Two major goals of this website are to provide some transparency to medical costs and to dispel some of the many myths about these costs. In a way the second goal may be more important. If most people are misinformed about the cause of a problem then the solutions they propose are likely to be equally misguided. This brings me to the subject of medical malpractice and how much it really costs.
Whenever I ask anyone “how much do you think I pay for my malpractice insurance?” their answer never fails to amuse me. People often guess that I pay anywhere from $30,000 to $150,000 per year (as if I could afford that). When I tell them what I actually pay, they’re usually shocked and some people have even gone so far as to tell me I must be wrong. I write the check each quarter so I know how much it is. Well, seeing is believing, so here is my malpractice bill for all of 2015.
That’s right, $4,926.63 for the whole year! (It says $5025.63 because they want a voluntary $99.00 yearly PAC contribution that they add to the the bill.) This is the fifth straight year that I’ve paid less than $5,000 for my malpractice and my premiums have been as low as $3,000 for the year.
So, why so little? If the cost of medical malpractice is breaking the back of healthcare in this Country, why is my bill so low? Is it because I’m such an outstanding doctor that my insurance provider long ago recognized that I would never be sued? Well, I’d like to think that were true but, no. Here’s how much other doctors in my community pay for 2015:
The nephrologist who has an office one floor below me pays about $4,980 a year; $54 a year more than I pay and she runs a dialysis unit.
A pulmonologist I work with pays $6,342 this year, an ophthalmologists less than $7,000, emergency room physicians: $11,000-$12,000 this year, anesthesiologists: $12,000-$14,000 this year, surgeons (including orthopedics) $20,000-$22,000 this year and Ob/Gyn about $34,000 (obstetrics always has the highest malpractice premiums).
You can see from those amounts that medical malpractice premiums aren’t bankrupting me or any of my colleagues. But that just covers the area where I practice. What about the rest of the country? Is medical malpractice driving up medical costs elsewhere in the US? Lets examine the data.
A really good source for medical malpractice claims data is the National Practitioner Data Bank which posts data on all paid medical malpractice claims since 2003. A summary of the data for the US as well as for each individual state is here. As the following graphs show, both the number of paid medical malpractice claims as well as the total amount paid on these claims has been dropping steadily since 2003
Figures 1 & 2 show that there were just over 15,000 paid malpractice claims against MDs and DOs in 2003. By 2013 that number had dropped by 39% to just over 9,200 paid claims. The total amount spent on those claims has also dropped by about 29%.
It’s important to note that the decline in the cost of medical malpractice hasn’t been even throughout the US. There are still several regions in the US where medical malpractice is relatively expensive. For example, one fifth of all paid medical malpractice claims occurred in New York each year since 2003 and nearly half of all paid claims in 2013 occurred in just six States. That said, even in states with the highest medical malpractice costs, the total number of paid claims and the amount paid on them has been dropping each year.
Now this should be good news for doctors everywhere. Fewer paid malpractice cases and lower overall malpractice costs have long been the AMA’s solution for rising health care costs in the US. It appears as though they’re winning this battle so, why aren’t we hearing more about this?
Possibly because health care costs in the US have risen considerably since 2003 in spite of the drop in medical malpractice costs. That would appear to deflate one of the main arguments that’s been used against medical malpractice: That it’s a major factor in why health care costs so much in the US.
In fact, the total amount spent in the US for medical malpractice (including the amount spent by hospitals as well as legal costs) was estimated to be about $10 billion in 2010. We can assume it’s less than that now. But even if it’s the same amount, $10 billion is only about 1/3rd of one percent of the $3 trillion total spent on health care in the US in 2013. That’s hardly a huge factor.
Now, many doctors will tell you that medical malpractice is a problem even if it’s not about the money. Any doctor who has been sued for medical malpractice will tell you that it was a humiliating and degrading experience even if they won their case. This is why doctors will often recoil at even the mention of medical malpractice.
