Hyperventilating about the Harvard/Health Affairs Malpractice Study

A new study from an interdisciplinary team at Harvard University reports that the medical malpractice system costs close to $60 billion annually. The study is published in the policy journal Health Affairs and is receiving lots of attention in the media. The attention is unwarranted. The study is old news, of questionable validity, and prone to misinterpretation. But that hasn’t stopped the medical lobbying complex from hyperventilating about the findings and renewing its call for massive tort reform.

The study provides no surprises to anyone in the health research or health policy arena who pays attention to malpractice. All of the data are in the public domain and most have been reported in previous studies. (For the past decade I have reported essentially the same findings in my health economics class.)

The most important component of malpractice costs is defensive medicine. The Harvard authors put this at $46 billion, or nearly 80 percent of the total, but this is pure guesswork. Researchers cannot agree on the extent of defensive medicine. The Harvard authors base their estimates on seminal studies by Kessler and McClellan. Their work is seminal largely because it was first, not because it was definitive, and later studies often find far less evidence of defensive practice. The Harvard authors try to be conservative by using the low end of the Kessler/McClellan cost estimates. But truth would have been better served if they had stated that the cost of defensive medicine could just as easily be $16 billion or $76 billion.

Even if we take the $60 billion figure at face value, this represents only 3-4 percent of total health spending. This is hardly earthshaking, but it is enough to raise eyebrows. The Harvard authors acknowledge that the “reforms… have modest potential to exert downward pressure on overall health spending.” In other words, tort reform is no panacea for health care spending inflation. The authors also note that the tangible costs of medical mistakes are perhaps 50% of the costs of malpractice. Add to this the intangible costs of death and morbidity and one might have the beginnings of an argument that we should toughen malpractice laws.

But none of these numbers provide any real insight into policy solutions. We cannot determine whether we should loosen malpractice laws by observing how much we spend on defensive medicine any more than a business can determine whether to hire more workers by knowing how many it currently employs, or I can figure out whether to buy another pair of shoes by counting up how many pairs I currently own. As with all such decisions, we have to ask assess the marginal benefits and marginal costs. If we loosen malpractice laws, will costs actually fall, and by how much? It seems doubtful that tort reform will eliminate all defensive medicine, but who knows? And that is the point. Knowing the current level of defensive medicine does not tell us how much it will change if laws are changed. Will the quality of care fall, and by how much? Again, it is not sufficient to know the current level of medical errors. We need to know whether this will change. The Harvard study provides no answers to these fundamentally important questions. The hyperventilating lobbyists have no right to use the study to justify any policy changes.

My colleague Leemore Dafny and two coauthors from Northwestern’s law school provide half of the answers we need for policy. Their recent study finds that after states enact comprehensive tort reform, health insurance premiums decline by 2-3 percent. Again, not earth shaking, but enough to raise eyebrows. What we need now is evidence on how tort reform affects quality. Until we get that evidence, all the hullabaloo about the new Health Affairs study is really much ado about nothing.

David Dranove is the Walter McNerney Distinguished Professor of Health Industry Management at Northwestern University’s Kellogg Graduate School of Management, where he is also Professor of Management and Strategy and Director of the Health Enterprise Management Program.  He has published over 80 research articles and book chapters and written five books, including The Economic Evolution of American Healthcare and Code Red.  He has a Ph.D. in Economics from Stanford University.

9 replies »

  1. “How do you define a defensive medical test?”
    “A test which you would not order for yourself, your parent, your child or your spouse in the exact same circumstances (IMHO).”
    I agree, Margalit. I would also add the following: A test you would not order if you (correctly) perceived the probability of being sued as essentially zero even in the case of an unfortunate outcome. Also, true tort reform which I define as safe harbor protection from lawsuits when evidence based guidelines are followed and using specialized health courts instead of juries to resolve medical disputes could significantly reduce defensive medicine over time. Second, if we had true tort reform, even if defensive medicine did not decline materially in the short term, it would be easier to hold doctors accountable for the utilization that they drive and to move toward insurance products that group providers into tiers based on price, quality and cost-effectiveness.

  2. “How do you define a defensive medical test?”
    A test which you would not order for yourself, your parent, your child or your spouse in the exact same circumstances (IMHO).

