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Cato has truly shocked me….stupefied really

by Michael Halasy
Cato has truly shocked me….stupefied really.

Those who have followed me at Angry Bear will recall my series on tort reform that I wrote this past year. In particular, I wrote a piece on the possible safety risks that patients would be exposed to, with a 0.02% increase in patient mortality with a 10% reduction in medical malpractice liability costs…

Well, just the other day, I received an update from Cato. Now, Michael Cannon is a good guy, and while he and I simply don’t agree on … well much of anything from a health policy perspective, his colleague, Shirley Svorny, wrote this:

More broadly, patients derive protection from an interdependent system of physician evaluation, penalties, and oversight that includes hospital and health maintenance organization credentialing and privileging activities, specialty boards, and the medical malpractice insurance industry. Underlying nearly all of these activities is the threat of legal liability for negligent injuries. Reducing physician liability for negligent care by capping court awards, all else equal, will reduce the resources allocated to medical professional liability underwriting and oversight and make many patients worse off. Legislators who see mandatory liability caps as a cost-containment tool should look elsewhere.

I believe that I have been consistent with this…over and over. There are some reforms that could work. So called “indirect” reforms. Joint and Severability reform, mandatory periodic payments, dedicated malpractice courts, patient compensation funds, etc. etc. But direct reforms, IE; caps on noneconomic damages DO NOT WORK.

So, I have to (gulp) swallow some pride, and tip my hat to Cato….Now I need to go take a shower. I feel a little dirty.

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Medical Malpractice Reform: Truth in Advertising Needed (Part Three of Three)

by Mike Halasy
Healthcare concultant and researcher, PA

UPDATE: Part 1 here; Part 2 here. (h/t rjs in comments for the suggestion.)
Update 2: Post fixed…Dan

Medical Malpractice Reform: Truth in Advertising Needed (Part Three of Three)

So in the first two articles we have addressed the historic effects of tort reform using Texas as an example, and subsequently we reviewed the effects of tort reform on so called “defensive medicine” practices, looking at both the effect of reform measures on physician/provider ordering patterns, as well as the possible effects on patient outcomes or mortality.
Today, we are going to examine the last party in this carousel. The insurance agencies themselves. For starters, I wanted to examine if there was any sort of a relationship between malpractice premiums, and healthcare spending. So, using historic healthcare expenditure rates from the NHE database (CMS), I calculated the rate of healthcare growth, percentage wise, per year from 1995-2008. I then used an ISO database set to examine the growth in insurance premiums per year.

As we can plainly see, there is no correlation, but out of sense of thoroughness, I even ran a simple regression.


But with an R-Squared of 0.021, there is simply little correlation there.
So what causes these random spikes in medical malpractice premiums? Well, according to the AIR (Americans for Insurance Reform) these are due to the economic cycles of insurers and to drops in investment income.
Lastly, I visited this article, http://www.centerjd.org/air/TrueRiskF.pdf, which found:

1.     Inflation-adjusted payouts per doctor not only failed to increase between 2001 and 2004, a time when doctors’ premiums skyrocketed, but they have been stable or falling throughout this entire decade.

2.    Medical malpractice insurance premiums rose much faster in the early years of this decade than was justified by insurance payouts.

3.    At no time were recent increases in premiums connected to actual payouts. Rather, they reflected the well-known cyclical phenomenon called a “hard” market. Property/casualty insurance industry “hard” markets have occurred three times in the past 30 years.

4.    During this same period, medical malpractice insurers vastly (and unnecessarily) increased reserves (used for future claims) despite no increase in payouts or any trend suggesting large future payouts. The reserve increases in the years 2001 to 2004 could have accounted for 60

percent of the price increases witnessed by doctors during the period.

But the real devil, the real devil is in the loss ratios…I’m assuming that we are all familiar with the MLR discussions that raged over the past two years discussing what should be an allowable loss ratio for health insurance. Malpractice also has it’s loss ratios, and oh boy, are they favorable to the insurance industry. 61.1% is the average, in 2007, for the average loss ratios for malpractice insurance companies. To put this another way as per the article: In 2007, medical malpractice insurer profit based just on insurance transactions, that is,just on the premiums they took in, was 24.6%. This was more than double the amount on insurance transactions for the entire industry (11.0%).

