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A Look at Tort Reform

May 4, 2010

As the health care reform bills were being debated in the House and Senate, one of the items that caused a deep divide along party lines was the issue of tort reform as it relates to medical malpractice.  With Republicans intensely in favor of tort reform and Democrats fiercely against, compromise was highly unlikely.  Regardless of the divide, the bills were almost certain to become law with a Democratic President and Democrats in control of both the House and Senate.  Bills H.R. 3590 and H.R. 4872 passed without substantive tort reform provisions.

Opponents of tort reform include trial lawyer groups, various consumer groups, and patients injured by medical errors. They state that costs consumed by medical malpractice litigation amount to less than 0.6 percent of all health care spending.(1)  While 93 percent of doctors admit to ordering additional tests in fear of litigation, commonly referred to as defensive medicine.  These groups consider defensive medicine to be necessary care rather than part of the cost of malpractice litigation.  It should also be noted that trial lawyers are among the largest contributors to the Democratic Party.(2)

Another fact that opponents use to support their argument relates to states that have already passed tort reform.  As of 2009, 46 states had passed some sort of tort reform.  Ironically, states without caps have lower malpractice premiums.(3)

Proponents of tort reform include doctor's groups such as the American Medical Association, insurance companies, and most patients uninjured by medical errors.  In support of their position on tort reform, most physicians view the cost of medical malpractice litigation as the main driver in medical liability rates.   According to a report published by Towers Perrin, a global professional services firm, the cost of medical malpractice litigation has steadily increased at a rate of almost 12 percent annually since 1975.(4) Proponents have also argued that these liability rate increases have been causing doctors to go out of business or move to states with more favorable tort systems.(5,6)

While both views present convincing arguments, there is certainly no lack of information available in support of each position.  A closer look at total costs in actual dollars gives a much clearer picture of the magnitude of tort reform.

Opponents seem to view the aforementioned fact that 0.6 percent of all health care spending on malpractice litigation is an insignificant amount.  According to Towers Perrin, the amount is actually closer to 1.2 percent, a larger percentage but also a seemingly insignificant amount.  However, total current health care spending in the area of $2.5 trillion(7),  Towers Perrin estimates the amount to be $30 billion.(8)

Proponents argue that defensive medicine adds significantly to the cost of health care spending.  With up to 93 percent of doctors admitting to ordering additional tests in fear of litigation, the cost of defensive medicine simply cannot be ignored.  Various estimates put the cost at approximately 8 percent of total health care spending. According to an article by Philip Howard in the Wall Street Journal, eliminating defensive medicine would save over $200 billion in health care costs annually.(9)

While medical malpractice is not the main driver in runaway health care spending, it is certainly one of the components adding to total costs.  Whether the actual cost is $30 billion or $230 billion, the dollar amount is large enough to warrant an effort to reduce this cost.  Tort reform may not be a stand-alone solution to the problem, but along with other measures that reduce medical errors and compensate patients for injury and losses, a significant amount of savings could be achieved.

For more information regarding tort reform contact HORNE Manager Ken Bonin at ken.bonin@horne-llp.com or 225.341.3077.

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(1)Copland, James R. (2009, October 14). James R. Copland: Here's what is stopping tort reform. Washington Examiner. 
Retrieved from  http://www.washingtonexaminer.com/opinion/columns/Manhattan-Moment/Here_s-what-is-stopping-tort-reform-8379073-64098807.html

(2)Howard, Philip K. (2009, October 15). Why medical malpractice is off limits. The Wall Street Journal.  Retrieved from http://online.wsj.com/article/SB10001424052970204488304574432853190155972.html

(3)Tarricone, Anthony (2009, September 30). Fool me once: the insurance industry looks to tort reform to pad profits.  Firedoglake. Retrieved from http://firedoglake.com/2009/09/30/fool-me-once-the-insurance-industry-looks-to-tort-reform-to-pad-profits/

(4)Towers Perrin. (2006). U.S. tort costs and cross-border perspectives. 2005 Update Report. Retrieved from http://www.towersperrin.com/tillinghast/publications/reports/2005_Tort_Cost/2005_Tort.pdf

(5)Blog. (2004, June 11). Medical malpractice insurance roundtable. The Business Journal. Wikipedia: The Free Encyclopedia. Article posted to http://en.wikipedia.org/wiki/Medical_malpractice

(6)Weinstein, Stuart L. (2009, November) The cost of defensive medicine. American Academy of Orthopedic Surgeons. Retrieved from http://www.aaos.org/news/aaosnow/nov08/managing7.asp

(7)Kaiser Family Foundation. (2009, March). Trends in healthcare costs and spending. Report. Retrieved from http://www.kff.org/insurance/upload/7692_02.pdf

(8) http://www.towersperrin.com/tillinghast/publications/reports/2005_Tort_Cost/2005_Tort.pdf

(9) http://online.wsj.com/article/SB10001424052970204488304574432853190155972.html