  3. @ Dr. Kirsch,
    You hit the nail on the head with that one. Good job.

  4. The costs estimated for defensive medicine are likely low. How do you define a defensive medical test? This is not a black or white issue. I know this because I practice defensive medicine every day, as do my colleagues. Many tests are blends of defensive and evidence-based recommendations. In other words, a CAT scan may not be truly needed, but yet can be justified to an extent. See http://www.MDWhistleblower.blogspot.com under Legal Quality.

  5. IMHO, that’s a rather superficial analysis.
    A few points:
    -it seems a legitimate task to estimate a price tag of malpractice related costs and to call to action
    -and yes, I don’t think there are any academics in the field who believe there could be any feasible kind of study/analysis determining the cost of defensive medicine because the motivation to order excess medical services is usually multifactorial. It would be akin to try determine how often financial considerations “cause” divorce, as the exact contribution of this component among possible other factors (e.g. spouse sees other partner, boredom, poor communication, lack of shared interests, cultural incompatibility, sexual dissatisfaction etc) is impossible to determine
    -tort reform does not necessarily mean “softening”. What most people in the field acknowledge is that the current system is dysfunctional, i.e. it does not separate well nonnegligent from negligent care: substandard care often remains unchallenged, and nonnegligent care may lead to large settlements. True reform may also result in better patient protection from substandard care (as Dr. Motew pointed out)
    -did Professor Dranove ever consider the fact that one will not find many US clinicians, regardless of their political leaning, who do not find the current malpractice system problematic (the individuals playing down the significance of tort reform tend to be nonphysician academics). There are 3 possible explanations: A. there is collective paranoia/misperception B. there is a hidden agenda (e.g. protection of negligent physicians, profit maximization) C. the concern is justified.
    I would love to see a poll among physicians who are very likely not highly financially motivated and are active in the patients’ interest (for instance a poll among members of PNHP or docs working for public community clinics full time).

  6. Even if the numbers are ‘over inflated’ the potential for any health care savings in the billions is certainly in the right direction.
    I too agree that the true cost impact of defensive medicine is significantly underestimated. The lack of correlation with declining malpractice rates is not the measure to look at. Unfortunately defensive practices are so ingrained into the culture of medicine that changing these behaviors will take a long long time.
    An important question is what are the downsides to tort reform. Knowing that the significant majority of dollars spend on med-mal tort goes to the administration and attorneys, little will be lost to the rights of patients.
    I support independent panel review of cases by same-practice physicians and set reimbursement correlating to the degree of damage/disability. The key is to compensate the harm, rather than focus on blame and punishment.
    Physicians, hospitals etc should then be separately regulated for their outcomes and role in damages/malpractice cases and ‘punished’ or remediated appropriately. (look-up the malpractice system in Sweden for a good example).
    Finally, if you really want to see how concerned the tort legal system is for patient’s rights, reimburse attorneys at a set government rate for each med-mal case (like we are reimbursed by Medicare etc.)and see how quickly this interest goes away.

  7. From my own experience, this grossly underestimates the cost of defensive medicine. Grossly. As long as physicians are held personally responsible for bad outcomes beyond our control, we are going to keep irradiating, analyzing, prodding, following-up, testing and otherwise wasting huge amounts of money. We have a fundamental belief that nobody is responsible for their own health in this country. As long as we continue that, watch the money fly out the window.

  8. I agree, to a point. What the studies do show, and yes, perhaps they are reiterating information in the policy sphere presently, is where we should be prioritizing our intellectual energy in reformulating policy–for HCR in general.
    If a congressman or figurehead of note states that defensive medicine is causing 20%+ of our systems ills, one cannot respond coherently without (meaningful?) data. If we are going to spend ? 20% of our energy fixing a problem generating 20% of the overall systemic problems, heck, it would be nice to have a baseline to pivot from. At least the work sends a message on where we should focus–and med mal may not necessarily be on the short list for now. I think that is something, even though it aint a major policy fix.
    And yes, seems like folks of substance are noticing, albeit reluctantly:

  9. So the author suggests this study findings are old news, but does not offer ways to decrease costs. I was really looking forward to thoughts on how to decrease costs in the medical field.

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