Reason for a New Age

The Cost of Health Care – Part 5

Posted by publius2point0 on 2010/01/06


While I detailed what I believe to be eating the majority of health spending in my previous blog, there are still some theories for why American health spending is so high. This post will cover the remaining theories, and my next blog will conclude this series, including specific policy recommendations.

Malpractice Insurance Raises Medical Fees
This theory is easily answered.

I have lost my source, but I believe I read that malpractice suits are about twice as prevalent in the US as in other nations (per capita). Point in fact, I believe that Americans are, altogether, twice as likely to sue anyone over anything as the people of any other nation. But so, from this, one could posit that legal fees and malpractice payments could be a draw on spending that isn’t there in other nations.

The problem with this theory, though, is that malpractice payments come out of a doctor’s salary. Doctors salaries are roughly the same between nations. So even though the cost of malpractice insurance might be double that of other nations, it’s still a small enough fee as to not be noticeable. The cost of malpractice insurance is in fact only 1% of all health care expenditure in the US.

But, of course, while it might not reduce overall spending by a significant amount to cap malpractice rewards (and thus lower insurance rates), if the rewards are too high to be justifiable then of course they should be lowered. If doctors are having a hard time staying competitive and being able to maintain their practice, again, they should be lowered.

Personally, I might say that analyzing why Americans are twice as likely to sue as people of other nations and (possibly) amending legislation and the court system to counter that might be a more useful goal. Though, possibly, we’re just ahead in the game. This may be a discussion for a future post.

High Malpractice Fees Cause Defensive Medicine
There is another theory stemming from the prevalence of lawsuits in the US. Hoping to avoid legal action by their clients, doctors order more and (largely) unnecessary tests to cover all their bases. This would, in end result, cost the client more money, most of which is simply waste.

Whether this is true or not is hard to prove. My previous cite from the Wall Street Journal notes that one study expects a 5-9% decrease in health spending if malpractice caps were to be instituted across the nation. But, whether it has actually had this effect in states where caps have been instituted is rather vague.

Without actual multi-national studies of how many tests your average doctor orders–which I haven’t been able to find–it is hard to prove much of anything. But one can assume that if testing was all that much more prevalent in the US, there would have to be extra the equipment to handle the demand. Data from the OECD (page 2) shows that MRI scanners and CT scanners are more numerous in the US. That’s not definitive, but it does seem to support the idea at least.

It seems plausible that defensive medicine is a factor, but with prices failing to decrease with decrease malpractice rewards, we have to consider that there might be other explanations for the data.

One possibility is that, having the equipment and personnel to man it, doctors will continue to order extra tests rather than let that capability go to waste.

Another possibility is that even if malpractice rewards are reduced by 30% (or however much), why shouldn’t a doctor still fear litigation? Any money he has to give to an insurer or an angry patient is more money than he wants to have to spend at all.

Or, lastly, it might simply take time for practices to change. We need to wait for the surplus equipment to become unusable and not be replaced or for doctors who lived under a test-everything mentality for years to retire and a new generation to come along. Possibly that 5-9% savings is there, but it could take 10-30 years to manifest.

Ultimately, unless there is any particular reason to not cap malpractice rewards, you are better off to cap them. Whether it is effective or not is beside the point if there’s a possibility that it may be in the long run.

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