Excluded Voices: Health Care Costs

An interview with Dr. Robert Berenson of the Urban Institute

During the health reform debate, we periodically presented Q and A interviews with health care experts whose voices were scarce. Too often journalists sought out the same organizations and the same expert sources for their stories, offering up what became the conventional wisdom on different aspects of reform. To bring more variety into the conversation, our Excluded Voices series featured experts who weren’t on the media’s A-list of sources. We continue this series in the post-reform era. In this, the eighth entry in that series, we talk with Dr. Robert Berenson, an Institute Fellow at the Urban Institute in Washington D.C. The entire series is archived here.

Trudy Lieberman: Why does malpractice keep coming up as a solution to rising health care costs?

Robert Berenson: One reason is that Republicans don’t have much else to offer, and they exaggerate the importance of malpractice as a driver of health care cost increases. The doctors feed that because they have reasonable concerns about how malpractice affects them. So it’s common in debates to hear someone claim that malpractice contributes one-third of the cost of health care. There is no basis for that kind of claim.

TL: Do doctors really practice defensive medicine?

RB: Some doctors do, and sometimes that’s a good thing. When some OBs don’t deliver babies in high-risk pregnancies and refer patients to specialized centers, that may reduce complications and costs. In other cases, defensive medicine does lead to unnecessary tests and increased costs.

TL: What’s the cost of defensive medicine?

RB: It’s hard to do the research on this; a recent analysis by malpractice experts from Harvard provided an estimate of defensive medicine at about two percent of total health care spending. This estimate is as good as any estimate. It’s not trivial, but the notion it’s a major driver of spending is just not right.

TL: Then why is the argument that it is a driver of costs so appealing?

RB: When you hear it over and over, and when one side keeps referring to it, some portion of the public is likely to believe it. These are respected people—the doctors, and you tend to believe your senator when he or she asserts something with great conviction. When you have a predisposition that the government intrudes too much and the legal system drives up costs, you believe it. People won’t go to the New England Journal of Medicine or Health Affairs to get the facts.

TL: Where are the Democrats in this discussion?

RB: It’s typical for the Democrats not to knock this canard out of the box, to mix metaphors. It’s not in their interests. It will bring attention to the fact they get a lot of money from trial lawyers to defend the status quo. The Democrats want to deflect the issue, so the public doesn’t really get a full debate.

TL: Why is this issue coming back now?

RB: Republicans have challenged the president to do something about what everyone agrees is an issue. In fact, the malpractice system doesn’t work all that well. The president wants to demonstrate that he does listen to Republicans and can find some common ground. It deserves attention as part of health reform.

TL: So is malpractice a legitimate issue?

RB: There are times and places where some doctors have trouble getting liability insurance or face large increases in their liability insurance premiums, and that does produce patient access problems. Every decade it flares up. The cost of insurance is a cost of doing business for doctors, and it is reflected in increased health care spending—but it is very little overall. But in some areas those costs have caused dislocation for physicians and patients. Early in the last decade premiums were increasing, and some doctors could not afford liability insurance. Defensive medicine is common.

TL: What happens when you cap the amount of noneconomic damages paid out in a malpractice case?

RB: If you simply put caps on damages based on 1970s style reform in California—$250,000 limits on non-economic damages—you do hold down the number of suits and the cost of malpractice insurance, but it’s not clear doctors practice any differently and reduce health care spending. If you put in caps, you will reduce suits and payouts, and that will hold down premiums for providers. No one has successfully studied what that means for quality and safety for patients.

TL: Are patients hurt by such caps?

RB: There’s no question if you put in caps, some people lose their access to the courts. Lawyers take contingency fees, so if caps on damages are there, the case has to be much stronger for lawyers to agree to bring the case.

TL: Are you also saying that capping noneconomic damages does not act as a deterrent to practicing bad medicine?

