Healthcare Installment #10. Please start with post of 08/25/09.

The Effect of Lawsuits on Healthcare

It is unquestionable that lawsuits have an effect on the cost and practice of healthcare. What is hard to determine is the true extent of that cost. Better data might be developed with some dedicated research. This is particularly true for the cost of malpractice insurance for doctors, hospitals, nursing homes, etc. Less easy to quantify are the costs for additional treatment and testing done as "defensive medicine." Studies of this have been very limited and not easily generalized to the entire healthcare industry (Kessler-McClellan 1996, GAO 1999, CBO 2004). As a result, statistics cited by different groups vary widely.

What is obvious is the cost of settled lawsuits. These range from thousands to billions of dollars. Large drug makers are particularly susceptible to huge damage awards as their products are used by millions of people and class-action lawsuits result in billion dollar settlements. Large insurance firms also are hit with large pay outs. Some of these are the result of jury verdicts, while others are settlements to avoid ending up in court with unknown outcomes. Doctors are also targets for suits, but settlements are lower because their ability to pay is limited. Insurers are sued for failing to authorize treatments, some of which are unproven, or for failing to compensate doctors and hospitals fairly. Nearly everyone can be sued for something.

Lawsuits and their settlements have very mixed effects. On the one hand, they compensate persons or families who have been truly harmed by poor medical practices. There is such a thing as bad medicine and doctors, hospitals, and insurers who provide it should pay a price. Classic stories like amputating the wrong leg, leaving surgical instruments in the patient, neglecting to turn patients to prevent sores, generally poor cleanliness leading to infection, etc. all show why lawsuits are needed. Conversely, piling people onto class-action suits where they have not personally suffered injury, but have merely taken a suspect drug, does not help the case for suing. Neither does the fact that some legal jurisdictions are favored by attorneys because of their inclination to be sympathetic to any claimant and to award large settlements. There is no "equal justice" because it varies widely from state to state. Ironically, the plaintiffs who receive the settlement may get only about half after paying for attorney and administrative fees. Thus, part of the cost of healthcare is not for medical care at all, but for legal expenses.

There is ample evidence that the legal costs of medicine are affecting both its price and its practice. The increasing cost of malpractice insurance is passed along in the form of higher bills to patients. Doctors admit to ordering tests just in case they might get sued. Some doctors, particularly obstetricians who find themselves sued more often, simply stop practicing or move to locales where their malpractice premiums are significantly lower by a factor of one-half or more. The result is no one to deliver babies in some locations. Doctors also stop prescribing drugs that are subject to lawsuits, even though the original benefit of the drug is unquestioned and may be highly appropriate for specific patients. Drugs whose overall medical benefits outweigh their side effects are forced off the market because of the high costs of legally defending them. Anyone can sue a drug company regardless of the merits of the suit and it costs the company money to defend itself. There are no penalties for meritless suits. Part of the cost of a drug is for its legal defense, or the defense of other drugs made by the manufacturer.

Unfortunately for all concerned, when a suit goes to trial, the jury may not be equipped to understand the case presented to it. Medicine, and the science behind it, is complex. Juries are made up of jurors who may have had one biology course in high school. That is hardly sufficient preparation for understanding complex surgeries or drug testing procedures. This can make it very difficult to weigh the conflicting claims of adequate science versus personal injury. The human cost may be all too real compared to the abstractness of the scientific testimony. Worse yet, juries may not be able to distinguish real science from "junk science." Junk science often alleges causation when the only connection is casual association. The debate over mercury in vaccines as a cause of autism represents this problem. Science is not perfect so that what seems true today may be replaced by a better understanding tomorrow and that also casts doubt on every case.

The fact that the medical profession has not done a particularly good job of weeding out poor providers or bad practices contributes to the number of lawsuits. Self policing by doctors, hospital agencies, and the drug industry are necessary, but apparently not sufficient. The fact that Pfizer was hit with a $2.3 billion fine by the government for unlawful drug promotion practices only reinforces negative perceptions of the profit motive within the healthcare industry.

There is little doubt that reining in the excesses of the legal system with regard to healthcare suits and settlements would lower the costs of insurance premiums and probably the use of some diagnosis and treatment procedures. Just how much that would save is uncertain. A good step in healthcare reform would be to study the situation to see what was being spent and what could realistically be saved before suggesting how to save it.