Malpractice & Errors

Concerns about reducing the rate of growth of health expenditures have reignited interest in medical liability reforms and their potential to save money by reducing the practice of defensive medicine. It is not easy to estimate the costs of the medical liability system, however. This article identifies the various components of liability system costs, generates national estimates for each component, and discusses the level of evidence available to support the estimates. Overall annual medical liability system costs, including defensive medicine, are estimated to be $55.6 billion in 2008 dollars, or 2.4 percent of total health care spending. D uring the push to pass federal health reform legislation, considerable attention focused on the possibility that medical liability reforms could “bend the health care cost curve.” Conservatives in Congress and others argued that liability reform would address two drivers of health care costs: providers’ need to offset rising malpractice insurance premiums by charging higher prices, and defensivemedicine—clinicians’ intentional overuse of health services to reduce their liability risk. President Barack Obama elevated the profile of liability reform by acknowledging that “defensive medicine may be contributing to unnecessary costs” and by authorizing demonstration projects to test reforms. Background Previous Analyses Notwithstanding this interest in liability reform, rigorous estimates of the cost of the medical liability system are scarce. The most commonly cited figures are from a 2004 Congressional Budget Office (CBO) report that concluded, based on unspecified data provided by a private actuarial firm and the Centers for Medicare andMedicaid Services (CMS), that malpractice costs—excluding defensive medicine—account for less than 2 percent of health care spending. In a subsequent analysis, PriceWaterhouseCoopers used the 2 percent figure, then extrapolated from estimates of the practice of defensive medicine in a study of care for two cardiac conditions by Dan Kessler andMarkMcClellan. On that basis, the firm reported that the cost of insurance and defensive medicine combined account for approximately 10 percent of total health care costs. More recently, the CBO concluded that implementing a package of five malpractice reforms would reduce national health spending by about 0.5 percent but did not estimate total malpractice costs. Current Analysis In this article we estimate the cost of themedical liability system in order to better understand its potential to affect overall health spending. We break down the various components of liability systemcosts, use the best available data to generate national annual estimates for each component, and discuss the quality of the evidence available to support these estimates. ▸▸LIMITATIONS: Our analysis was limited in two key respects. First, we did not attempt to estimate social costs that cannot be readily expressed in monetary terms. For example, we did not include the reputational and emotional costs for physicians of being sued. Second, we did not evaluate the social benefits of the medical liabildoi: 10.1377/hlthaff.2009.0807