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Economists Find Mixed Results on Tort Reform

BY Lea Winerman  September 25, 2009 at 6:02 PM EST

Surgeons; file photo

The move is designed to appeal to the nation’s doctors, who have long advocated for federal and state tort reform laws.

Medical professionals say that the reforms, which generally make it more difficult to file medical malpractice suits and cap the damages that can be awarded in malpractice cases, help both doctors and patients. The laws reduce the threat of frivolous lawsuits, doctors say — a threat they argue compels them to perform unnecessary tests and raises everyone’s medical costs.

The American Medical Association, along with many Republican lawmakers, argues that malpractice reform should be a key money-saving aspect of any health care legislation. Butmany Democrats — and trial lawyers — say that malpractice lawsuits are simply a convenient scapegoat and a small part of overall medical costs, and that focusing on them ignores the deeper issues in play.

Economists, meanwhile, have found mixed evidence on how much money tort reform can save.

Over the past three decades,more than 30states have enacted laws to cap damages in medical malpractice cases. California was the first in 1975, when it set a cap of $250,000 on non-economic damages (compensation for pain and suffering, rather than lost wages), a limit that has remained steady.

It’s clear that the laws do reduce costs for doctors. A study by Michael Morrisey, a health care economist at the University of Alabama-Birmingham, found that in states with damage caps, medical practitioners paid up to 25 percent less for their malpractice insurance premiums.

Texas passed a medical liability law in 2004. Tom Royer, a physician and the CEO of CHRISTUS Health, a non-profit hospital system headquartered in Texas, says that before caps were put in place, the system’s medical malpractice costs had hit nearly $100 million per year. This year, its malpractice costs were $2.8 million.

“For us the savings have been remarkable,” Royer says.

But, according to Morrisey, those lower costs don’t necessarily get passed on to consumers. He found no difference in consumers’ employer-sponsored health insurance premiums between states with damage caps and those without.

“Try as we might we couldn’t find any effects,” he says.

Royer says that patients benefit in other ways, however. He says his hospital system has put some of its savings back into quality initiatives such as more training for doctors and nurses. He also says that the costs of some procedures has gone down, saving money for consumers who must pay a percentage on their own.

Ronen Avraham, a lawyer and economist at the University of Texas who has studied the same question, has found a small difference in consumers’ insurance premiums — 2.3 percent — between states with malpractice damage caps and those without.

However, he too believes that the nation’s overall medical spending is unlikely to change by enacting more such laws.

“The majority of states have already done it,” he says. “So any attempt to federalize tort reform will be effective only in states that haven’t done it already. Many of those are small states, so we’re not going to see big savings.”

An even more difficult question to answer is how much money medical malpractice lawsuits cost the United States overall, due to unnecessary treatments doctors may provide to ward off lawsuits. In a recent New York Times article, Harvard health economist Amitabh Chandra estimated the cost at about $60 billion per year, or about 3 percent of the nation’s overall medical spending.

But figuring out the best, and fairest, way to reduce those costs is tricky.

Some analysts argue that regardless of whether tort reform saves money or not, the current system does a disservice to many injured patients. Researchers estimate that despite all the talk of frivolous lawsuits, less than three percent of injuries caused by medical malpractice lead to a court case.

Tom Baker, a professor of law and health sciences at the University of Pennsylvania and a critic of tort reform efforts, says that it’s particularly difficult for patients with significant but not catastrophic injuries to get compensation.

“That’s because there are so many expensive and difficult hoops [to filing a lawsuit], many inserted by tort reformers,” he says. “So it has to be a bigger case to be worth it from the lawyer’s perspective.”

Baker has high hopes for the Obama administration’s new funding initiative, which has requested proposals to test ideas that will reduce liability premiums, “put patient safety first and work to reduce preventable injuries” and “ensure that patients are compensated in a fair and timely manner for medical injuries.”

Baker plans to submit a proposal to study the middle-range injuries he says aren’t being well-addressed by the current system. One possibility: a program that would outline standard compensations for common injuries like hospital-borne infections, but would reduce those compensations if hospitals met certain practice standards.

“The current malpractice system doesn’t do a good job of incentivizing hospitals,” Baker says.

Some doctors, meanwhile, are less enthusiastic about President Obama’s plan.

“The feeling of most doctors is that what’s being proposed is not adequate,” Peter Levine, president of the Medical Society of the District of Columbia, told the Washington Post. “The president got up and gave a speech to the nation and said we need action now. But when it comes to medical liability reform and tort reform, it needs to be studied. The whole concept is so hypocritical.”

Royer, CEO of CHRISTUS Health, argues that liability reforms like the ones in Texas have already shown to be effective.

“I’m not sure it needs to be studied anymore,” he says.