As was correctly pointed out to me, in my haste to publish my original rant about the cost of healthcare, I failed to address a major contributor to the overall rising cost of healthcare (in America, at least): The effect of malpractice suits. To be more fair to the doctors who render services to the ill and infirm (I may have come across too negatively in the original post), a significant portion of a doctor’s pay goes to pay for malpractice insurance.
On one hand, that cost is justifiable, and really practical, given that something MAY happen. Even if you never get in a car accident in your life, it’s still a good idea to have auto insurance just in case. The same is true for doctors; they may be the best at what they do, but they are still human and may at one time or another make some mistake.
On the other hand, the cost of that insurance is extremely high. This is not necessarily the fault of insurance companies (though they could sacrifice a small portion of the bottom line to help), but rather the ‘victims’ of physician errors who endure ‘pain and suffering’ as a result. These patients are the ones who recoup their lost wages due to incapacitation and the costs to remedy the situation, but then also take additional monies above and beyond those costs at a frivolous and exorbitant level.
There’s nothing wrong with getting back money that was lost, but just taking more because of the hassle involved is a bit much. In many simple civil suits (small claims), a judge will not award more money than what was reasonably made unavailable to a plaintiff. Just watch Judge Judy or The People’s Court and you’ll learn that almost immediately! However, for other cases such as malpractice suits, punitive damages for can be awarded, and that’s where it begins to affect the rest of us.
When a doctor gets sued for millions of dollars (and they lose), where do you suppose that money comes from? Doctors make a lot more than a lot of folks, but not necessarily that much, so that’s not all going to come out of their pocket. Instead, they enlist the help up insurance companies by buying up malpractice insurance up front. In order to be able to afford this insurance, physicians and hospitals will charge a little more for their services. That ends up costing us (or our own insurance) more in the end.
And if doctors don’t lose the suit? They still end up paying! According to a report (pdf) by the American Medical Association, while “more than 60 percent of liability claims against physicians are dropped, withdrawn or dismissed without payment,” it costs “an average of more than $22,000 to defend” that case. And while “physicians are found not negligent in over 90 percent of cases that actually go to trial … more than $110,000 per case is spent on defending those claims.” Wow. Hopefully a doctor facing these numbers personally is decent enough at their job so as to avoid doing this multiple times in a year (ever). So what’s to stop greedy, disgruntled patients from starting the litigation process? Not much, if they can find a lawyer willing to help them get that ball rolling.
Let’s go back for a second to when doctors end up being liable for whatever damage was done. If patient is out of work as a result of some shoddy medical care for a month and is therefore out of a few thousand dollars in pay. The doctor (malpractice insurance) will pay out a few thousand dollars. If this patient is also mentally distraught and decides they want additional punitive damages awarded, how much additional money will that be? According to one report, in 1999 the average payout for medical liability cases was around $1,000,000. Some states have set limits on how much money can be awarded for such a reason, but not all. As that average gets higher and higher, so do the insurance premiums physicians have to pay so the insurance companies will be able to afford it.
In California however, they seem to have gotten it right. In 1975, the Medical Injury Compensation Reform Act (MICRA) was enacted, which limited the total amount of non-monetary damages that can be awarded to $250,000 (1/4 the national average payout). Since then, California has stood out among other states as a leader in this kind of tort reform. According to the previously mentioned AMA report (pdf), the premiums paid by doctors for malpractice insurance increased more than 1,000% (that’s over 11x the original amount) nationwide in the 40 years from 1976 (the year after California’s reform) to 2007. That’s the national average, but in CA alone, the increase was less than 1/3 of that, or roughly 300% (4x original), during the same time frame. Keep in mind that the 1,000% increase also includes the very low California numbers, so if you take them out, the increase nationally is even higher. Remember, those increased costs for the doctors translate to increased costs for patients.
Real national healthcare reform could start just like it did nearly half a century ago in California, and we’d probably all be a lot better off as a result. If the federal government steps in and actually takes over the process, this cost will not be changed or reduced. People will still be able to sue for as much as they can squeeze out.
If anyone else has any good ideas or another point that I missed, please feel free to let me know!