That brings us to the subject of defensive medicine. As I’ve shown, the direct cost of medical malpractice is a negligible fraction of overall health care costs in the US. Many have countered that fact by saying that doctors are so terrified of being sued they’ll often order batteries of unnecessary tests on patients and make unnecessary referrals in order to avoid lawsuits. It’s these unnecessary tests that drive up our health care costs, not the direct cost of medical malpractice.
This is an interesting argument, and one that’s hard to prove either way. After all, what do we really mean when we say a test was unnecessary and why do doctors order such tests? It’s safe to say that no doctor has ever been sued simply for not ordering a test that a patient wanted. Doctors can get sued for not ordering tests that would have detected a real problem, but that’s because that really is malpractice.
So, why are doctors ordering so many unnecessary tests and how much do these tests really cost? To try to address the second question, Jackson Healthcare; a medical staffing service, surveyed more than 3,000 physicians in 2009 and 2010 on the subject. They asked doctors how much they thought was spent on defensive medicine and these doctors guessed that it was about $650-$850 billion a year! Their breakdown of costly and unnecessary orders included unnecessary surgeries, diagnostic tests, hospitalizations and prescriptions.
I admit, $650-$850 billion a year is a lot of money to be wasted on such foolishness. To put this in perspective, the entire combined revenue for all hospitals in the US in 2010 (the year this study was published) was about $815 billion(Medicalcostanalysis page 4). It should be noted that much of the defensive medicine cited appears to have been done in hospitals (hospitalizations, surgeries and diagnostic tests). Even so, the doctors surveyed guessed that the amount spent on this defensive medicine somehow exceeded the total amount all hospitals in the US managed to collect for everything they did, defensive or otherwise. How is that possible?
This study serves to underscore a real problem in health care that I’ve mentioned elsewhere: Doctors really have no clue what anything in health care actually costs. We don’t have to pay for any of the tests or procedures we order, so any guess a doctor makes about the cost of these tests are likely to be wildly inaccurate.
Another more sober estimate on the cost of defensive medicine in the US was done by the Blue Cross Blue Shield association. Blue Cross and Blue Shield are health insurance providers so they actually do pay for some of this defensive medicine. They estimate that defensive medicine costs about $45.6 billion a year, which is still a lot of money, but only a small fraction of the amount doctors guessed that it cost.
The estimate by Blue Cross Blue Shield does sound more reasonable than the one made by doctors, but even this guess deserves of bit a scrutiny. After all, we still haven’t clearly defined an “unnecessary test” or provided a good explanation for why doctors are ordering them.
Doctors order medical tests in order to detect a disease that might not be detectable simply by examining a patient. Standard screening tests, like mammograms or colonoscopies, are routinely done on healthy people but most other medical tests are performed because a doctor is worried that the patient might have an illness that a test could detect. Early detection of a disease can make treating that disease much easier and might even save a patient’s life.
Here’s the problem: Doctors aren’t clairvoyant. We don’t have any special psychic powers that will tell us exactly who might benefit from which medical tests. Instead we rely on protocols and our protocols do provide reasonably good guidelines for when we should order certain diagnostic tests on a patient. Unfortunately, protocols aren’t always right because diseases don’t always take the time to read the textbooks we read.
Most practicing physicians have been faced at some point with a patient who’s disease defied the protocols. Such patients don’t show any of the classic signs or symptoms of their disease, causing doctors to miss important opportunities to diagnose and treat them as early as possible. Whenever this happens, the doctor will feel blindsided and a lot less certain when dealing with future patients. No doctor wants to miss an important diagnosis and this is true even if there were no malpractice attorneys.
It’s the uncertainty doctors feel when dealing with potentially life threatening conditions that probably makes them so defensive. If a doctor is worried that he might be missing something in a patient who “feels ill” for no clear reason, he’s likely to order another test just to be sure. If the extra test isn’t part of an established protocol, the doctor can just blame the lawyers. Everyone is used to hearing that excuse, so it works.
