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For better or for worse, whenever many are asked about how they would help control spending in the US health-care system, tort reform always seems to be one of the first things offered as a solution. That's because there's a malpractice crisis! And tort reform will cure it! Except, neither of those things is really true. Watch and learn why not.

Those of you who want to read more and see references can go here: http://theincidentaleconomist.com/wordpress/?p=55842

John Green -- Executive Producer
Stan Muller -- Director, Producer
Aaron Carroll -- Writer
Mark Olsen -- Graphics

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(0:00) When we talk about how to control spending in the United States health-care system, tort reform always seems to be one of the first things offered as a solution. That's because there's a malpractice crisis and tort reform will cure it. Yeah, no. Tort reform is the topic of this week's healthcare triage.

(Intro)

(0:21) The argument goes, that doctors, afraid of being sued, order lots of extra tests and procedures to protect themselves. This is known as defensive medicine. Tort reform assumes that if we put a cap on the damages plaintiffs can win, then filing cases will be less attractive, fewer claims will be made, insurance companies will save money, malpractice premiums will come down, doctors will feel safer and they'll practise less defensive medicine and health-care spending will go way down. Ergo, tort reform equals cost control.

(0:51) But there's not much reason to think this is how insurance companies would act. Florida passed its flavor of tort reform in 2003. Insurance companies had to pay out way less in indemnity payments, and they saw their profits go up 4300% from 2003 to 2010.

(1:06) They didn't pass the savings on to doctors, who continued to see their malpractice insurance rates remain sky high. In Miami-Dade County, an obstetrician pays more than $190,000 for just $1 million in coverage. In other parts of the state, it's about half that amount.

(1:22) Missouri passed tort reform and its neighbor, Iowa, didn't. And then premiums went up faster in Missouri than they did in Iowa.

(1:28) And remember, if doctors don't see a change in their premiums, this whole thing falls apart. They won't stop practising defensive medicine. But I'm getting ahead of myself. Let's start with some basics.

(1:38) Contrary to what you hear, malpractice claims are really uncommon. Out of all hospitalizations, about 3-4% result in injuries due to medical care. Only about 1% of all hospitalizations are due to sub-standard care. And of this 1%, only 2% of those result in actual claims. Of those, about half wind up getting paid, and of those, only 20% are actually valid.

(2:02) But that means that 98% of injuries that result from sub-standard care never result in claims! So one way the malpractice system fails us is by bringing far too few real cases to light. This is a real problem for people who have been legitimately harmed by malpractice.

(2:17) But doctors have some pretty valid complaints about the malpractice system too. Some of them pay unbelievably high premiums to practise medicine.

(2:24) And lots of cases don't have merit. I know cos I've actually done some of the research on this. Somewhere between 61% and 66% of all claims made are dropped, withdrawn or dismissed. Malpractice claims are expensive to defend: on average, about $27,000 each. And defending the many claims that get dropped, withdrawn or dismissed actually costs more each year than defending the few that do go to trial.

(2:48) Moreover, getting sued sucks for doctors. Even when they're found to be not at fault, it takes an emotional, financial, and even a physical toll on them. It shouldn't be minimized.

(2:57) So we've got a system where too few real cases get heard, and too many nuisance cases potentially get brought forward. And here's the big irony: almost nothing about tort reform, which is basically setting a cap on pay-outs, would fix these issues. Tort reform is pitched as a way to save money on health-care spending. That's how it's sold.

(3:16) How much does the malpractice system really cost in the United States? The most recent, comprehensive estimate, which was published in Health Affairs not too long ago, estimated that medical liability system costs were about $55.6 billion in 2008, or about 2.4% of all US health-care spending.

(3:32) Some of that's indemnity payments and some of it's the cost of components of the system, like lawyers, judges, stuff like that. Most of it, however, or about $47 billion, is defensive medicine. So yes, that's real money and it theoretically could be reduced.

(3:45) The question is, will tort reform do that?

(3:48) That's actually an answerable question. You can look at areas where tort reform has already happened and see how things have changed. For instance, you can look at Texas, where non-economic damages on malpractice lawsuits were capped at $250,000 about 9 or 10 years ago.

(4:03) So what happened in Texas to costs of care after the law was put in place? Public Citizen analyzed just that using data from the Dartmouth Atlas of Health-Care. Texas is blue, the nation is red, and the law went into place at the dotted line. If anything, Texas's Medicare spending seems to have gone up faster than the nation's since 2003. Hardly a persuasive argument for tort reform equals cost control.

(4:24) Another thing you could do is compare areas with high and low malpractice premiums and see whether doctors practise differently there. Guess what, to the research!

(4:33) In the same issue of Health Affairs, another study showed that tort reform, which might lead to a 10% reduction in malpractice premiums, which is not small, might translate into a health-care spending reduction of 0.1%.

0.1%.

(4:49) I'm not going to disagree that the malpractice system needs fixing. I believe that too many claims are filed that have no merit. In addition, I believe many more are never brought to trial that absolutely do have merit. I completely support efforts at reform to address these issues.

(5:04) But this is not the solution to our high health-care spending. Tort reform does not equal cost control.