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   Malpractice Lawsuits Are Red Herring in Obama Plan (Update1)
By Alex Nussbaum - June 16, 2009 11:39 EDT Email Share
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U.S. President Barack Obama
June 16 (Bloomberg) -- Protecting doctors from lawsuits may do more to gain political cover for President Barack Obamas health-care overhaul than to rein in medical costs.

While Obama vowed to address physicians malpractice worries in a speech yesterday, annual jury awards and legal settlements involving doctors amounts to a drop in the bucket in a country that spends $2.3 trillion annually on health care, said Amitabh Chandra, a Harvard University economist. Chandra estimated the cost at $12 per person in the U.S., or about $3.6 billion, in a 2005 study. Insurer WellPoint Inc. said last month that liability wasnt driving premiums.

Obama told an American Medical Association meeting in Chicago yesterday that his efforts to cut costs and increase coverage couldnt succeed without freeing doctors from the fear of lawsuits. While that may be what his audience needed to hear, the evidence that malpractice drives up health-care costs is debatable, said Robert Laszewski, an Alexandria, Virginia, consultant to health insurers and other companies.

Medical malpractice dollars are a red herring, Chandra said in a telephone interview. No serious economist thinks that saving money in med mal is the way to improve productivity in the system. Theres so many other sources of inefficiency.

Obama, appealing for doctors support for health-care legislation, said he would explore a range of ideas to reduce the effect of lawsuits, without giving specifics. While he opposes caps on jury malpractice awards, Obama said he recognized the legal threat spurs doctors to perform unnecessary tests and procedures -- so-called defensive medicine.

Fear of Lawsuits

Making U.S. care more efficient will be harder if doctors feel like they are constantly looking over their shoulder for fear of lawsuits, the president said.

One possibility the Democratic administration has mentioned is shielding doctors from liability if they follow best practice guidelines developed by physicians groups, said J. James Rohack, incoming president of the 250,000-member AMA, in a news conference after the speech. Doctors were thrilled to hear Obama acknowledge the issue, even with the lack of specifics, said Nancy Nielsen, the outgoing president.

What we heard we were very pleased with, Nielsen said. He is open to considering options that will lower the cost of defensive medicine. While stating opposition to caps, the president has not taken that off the table, she said.

In a letter to Obama on June 1, the doctors suggested Congress fund pilot projects for state courts or administrative agencies specializing in malpractice. They also recommended experimenting with predetermined schedules for injury awards and early offer initiatives designed to speed settlements.

Exorbitant Premiums

Exorbitant malpractice premiums are making it harder for doctors to stay in the business, and hurting taxpayers whose money goes for publicly funded clinics, said William C. Parrish Jr., chief executive officer of the Santa Clara County Medical Association, based in San Jose, California. The group represents 3,600 physicians.

Capping awards is going to ruffle the feathers of trial bar attorneys, he said by phone. They are going to say its affecting these poor victims. But if we could provide 5,000 more free visits at the county hospital for indigent care, as opposed to giving a huge settlement for one person for non-economic damages, socially thats a good tradeoff.

About 10 percent of the cost of medical services is linked to malpractice lawsuits and more intensive diagnostic testing due to defensive medicine, according to a January 2006 report prepared by PricewaterhouseCoopers LLP for the insurers group Americas Health Insurance Plans.

2 Percent of Spending

The figures were taken from a March 2003 study by the U.S. Department of Health and Human Services that estimated the direct cost of medical malpractice was 2 percent of the nations health-care spending and said defensive medical practices accounted for 5 percent to 9 percent of the overall expense.


A 2004 report by the Congressional Budget Office also pegged medical malpractice costs at 2 percent of U.S. health spending and even significant reductions would do little to reduce the growth of health-care expenses.

The proportion of medical malpractice verdicts among the top jury awards in the U.S. has declined during the past 20 years, according to data compiled by Bloomberg. Of the top 25 awards so far this year, only one was a malpractice case. At least 30 states cap damages in medical suits, primarily for pain and suffering awards.

Completely Broken

The medical malpractice system is completely broken, said Chandra, a public policy professor at Harvard in Cambridge, Massachusetts. It rewards plaintiffs who are undeserving while leaving others with real injuries unpaid, prompts some doctors to perform needless tests and encourages others to refuse to care for patients deemed a higher legal risk, he said.

The development of new drugs and medical procedures, and their growth in price, has been a bigger factor in costs, said Chandra, citing his research and that of other economists. Studies havent found a link between increasing procedures, such as Caesarian-section births, and areas with rising malpractice damages, he said.

Medical malpractice is not a major driver of spending trends in recent years, Indianapolis-based WellPoint, the largest U.S. insurer by enrollment, said in May 27 report. The report cited advances in medical technology, increasing regulation and rising obesity as more significant reasons for rising costs.

Issue for Doctors

Malpractice is a big issue for doctors but whether its a big issue for the American health-care system is another question, Laszewski, the consultant, said in a telephone interview. There are studies that indicate that medical malpractice reform would not have a huge impact on costs, but that is not what doctors think.

A Washington-based trial lawyers group, the American Association of Justice, opposes curbing malpractice lawsuits.

The U.S. Institute of Medicine found a decade ago that medical errors kill 98,000 Americans a year, said Les Weisbrod, president of the lawyers association. By taking away the rights of people to hold wrongdoers accountable, the quality of health care will suffer tremendously, he said.


Without more details of Obamas plan, its too soon to say how reforming malpractice insurance will affect companies providing insurance to doctors, said Michael Nannizzi, an analyst at Oppenheimer & Co. in New York.

The insurance companies that are in the business now dont want medical malpractice to suddenly become an easy business to write, because that takes away the expertise theyve built over the years, he said by telephone. But they do want to have some predictability for their own financials. Its a very fine line.

To contact the reporter on this story: Alex Nussbaum in New York anussbaum1@bloomberg.net.

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net
https://www.bloomberg.com/apps/news?pid=newsarchive&sid=az9qxQZNmf0o
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