How Much Would Medical Malpractice Tort Reform Reduce Healthcare Spending?

We posted an article a few weeks ago about differences of data in policy debate, focusing on significantly different numbers for the total costs of defensive medicine. A few readers asked us to expand on the topic, suggesting we explore how to reduce this spending whether it’s $50 billion or $850 billion.

The most often-suggested solution to defensive medicine and medical malpractice spending is tort reform of some sort--perhaps reducing maximum awards, or other fixes. What kind of impact could tort reform have?

Medical Malpractice Costs:

Let’s estimate this quickly. We know that about $4 billion per year is awarded for malpractice suits. Even if insurers were making 50% on top of that in profits (which is quite aggressive), that’s less than $10 billion total spent for malpractice insurance, out of over $3,000 billion in total American healthcare costs per year--about ⅓ of 1 percent. We also know that the costs of medical malpractice insurance keep decreasing, even though healthcare costs have been rising.

Tort reform couldn’t eliminate malpractice lawsuits entirely, so the savings from reducing insurance costs or damage awards would be under $10 billion per year.

Defensive Spending Costs:

As we explore how to reduce defensive spending costs, the options become quickly complicated.

Something to consider: even if there was little malpractice suit risk, would doctors have the incentive to not practice defensive medicine?

  • Most hospitals and doctor’s offices bill per procedure. This means they make more money doing more tests.

  • Doctors genuinely want their patients to be healthy. If there is no negative cost for the patient or doctor, then getting more tests increases confidence in a diagnosis.

“Defensive medicine” is defined as procedures that go beyond what’s necessary for a diagnosis. But consider that all diagnoses have some confidence associated with them--the reason defensive medicine works in court is that the confidence in the diagnosis is higher.

So how confident does a doctor need to be in order that they not schedule another test? 80%? 95%? 99%?

Would you support legislation that attempted to reduce national healthcare spending by limiting the amount of testing and treatment that doctors can do? What if your parent was sick--how might that change your reaction?

Let us know in comments what your reaction is like, and check out the forum where other Considerates are learning more by discussing healthcare quality and cost!

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Erik Fogg

We do politics, but we don't do the thinking for you.