If I were a physician who paid my own malpractice, I would be livid over these figures. It is not as though there is a huge advertising market for medical malpractice insurance. 38.9 cents on every dollar are kept as almost pure profit. Surely, administrative costs cannot account for this. Add to this, this last nugget: Inflation-adjusted payouts per doctor not only failed to increase between 2001 and 2004, a time when doctors’ premiums skyrocketed, but they have been stable or falling throughout this entire decade.

It seems, that right now would be a great time to own a malpractice insurance firm. Too bad, that it isn’t so great for everyone else in healthcare.

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Medical Malpractice Reform: Truth in Advertising Needed (Part Two of Three)

by Michael Halasy

Medical Malpractice Reform: Truth in Advertising Needed (Part Two of Three)

So in the first article, we discussed the historical implications of tort reform by examining Texas. The take home message being that tort reform failed to curb health care spending, and/or control costs (outside of malpractice premiums which did fall). Proponents of tort reform claim that by enacting aggressive tort reform measures, so called defensive medicine practices could be reigned in. Estimates about the costs of defensive medicine vary, and I have seen estimates in the literature as low as 4%, and as high as 14% of total health care spending. As with most things, the truth is probably somewhere in the middle, with a realistic estimate of 8-9% likely being the real integer. Recently, several studies have attempted to assess two of the most important questions about this topic:

A: Does a reduction in defensive medicine practices occur with the implementation of tort reform measures?

And

B: If it does cause a reduction in defensive medicine practices, will this affect patient outcomes or mortality?

Three more recent studies are likely the most pertinent, and we will briefly review those. To start with, Currie and MacLeod (go ahead, I had the Highlander flashback too) (2006) reviewed national data on childbirths to examine whether or not a cap on non economic damages would change the types of procedures performed at childbirth. They found that nationally, in those states with tort reform, the rate of C-Sections increased, and the rate of preventable complications secondary to childbirth increased by 6%. They also found, that a change in the “deep pockets rule”, actually decreased them. The paper is HERE (gated article).

Then Sloan and Shadle in 2009 examined this same issue, using Medicare payments as an index. Their premise was, that if tort reform truly changed physician practices with regards to additional testing and/or defensive medicine, they would find a reduction in Medicare payment rates per beneficiary. They found that tort reform did not alter defensive medicine practices, with one exception. They did find that so called “indirect” reforms (mandatory periodic payments, Joint and Severability reform, and patient compensation funds) may reduce spending when applied to “any hospitalization”, but inexplicably, these indirect reforms did not affect any of the four diagnoses included in the study. Their paper is HERE.

There have been others, and the final one we will discuss is the NBER report done in 2009 by Darius Lakdawalla and Seth Seabury, Working Paper No. 15383. Found HERE (gated article). Essentially, Lakdawalla and Seabury found that while targeted reforms may be effective, there could be an associated, and this is key… a 0.2% associated increase in mortality for every 10% reduction in medical malpractice liability costs. Why? Because defensive medicine practices DO FIND things. Any physician who has been in practice for any length of time, and who is being honest with you, will admit that they have done a test presuming it would be negative, and “perhaps the patient doesn’t need it”, only to be surprised by the results. We can argue whether or not 0.2% is a significant number, but even we look at the sickest 5% of Americans who are responsible for 47% of healthcare spending, than this group could have an increase of 30,000 deaths annually with a reduction of 10% spending on medical malpractice. I am not going to pass moral judgment on this fact. I will leave that up to the reader. The reason I bring this up, is that this is an important, and poignant discussion, but we need to be honest about the data that is out there now. Let’s have a discussion, but let it be an honest, and fact based one.