If defensive medicine really were exclusively about the fear of malpractice then it should be easy to show that, in the states with high malpractice costs, far more medical tests and procedures are done. Since no such association has ever been made, we should assume it doesn’t exist.
I have often been asked why medical malpractice costs in the US have dropped so much in recent years. Is it because of all the tort reform laws passed in the last decade? By 2013, 33 states in the US had some form of active tort reform law aimed at limiting the cost of medical malpractice. How much of an impact have these laws really had?
To answer this, we’ll start by looking at the effect tort reform appears to have had in a few individual states.
In 2003, Texas, Florida and Ohio each passed laws that, among other things, capped the amount that could be awarded for non economic damages in a medical malpractice claim. Non economic damage caps have long been seen as the most effective way to limit medical malpractice costs. This limits the amount plaintiffs can get compensated for the “pain and suffering” they endured as a result of medical malpractice, which is a far more subjective amount than, say, lost wages.
Since pain and suffering is so subjective, doctors have argued that juries will often inflate these awards any time they’re angry at a defendant. This encourages malpractice plaintiff attorneys to resort to a lot of unnecessary theatre in an attempt to get juries to really hate defendants.
In 2003, Florida capped non economic damages at $500 thousand, Ohio capped them at $350 thousand and Texas capped them at only $250 thousand. The result: over the next decade all three states saw dramatic drops in the number of paid malpractice claims as well as the total amount paid for these claims.
By 2013 the amount paid in malpractice claims against physicians dropped 53% in Florida, 69% in Ohio and 71% in Texas! That would appear to be a huge victory for tort reform in general and damage caps in particular.
Massachusetts also has a $500 thousand cap on non economic damages just like Florida, and they’ve had it since 1975. How has this damage cap worked in Massachusetts? Not so well. Massachusetts had the fifth highest per capita medical malpractice costs in the US in 2013 and only saw the total amount spent on medical malpractice claims in their state drop 7.5% since 2003.
Louisiana has an even harsher limit on damages. Since 1975, Louisiana has capped the total amount that can be awarded in a medical malpractice claims at $500 thousand (not just non economic awards). In spite of this law, Louisiana was ranked 12th overall in the US in per capita medical malpractice costs in 2013 for physicians and the amount paid on these claims actually rose about 2% between 2003 and 2013. These examples makes the case for tort reform far less clear.
In an attempt to quantify exactly how much tort reform has contributed to the drop in US medical malpractice costs, I made a table ranking each state in per capita medical malpractice costs against physicians (amount paid in claims in 2013/population of that state). On that table, I also listed whether a state had an active tort reform law in 2013 and, if so, the limitations of each law.
The result was rather surprising. Of the 33 states that had any sort of active tort reform law in 2013, 16 had per capita malpractice costs that were above the median, 16 were below the median and Oregon had the median amount. It would be hard to have demonstrated less of an effect.
The effect tort reform had on the drop in medical malpractice costs was also negligible. All 33 states that had active tort reform laws in 2013 saw the total paid in claims against their doctors drop by 31% between 2003 and 2013. That’s only two percent more than the 29% drop in the cost of medical malpractice claims for the entire US during that time.
For more examples, consider Oklahoma, which was 14th in the US in 2013 for per capita malpractice costs in spite of the $350 thousand cap they passed in 2004 on non economic damages. West Virginia has a $250 thousand cap on non economic damages but was still 8th overall in the US for per capita malpractice costs in 2013. Add to this the fact that there were dramatic drops in medical malpractice costs in Delaware and Iowa without any tort reform laws. Or that Minnesota and Vermont have among the lowest rates for Medical Malpractice per capita in the US (again without any need for tort reform) and the case for tort reform seems to disappear.
So if tort reform hasn’t been the reason malpractice cost have declined in the US, what is the reason? That’s a very good question; a question no one appears to be able to answer without guessing. What is certain is that medical malpractice does not have a significant impact on health care cost in the US. Even if they did play a role, the fact that malpractice costs have been dropping confirms that they’re not the reason health care has been costing more each year in the US since 2003.