Is There a Doctor Left in the House?

Recently, the trauma center at the University of Nevada Medical Center in Las Vegas closed its doors to the public. The reason? Physicians and surgeons working in the trauma center could no longer afford the costly malpractice insurance premiums arising from the constant threat of lawsuits. With the trauma center closed, critically injured patients would have to be transported to a similar center five hours away. It was only after the surgeons agreed to be re-classified as county employees (which provided a shield against excessive lawsuits) that the trauma center reopened its doors.

The Las Vegas hospital case is not unique. Across the country, doctors are retiring, relocating, or avoiding certain medical procedures for fear of lawsuits. Litigation has become a seemingly unavoidable fact of life for many physicians, even if they have never committed a negligent act. A recent study by the federal Department of Health and Human Services catalogs the human impact of excessive litigation: Most cities in Mississippi with a population under 20,000 no longer have doctors who deliver babies, 44 doctors in Delaware County, Pennsylvania retired or relocated out of state due to rising malpractice insurance premiums, a doctor in a small North Carolina town opted to retire early after his malpractice premiums jumped from $7,500 to $37,000 a year, rural West Virginia hospitals have closed their obstetrics units because doctors could not afford malpractice insurance, and doctors are more reluctant to volunteer at free clinics and other organizations because they lack the coverage to protect themselves from lawsuits.

In fact, litigation is taking a heavy toll on health care in America, both in terms of patient care and the costs that lawsuits impose on the system. As the HHS study makes amply clear, lawsuits have limited the availability of health care, especially in specialty fields such as obstetrics where the risk of lawsuits is greater. Moreover, the threat of lawsuits leads many doctors to engage in “defensive medicine,” where doctors require a battery of tests and consultations simply to establish the basis of a defense in the case of a lawsuit. Not surprisingly, the additional procedures increase the costs of health care in America, as do rising insurance premiums, which lead to higher fees for health care services. The HHS study found that doctors spent $6.3 billion for coverage last year and that “the direct cost of malpractice coverage and the indirect cost of defensive medicine increases the amount the federal government must pay through these various channels, it is estimated, by $28.6 – $47.5 billion per year.”

Litigation has become a critical issue for the health care sector. Insurers are pulling out of the market, especially in those states that have not considered legal reforms to control frivolous lawsuits. For example, St. Paul Companies, which covered at least 25 percent of the market in 12 states, has announced it will no longer offer malpractice insurance after it lost $985 million in 2001. Yet this is just a small part of a much larger litigation problem. Other industries have felt the sting of lawsuits as well, and many states and municipalities have reduced the services available for fear of lawsuits. Overall, lawsuits costs Americans more than $200 billion a year, according to Michael Freedman. In fact, lawsuit abuse has become a serious concern for all Americans, from consumers, to small businesses, to big businesses, to state and local governments. Lawsuits increase the prices of goods and services and raise the costs of doing business.

This is not to say that all lawsuits are unwarranted. A tort system is necessary for resolving accidental harms. The tort system has two important goals. First it must compensate accident victims for the harms they suffer. Second, it must provide incentives to individuals and businesses to take the necessary precautions to avoid the harm in the first place. A tort system that requires all harm to be compensated ensures that proper steps will be taken to ensure safety and limit risks.

Unfortunately, the current tort system in the United States does not serve this function well. Awards are too arbitrary and uncertain to establish the correct incentives for avoiding harmful activities. Trial lawyers appear more intent on mining the legal system for personal gain rather than compensating the victims of accidents. Medical malpractice makes this point clearly. It is estimated that 57 percent to 70 percent of claims generate no money for the patient, which suggests an excessive number of lawsuits are being filed. And while these cases may be unwarranted, they continue to impose real costs on the medical profession—it costs roughly $25,000 to defend each claim.

Legal reforms can improve the health care system, without harming the quality of care that patients receive. In response to an earlier litigation explosion in the 1970s, a number of states adopted reforms to reduce excessive litigation and frivolous lawsuits. Today, there is a notable difference between states that have adopted reforms and those that did not. The cost of malpractice insurance, for example, varies greatly, depending on whether earlier reforms were implemented. In California, a state that implemented legal reforms to avoid frivolous lawsuits, the annual premium for an OB/GYN practitioner is $23,000 to $72,000 annually. In Florida, a state plagued by lawsuits, an OB/GYN practitioner pays an annual insurance premium of $143,000 to $203,000. The HHS study also finds that rising insurance premiums are best explained by the availability of large legal awards rather than a decline in patient care.

Further, researchers have found that medical malpractice reforms reduced the costs of health care without reducing the quality of care. Dan Kessler and Mark McClellan of Stanford University studied Medicare patients across the United States, comparing health care expenditures and care in those states that had passed legal reforms and those that did not. They found that health care costs were lower in states that had passed reforms, but patients were no worse off.

Lawsuit abuse has become a significant problem for the American economy, with consumers bearing the burden of extravagant awards and frivolous lawsuits. The health care sector has been especially prone to excessive litigation. Reforms that focus on eliminating unnecessary lawsuits while insuring that real victims are compensated for their losses would lower the costs of health care while providing health care providers the incentives to offer quality patient care. A number of states have adopted reforms along these lines.

In response to the growing scope of lawsuit abuse in the health care sector, the House passed the HEALTH Act to eliminate frivolous litigation. Recently President Bush outlined a similar proposal aimed at securing swift compensation for victims while avoiding unnecessary lawsuits. For many, the notion of lawsuit abuse has been limited to news stories of million dollar verdicts and a parade of bizarre cases through courtrooms across the country. But the growing crisis in health care offers a starker picture of how lawsuit abuse affects everyone. When doctors give up their profession and when delivery rooms are shutting their doors, it is clear the system is broken. It is time to adopt sensible legal reforms that allow true victims to be compensated swiftly while eliminating frivolous lawsuits that threaten the quality of health care available to consumers across America.