Study: Medical liability costs $55.6 billion annually

By Ann Knef | Sep 9, 2010

Mello A new study by Harvard University researchers shows that medical liability costs totaled 2.4 percent of annual health care spending in the U.S., or $55.6 billion per year, in 2008.



A new study by Harvard University researchers shows that medical liability costs totaled 2.4 percent of annual health care spending in the U.S., or $55.6 billion per year, in 2008.

The study, which appears in the September issue of Health Affairs, analyzed various components of the medical liability system, including payments made to malpractice plaintiffs, defensive medicine costs, administrative costs -- such as lawyer fees -- and the costs of lost clinician work time.

Researchers found that the medical liability system's annual price tag includes $45.6 billion in defensive medicine costs, $5.7 billion in malpractice claims payments, and more than $4 billion in administrative and other expenses.

The study's lead author, Michelle Mello, professor of law and public health at Harvard School of Public Health, said that the medical liability system carries heavy costs and that there are good reasons to want to improve it.

But, she said that other reforms, such as changing the fee-for-service reimbursement system that gives providers incentives to overuse services, probably hold more promise for reducing health care costs.

On the other hand, Mello and her fellow researchers acknowledge that proponents of medical liability reform argue that it will address two drivers of health care costs: providers offsetting rising malpractice insurance premiums by charging higher prices and "defensive medicine," in which liability concerns lead doctors to order more tests, procedures, and other services than are medically necessary.

"[W]e should be realistic about what liability reform can achieve in terms of health care cost control," Mello said.

"We shouldn't forget that despite all its dysfunctions and inefficiencies, the medical liability system does produce social benefits," she said.

"It makes injured patients whole by providing compensation; it provides other forms of corrective justice for injured persons, producing psychological benefits; and it may deter future injuries by signaling to health care providers that they will suffer sanctions if they practice negligently and cause injury. The question is, can we reform the system to enhance these benefits and get them at lower cost?"

Med Mal in Illinois

Seven months has passed since the Illinois Supreme Court overturned a 2005 medical liability reform law which capped damages at $500,000 for physicians and $1 million for hospitals.

A recent poll conducted of 1,100 Illinois doctors found that 66 percent have personally reduced or eliminated high-risk services or procedures due to a medical liability threat.

The Illinois State Medical Society, which partnered with ISMIE Mutual Insurance Co. to conduct the poll between June 21 and July 2 among a cross-section of medical specialties, also found that 82 percent of Illinois doctors report that they view every patient as a liability risk.

Also, 89 percent reported that liability concerns have caused them to order more tests than are medically needed, and 33 percent of doctors indicated that they always order extra tests.

Todd Smith, president of the Illinois Trial Lawyers Association, offered another view. He said that 98,000 people per year are killed or injured due to medical malpractice.

Smith cited an August report produced by the Society of Actuaries and completed by consultants with Milliman, Inc., which showed that measurable medical errors cost the U.S. economy $19.5 billion in 2008.

The report also says that of the approximately $80 billion in costs associated with medical injuries, around 25 percent were the result of avoidable medical errors.

"Why don't we address that end of the spectrum at the beginning," he said, "rather than the other end...let's put one-size fits all cap on what a person is entitled to."

Smith also said that greater competition among medical liability insurers reduces premiums and helps physicians.

Retired physician Robert Hamilton, M.D. of Alton said that physicians in Illinois are still somewhat "stunned" by the high court's reversal.

"The law was carefully researched and crafted and we were represented brilliantly by Theodore Olson, a former solicitor general of the United States," Hamilton said.

Hamilton said that political affiliation played a role in the law being overturned.

"The vote in the court fell along party lines, demonstrating the importance of the Karmeier/Maag race in 2004, as well as other Supreme Court races in the coming election," he said.

"It is too early to see what the effects of the decision will be on malpractice premium rates or whether some of the well-intentioned changes in the Madison County Circuit Court procedures will dampen those effects," he said.

"Further efforts at legislative relief will be heavily influenced by the upcoming elections."

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