BA; Manish K. Sethi, MD; Hassan R. Mir, MD; A. Alex Jahangir, MD

Does Medical Liability Reform Decrease Healthcare Costs?

Will tort reform really ‘bend the cost curve’?

Healthcare costs in the United States recently reached $2.8 trillion or 18 percent of the country’s gross domestic product. Few will argue with the need to control these rising costs, but the best way to bend the cost curve is the subject of much debate.

One potential reason for the increased costs of health care is the practice of defensive medicine and the associated costs of medical liability insurance. A 2012 study of orthopaedic surgeons estimated that defensive medicine practices by this single specialty added $2 billion to the nation’s annual healthcare costs. It is likely that other high-risk specialties might be responsible for similar amounts. It is reasonable to assume, then, that if reforms are enacted that decrease the incidence of the practice of defensive medicine, the cost curve may begin to bend.

Recently, however, some healthcare economists have challenged the assertion that defensive medicine increases healthcare costs. They hypothesize that the fear of a malpractice suit actually makes hospitals more efficient and accountable. They also claim that the costs of malpractice court proceedings do add significantly to healthcare costs.

Furthermore, these economists believe that the rise in medical liability insurance premiums is more likely the direct result of increases in the cost of health care, and not the other way around. In other words, malpractice insurance premiums are increasing because they have to keep up with the rising cost of health care.

Although we (the authors) believe that a relationship exists between the fear of being sued and rising healthcare costs, understanding a different perspective is important, and we hope this data will provide readers with that understanding. Although these studies question whether liability reform will decrease healthcare costs, we wish to highlight several issues.

Although medical malpractice liability may not be the “biggest cost driver,” it does add to healthcare spending. If the United States is serious about decreasing healthcare costs, it must address all issues—including medical liability. An unknown factor is the time needed for physicians to change their practice habits. The practice of defensive medicine has become ingrained in many physicians over the years; discontinuing its use will take an equally long time.

The other perspective
Several recent studies have concluded that medical tort reform might not decrease healthcare costs. A report by the consumer advocacy group Public Citizen demonstrated that the total value of malpractice payments (money paid to resolve claims) on behalf of providers has been decreasing since 2001 and was the lowest on record in 2011. While malpractice payments decreased, healthcare spending nearly doubled over the same period, negating the claim that malpractice litigation contributes to rising healthcare costs.

An examination of the impact of tort reform in Texas supports this perspective. In 2003, Texas imposed a cap of $250,000 on noneconomic damages for medical liability claims. Since then, total malpractice claim payments have declined 65 percent, but health insurance rates and per-patient Medicare spending has increased faster in Texas than the national average.

According to some estimates, the total costs of medical malpractice suits amount to less than 0.5 percent of healthcare spending, and therefore, liability reform really would not bend the cost curve.

New directions
Although many ways may be used to bend the healthcare cost curve, two potential strategies can have a direct impact on the practice of medicine. The first is the concept of “safe harbors,” which would protect physicians who used evidence-based clinical guidelines from liability in the event of adverse outcomes.

One aspect of using clinical decision-making guidelines may be to minimize unnecessary tests and procedures. The guidelines, however, still allow the treating physician to make decisions regarding the care of an individual patient. The AAOS has taken leadership on this issue by developing Clinical Practice Guidelines (CPGs) for common orthopaedic conditions. (Existing CPGs can be found at www.aaos.org/guidelines). Other medical specialties are also implementing similar guidelines.

It is important for all specialties to begin incorporating these guidelines into their current practices because they may help control costs and reduce defensive medicine practices. In addition, when appropriately applied and accepted by the medical liability system, guidelines may provide safe harbors in the courtroom.

The second concept is the increased focused on the quality of care provided, with reimbursement based on quality rather than quantity. As part of this initiative, individual surgeon outcomes and metrics such as hospital readmissions and surgical site infections will be made public. Although most physicians strive to practice safe and effective surgery, this increased transparency may motivate a provider to improve his or her quality of care. Underperformers will soon have fewer patients and be motivated to improve their quality of care. As a result of improved quality and fewer complications on a national basis, healthcare costs may decrease.

Reducing the cost of health care is vital for the future of the healthcare delivery system and the country. Orthopaedic surgeons must lead the effort to control costs related to musculoskeletal conditions to maintain control of potential future changes. Medical liability reform, the implementation of evidence-based clinical practice guidelines, and improved quality of care are good foundations to help bend the cost curve.

Daniel J. Stinner, MD; Jordan C. Apfeld, BA; Manish K. Sethi, MD; Hassan R. Mir, MD; and A. Alex Jahangir, MD, are all associated with the Vanderbilt Health Policy Institute.


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