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Medical Liability Costs Estimated at $55.6 Billion Annually

By Jane Norman, CQ HealthBeat Associate Editor

September 7, 2010 -- A new study on medical liability pegs its total cost to the health care system at $55.6 billion annually, or about 2.4 percent of total health care spending, an estimate much lower than those used by Republicans to argue in favor of tort reform.

The study by Harvard University professors and others was published Tuesday in the Health Affairs Journal. The authors said that they attempted to pin down costs because there's new interest in changes in the medical liability system that could help trim health costs. They also said that good estimates of the cost of medical malpractice are hard to come by but are needed to understand its impact on overall spending.

The study took a look at how much is paid out to patients who file malpractice claims; the cost of attorneys' fees, other legal fees and insurers' overhead; the cost of medical services ordered by doctors to reduce their risk of being sued; and other costs, some of which can't be quantified. For example, they didn't try to estimate "reputational and emotional costs" for doctors who are sued, or benefits of the current system such as "corrective justice" for people who have been injured.

The authors said what they found is that malpractice reform might not be as overwhelming a burden as it's portrayed in the physician community, but it's not insignificant, either. They expressed doubt that much savings can be wrung out of changes in the system.

"Physician and insurer groups like to collapse all conversations about cost growth in health care to malpractice reform, while their opponents trivialize the role of defensive medicine," said Amitabh Chandra, a professor of public policy at Harvard's Kennedy School of Government, in a statement. "Our study demonstrates that both these simplifications are wrong — the amount of defensive medicine is not trivial, but it's unlikely to be a source of significant savings."

The other authors are Michelle Mello, a Harvard School of Public Health professor of law and public health; Atul Gawande, an associate professor of surgery at Harvard Medical School; and David Studdert, a professor at the University of Melbourne School of Law and School of Population Health in Australia.

The American Association of Justice, which represents trial lawyers, said in a statement that the study shows that "the liability system is hardly a contributor to America's skyrocketing health care costs."

Republicans in the past have said that medical liability costs soar far higher. For example, Sen. John Ensign, R-Nev., said on the floor in December that estimates of the costs of unnecessary tests are $100 to $250 billion annually. Most of the tests are ordered because of fear of lawsuits, he said.

The study put the annual cost of defensive medicine on the part of both hospitals and physicians at $45.6 billion.

Separately, the American Medical Association, which advocates caps on damages, has estimated that pressures related to liability increase health system costs by between $84 billion and $151 billion a year.

The health care law (PL 111-148, PL 111-152) includes a five-year demonstration project that will allow states to evaluate what could be done differently in handling medical liability claims. The Department of Health and Human Services will award grants to states for pilot programs.

A second study in Health Affairs reports that doctors remain worried about being sued even in states that have instituted caps on economic damages awarded in malpractice lawsuits.

"Whether justified or not, physicians' liability fears are a policy problem because defensive medicine raises health care costs and potentially subjects patients to unnecessary care," said Emily R. Carrier, a coauthor and senior researcher at the Center for Studying Health System Change.

The study concluded that "many policies aimed at controlling malpractice costs may have a limited effect on physicians' malpractice concerns."

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