In Scare Tactics and Scare Tactics II, I bemoaned the fact that the debate surrounding tort reform is held without knowledge of basic information. When discussing tort reform, advocates and the media tend to use anecdotes, many of which are untrue, as a substitute for data.
At one point, I noted that the total of all medical malpractice judgments and settlements was about $4.2 billion. Some commenters noted that the $4.2 billion figure does not include defense costs and that knowledge of those costs would be helpful in discussing the issue. I agreed.
For instance, Sebastian Holsclaw commented that:
I think you are ignoring the most important (and probably most costly) part of the equation: cost of defense.
Hidden costs--I am suggesting that the cost of defense is MORE than the cost of settlements+judgments. I am suggesting that a debunking ought to at the very minimum focus on the majority of costs... The cost of defense is at least equal to the cost of settlements. I suspect it is more like 5-10 times the cost of settlements but at the very least it is equal to them. (Emphasis in original).
I promised to look into the matter and report back. Other things intervened and the task remained on my to-do list. Yesterday, the Bloviator pointed us to a Congressional Budget office report (PDF) on medical malpractice reform.
That report notes that the payment of claims constitutes about two-thirds of the total costs while defense costs, administrative costs and underwriting costs make up the remaining third. Thus, defense costs and the costs of administration and underwriting combine to be about one half of the cost of paying claims.
For 2002, the payment of claims was $4.2 billion. Thus, the other costs, including defense costs, would be around $2.1 billion.
Even a cursory look at Sebastian’s blog or any familiarity with his comments on the sites of others will convince you that he is smart and well informed. He also, apparently, works in the legal field. The debate around tort reform is so anecdotally based and data-free that his estimate of defense costs can be off by a factor of 10 to20. The lack of widely disseminated information about the subject is also shown by the fact that after Sebastian posted his estimate, I did not know the correct figure and no commenter posted the correct figure.
If we are going to arrive at sensible ways to improve the tort system, we need to know basic information about the subject. That data has largely been unreported with the effect that the discussions are often dominated by anecdotes, many of which are simply untrue. Is that really the way to debate an issue or to make public policy?
I have practiced in medical malpractice over the course of the last twenty years, in an area which has a reputation for high and "unfair" settlement/verdicts (Philadelphia, PA), mostly on the defense side, although I did try one such case as plaintiff's attorney (and lost, in a case I advised against my firm ever taking). Although my personal statistical sample is small, I would agree with the statement that defense costs for all cases, including those where there is a clear defense victory with no payout to plaintiff whatsoever, adds up to less than half of the total amount paid out to plaintiffs in settlements and verdicts.
Posted by: rambler at January 22, 2004 08:18 AMNice post, Dwight. I've added an update on my blog.
Posted by: Ross at January 22, 2004 10:21 AMI noted that in high expense New York, I gave credence to defense costs possibly being 100-150% of verdicts and settlements (though not Sebastian's extremely unlikely 500%-1,000% overage); even if that takes the total defense plus verdict/settlement payout
to $10B a year, rather than $6B, we are still looking at a prepostersously small percentage (well under 1%) of the over $1.4 trillion spent on health care costs each year in this country.
In short, crisis shmisis.
TD:
I think you are right as far as settlements, judgments and defense costs of med mal cases are concerned. The amount of money spent is just so tiny in comparison to health care costs that it is difficult to see what all fuss is about.
There is one other cost, however, which is the cost of defensive medicine. It is a very difficult cost to get a handle on but I hope to post some thoughts on that subject fairly soon.
BTW,in response to some things said in comments to some other posts and emails, I should probably note that I do not represent plaintiffs in med mal cases and have never done so. My very limited experience in med mal cases has been on the defense side.
Well, I haven't tried any med-mal cases either (though I have on occasion, started them...)
But I do wonder...why do we assume that there is a net "cost" to defensive medicine at all? I mean, some people think "defensive medicine" is a bad thing, because they look at dollars they spend (and put a pretty low number on, oh, human life).
The fact is, if you sit in a commercial airline seat, your odds of death from an accident or other calamity during the ride are hundreds of thousands to one; if you check into a hospital, the odds are an astonishing 750 to 1.
Who is to say that conservative treatments and testings "necessitated" by the desire to avoid law suits does not, on net, keep that number from being 200 to 1? And but for defensive medicine, although "dollars" would apparently be saved TO INSURERS, who is to say that we wouldn't have a far larger number of dead and wounded...? Because I'm not convinced that "defensive medicine" isn't just the appropriate degree of CONSERVATIVE medicine that should be practiced in the first place.
Posted by: the talking dog at January 22, 2004 05:10 PMYou anticipate some of my thoughts TD.
Posted by: dwight meredith at January 22, 2004 05:13 PM