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CBO Says Big Malpractice Overhaul Would Dent Deficit Significantly

By John Reichard, CQ HealthBeat Editor

October 9, 2009 -- The Congressional Budget Office on Friday unearthed a pretty big chunk of scorable savings—legislative language that would reduce the federal deficit by $54 billion over 10 years—but it won't look like gold to Democrats even as they face growing pressure to find more funds to cover the uninsured.

CBO said the savings would come from revisions such as a cap of $250,000 in damages for pain and suffering; a cap on punitive damages of $500,000 or two times the award for economic damages, whichever is greater; and a one-year statute of limitations for adults and three years for children from the date of discovery of an injury.

Democrats repeatedly blocked legislation with similar provisions during the Bush administration when Republicans controlled the House and Senate.

National adoption of those provisions—and others, including subtracting from damage awards various types of insurance benefits, and a "fair share" rule saying a defendant in a lawsuit would only be liable for the percentage of damages equal to his or her share of responsibility for the injury—would not only reduce malpractice insurance premiums but also lessen "defensive medicine" by doctors, according to an Oct. 9 letter from CBO Director Douglas W. Elmendorf to Sen. Orrin G. Hatch, R-Utah.

Gleeful Republicans rained down e-mail on reporters noting the findings and calling on Democrats to amend health overhaul legislation to adopt the revisions. "It's a no-brainer to include tort reform in any health care reform legislation," said Iowa Sen. Charles E. Grassley, the top Republican on the Senate Finance Committee. "That's not chump change," he pointed out concerning the $54 billion figure.

"CBO has confirmed that meaningful malpractice reform would cut costs and reduce the deficit," said Wyoming Sen. Michael B. Enzi. "It's time to listen to the American people and enact real medical malpractice reform," said Enzi, the top Republican on the Senate Health, Education, Labor and Pensions Committee.

"It is unfortunate that Democrats have chosen to shield their friends in the trial lawyer lobby instead of including these cost saving measures in their bill," said Rep. Dave Camp, the top Republican on the House Ways and Means Committee.

Hatch said, "This is an important step in the right direction and these numbers show that this problem deserves more than lip service from policy makers. Unfortunately, up to now, that has been all the president and his Democratic allies have been willing to provide on these issues."

CBO previously estimated the impact of malpractice revisions on malpractice insurance premiums but shied away from scoring savings relating to defensive medicine—the ordering of unnecessary tests and procedures purely as protection in potential lawsuits—because of what it said was "inconsistent" research.

But citing recent research that he said appears to clear up earlier contradictory findings, Elmendorf said the package of revisions would reduce total national health spending by 0.5 percent in 2009. Of the 0.5 percent, 0.2 percent would be from lower medical liability premiums and 0.3 percent would be from less use of health care services by doctors.

That would translate to deficit reduction of $54 billion over 10 years, including $41 billion in lower spending in the Medicare, Medicaid, Children's Health Insurance Program, and Federal Employees Health Benefits Program. The other $13 billion stems from a calculation that lower health costs from the malpractice revisions would lead to higher taxable wages for workers and therefore an increase in federal revenues.

Democrats have argued that revisions of the type favored by Republicans would lead to inadequate damage awards and fail to sufficiently deter malpractice. They have expressed some willingness to consider other alternatives, however.

The amended overhaul proposal offered by Senate Finance Committee Chairman Max Baucus, D-Mont., includes nonbinding "sense of the Senate" language indicating states should be "encouraged to develop and test alternatives to the current civil litigation system" pertaining to malpractice.

Finance Committee aides did not respond to requests for comment on whether Baucus would consider tougher language in light of the CBO score. Baucus is under pressure from hospitals to find more funding to cover the uninsured in light of another CBO analysis concluding that 94 percent of legal and unauthorized U.S. residents would have coverage under his plan. Hospitals say an agreement they made with Baucus to take $155 billion in Medicare cuts over 10 years to fund wider coverage calls for 97 percent of those residents to be covered.

Trial lawyers, who are a significant source of funding for the Democratic Party, issued a statement scoffing at the CBO estimate. "In total, tort reform would provide a paltry 0.5 percent savings, while putting patients at risk," said Anthony Tarricone, president of the American Association for Justice.

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