I tend to think that the Sloan and Shadle findings are important in the fact that I don’t think that physician practices are going to “magically” change overnight. The Texas evidence from the last article, would suggest that testing expenditures may actually increase. Yet, in the face of overwhelming evidence, proponents continue to cling to a disproven ideology regarding direct malpractice cost containment, IE; Non economic caps.

[edited for ease of link usage only – klh 24 feb 2011]

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Medical Malpractice Reform: Truth in Advertising Needed

Guest post by Michael Halasy, Practicing Emergency Medicine PA, Health Policy Analyst, and Health Services Researcher

Medical Malpractice Reform: Truth in Advertising Needed (Part One of Three)

Medical malpractice liability reform (Tort Reform) has been a hotly contested item for years, as the GOP, with physician support, has continued to market this as a health reform measure that can contain costs.

I think to start, we need to examine results in states where tort reform has already been tried. We need look no further than Texas.

Politicians tried to claim that Texas was a success, Rep Bachmann stated ““The state of Texas did a wonderful job of lawsuit reform and actually saw medical costs come down. We know it works.” Others have touted the Texas experiment as a success..but empiric data is a powerful thing, and as we will see, contradicts this sentiment.

In 2003, they passed the most aggressive tort reform measures in the country by placing a 250,000 cap on malpractice awards. It is true that this reform, after 2003, lowered malpractice premiums. But malpractice settlements and awards have dropped even farther than premiums, suggesting that the main benefactors so far, have been insurance companies. (See Table 1).

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Also, the same report found that Medicare spending per patient had doubled between 2003 and 2007, in contrast to the decline in Medicare spending that was noted prior to the laws enactment. (See Table 2)

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Additionally, one of the strongest arguments that tort reform supporters claim is a reduction in “defensive” medicine expenditures, or unnecessary testing… unfortunately, between 2003 and 2007 testing expenditures per Medicare enrollee grew at 50% greater than the national average…

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They also found that Texas has the highest rate of uninsured patients in the country, both prior to the law, and accelerating after the law was passed.

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The additional physician presence has only increased because of an increasing population as well, and when it was analyzed, there was only an increase of 0.4 (correction…0.4%) physicians per capita after the law was passed.

These tables and data were all obtained and detailed in this study HERE, and there is much more information at the link. (enclosed link: http://www.citizen.org/documents/Texas_Liability_Limits.pdf).

The short version is that medical malpractice reform should be a topic for discussion, but we need to be honest about this. In this article we reviewed what actually happened in Texas after the most aggressive tort reform measures were created. Costs (outside of settlements, payments, and premiums did NOT go down), and healthcare spending was at best unaffected, and may have even increased.

The next article will focus on the effects of reducing defensive medicine practices on patient mortality. The final article will focus on the association between medical malpractice premiums and healthcare spending.

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How malpractice drives health care costs

by Tom aka Rusty Rustbelt

How malpractice drives health care costs.

This is a bullet point narrative, representing a long time line, but illustrates what happens to drive health care costs:

  • Emergency physicians use x-rays to diagnose closed-head injuries and miss brain bleeds.
  • The hospital and physicians are threatened or sued for malpractice.
  • Word circulates about these cases (physicians, administrators, lawyers). 
  • CT scan technology is improving and is more available. 
  • In response, ED physicians use more CT scans on closed head injuries.
  • Benchmarking studies** indicate CT scans are best practices for closed head injuries. 
  • ED physicians use CT scans on more closed head injuries. Etc.  
  • This is how malpractice drives health care costs, even though there are relatively few suits on this specific issue.

** These sorts of studies will be integral to comparative effective programs, added to academic medicine research.
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Tom aka Rusty Rustbelt

PS. I am going to be on the road for about ten days next month talking to health care providers about reform, and hope to come home with some insider information (politicians and lawyers and etc. tend to show up at these meetings).

Rdan here: The only item I would add is that the addition of expensive equipment is easier than maintaining patient volume for the equipment (ROI). Such additions were originally seen as revenue enhancers, which turned out to be less than accurate for many practices, or sometimes resulted in efforts to simply push an increase in referrals that insurance paid for, which is seen as safe practice.

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