‘Med Mal’ Reforms Don’t Lower Costs

Sorry, Republicans.

Beltway Republicans are finally poised to fulfill their seven-year-old pledge to repeal Obamacare and replace it with “something terrific.”

Their long-awaited Obamacare replacement plan, as of this writing, remains a vague list of not-always-coherent ideas ranging from some that are pretty good to some that are truly half-baked.

One thing it’s almost certain to include is an old Republican favorite: federal caps on medical malpractice damage awards.

This is one of the half-baked ideas, and unconstitutional to boot (Congress has no authority to regulate local civil justice rules). But that won’t stop Republicans from pushing it, because they firmly believe damage caps reduce health care costs and thus generate budget savings.

And they would love to get their hands on those savings to help pay for another favorite idea: tax credits for people who buy health insurance outside the workplace.

And then, of course, there’s the special-interest pressure. The Grand Old Party’s allies in big business and the physicians lobby have long pushed for federal caps on “excessive” awards by “runaway” juries (awards, note, against doctors who have injured their patients).

Now that Republicans are in power, their allies want them to deliver.

Their argument for caps is simple. Frivolous lawsuits are major drivers of health care costs, as is wasteful “defensive medicine” (doctors ordering unnecessary tests to protect themselves from lawsuits). Reduce those drivers, and costs will drop, and more physicians will enter the market, which in turn will increase competition, which in turn will reduce costs even more.

Sounds great, if true. But according to the latest evidence, it’s not.

Back in 2009, an influential analysis by the Congressional Budget Office, based on a review of the then-current economic research, found that med-mal reform would reduce malpractice insurance premiums by 10 percent nationwide and reduce federal spending by $54 billion over a decade.

Even in Washington, that’s a lot of money.

Crucially, CBO assumed that reform would include a tight federal cap on local damage awards, set at no more than $250,000 per lawsuit. Damage caps are the only “med mal” reform that serious observers think might actually save any money.

So it’s a safe bet that, with one eye on that $54 billion, Speaker Paul Ryan and House Republicans will insert national damage caps into their forthcoming ObamaCare replacement bill—and use the money to pay for new tax credits.

But slow down, guys! There is no $54 billion. CBO’s analysis is outdated. Using newer data, that figure is likely much smaller, perhaps zero.

In fact, caps may actually increase costs.

For nearly half a century now, states have been experimenting with reforms to their dispute resolution systems. Following three distinct waves of reform, in the 1970s, ‘80s, and ‘90s, some 30 states have adopted damage caps. Researchers have studied the results.

To discuss those results, in late 2015 three of the nation’s top academic researchers on these issues spoke in Washington at a panel convened by the American Enterprise Institute, a Republican-leaning think tank.

What I learned at the meeting surprised me. Here’s a brief paraphrase, from my notes.

Professor David Hyman, M.D., J.D., of the University of Illinois, said he has extensively studied state-level reforms and is confident caps have effects, but that they’re not necessarily positive. For example, after Texas adopted caps, malpractice claims and lawsuit payouts dropped by about 75 percent. But, despite some high-profile assertions, physician supply didn’t change much. In Illinois, the number of smaller claims (under $100,000) shrank. And in Medicare Part B, surprisingly, costs actually went up, not down, following reforms.

Hyman concluded: Caps reduce litigation, raise health care costs, and have no effect on physician supply.

A second expert agreed. Michael Morrissey, Ph.D., from Texas A&M University, said that, back in 2008, we “knew” caps reduce premiums and have some modest effect on utilization in some areas, such as obstetrics. Since then, our understanding has evolved. We now think caps reduce premiums by reducing the number of claims, especially smaller claims. But does that mean we’re saving money? Not really. Perhaps the opposite.

The third expert, Anupam Jena, M.D., of Harvard, examined the assertion that lawsuits are a major driver of health spending and defensive medicine. Malpractice litigation, he said, adds only 2 percent to 5 percent to overall health care costs. And yet most physicians report practicing defensive medicine. “Economists see a small problem. Physicians see a big one. Why is this?” Because of the non-financial costs of disputes. “Getting sued affects your reputation.” And most physicians do get sued at least once, including nearly 100 percent of physicians in high-risk specialities. About 70 percent end up paying a claim.

(And yet most physicians don’t suffer from excessive malpractice insurance rates.)

To summarize: Caps don’t save money, don’t increase physician supply, and don’t reduce health care costs. But they do make it harder for patients to obtain justice, especially those with smaller claims.

It’s time for CBO to update its 2009 analysis and revise the projected savings downward—and time for Republicans to retire this half-baked idea.

Dean Clancy, a former senior budget official in the George W. Bush administration, writes on U.S. fiscal and health policy issues. Follow him at deanclancy.com or on twitter @deanclancy.


[Originally published at TheHill.com, January 4, 2017. @thehill. Republished at DeanClancy.com.]

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