RB: Yes. Physicians tend to view a malpractice suit as a random event with no predictability. The majority of injured patients do not sue, and the majority of suits don’t involve negligently injured patients. There’s a mismatch between injured patients and those who deserve compensation and those who bring a suit. It’s not uncommon for a case without merit to be brought for the purpose of achieving a settlement. Liability insurers assess whether a settlement is cheaper than actually defending a case. Physicians want to avoid bad publicity and the ongoing anxiety associated with cases that go to trial, so they may settle even though the case has no merit.

Another reason caps are not a deterrent is that most settlements are sealed, which means no information about the case can be made public. There’s no feedback to the system to find errors for preventive purposes. There are alternatives to current litigation that might be more effective at promoting actual improvements in safety.

TL: What should real reform look like?

RB: Real reform would take the problem of medical negligence out of the courts altogether. A lot of injured people don’t get compensation when they need it. The current system does not serve consumers very well. A lot of expenses are going to court costs and lawyers, instead of to injured people.

TL: How long does it take to get compensation?

RB: A malpractice case in the U.S. can take five or even ten years for the ones that go to trial. Only about five percent of suits ever get that far.

TL: What are the alternatives to what we have now?

RB: One is the idea of medical courts, which would be run by experts in medicine and law and hear cases in a non-adversarial venue. These courts would rely on precedents for similar cases and could use a list of avoidable events in determining the compensation by providing damages in relation to a patient’s age and disability. These administrative approaches would not require a plaintiff to find a lawyer and go to court. There are systems like this in New Zealand and in Scandinavia.

TL: What are the barriers to setting up these courts?

RB: These are the kinds of demonstration projects the Obama administration is supporting in the states. Instead of an adversarial proceeding with dueling experts as witnesses, the patient would have an impartial administrative official making the decision at far less cost. Experts would be advisory to the court not adversarial. But, politically, to get to this kind of reform will be hard. The AMA and Republicans want California style reform first, and that is devisive; Democrats then defend the status quo.

As long as we have this stalemate, it will be hard to have the reform we need at the federal level. Republican and Democratic roles are reversed here. Republicans typically prefer state autonomy to federal control. The Democrats often argue for federal uniformity and consistency across the country. On this issue the Republicans want federal reform, and the Democrats want state solutions arguing that the federal government has no role to play here. It’s a state issue.

TL: Are there other initiatives that have merit?

RB: Some forward-thinking hospitals want to short-circuit the adversarial nature of what happens to injured patients. Hospitals have come forward, apologized, and covered the injured person’s medical costs and economic damages. It’s good risk management and heads off adversarial proceedings. In some states, there are laws that permit providers to apologize without an admission of guilt. It’s an attempt to take this out of an adversarial situation.

TL: When a case does make it through the court, are the big jury awards reduced?

RB: The large ones are often reduced. Doctors and hospitals want protection from huge damage awards. In malpractice, rarely are there punitive awards. Most of the large awards are for non-economic damages, which are often reduced by the court. So concessions to cap punitive damages by law sound meaningful, but are not really so.

TL: Do caps on malpractice damages reduce overall health care costs?

RB: In states where there are caps, there is no reason to believe that the costs of care are much different than they are in neighboring states with more liberal malpractice laws. Liability insurance premiums, however, are lower and more affordable for providers.

TL: Then, to sum up the malpractice issue, is it fair to say that the fight over caps is largely a fight over preserving incomes of doctors and lawyers, and the needs of injured patients are not being addressed?

RB: That may be too facile a conclusion. But I agree that there are other approaches that offer promise for patients and patient safety that get little attention because trial attorneys and physicians both are defending somewhat different versions of an adversarial approach that may not well serve injured patients.

TL: If journalists should not be talking about malpractice reform as a solution to rising health care costs, what should we be talking about?

RB: Providers and some physicians have found how to get tremendous market power—the payment rates they get from insurance companies are a major cost driver. This was not talked about in the health reform debate. There are hospitals already with assets in the bank of over $1 billion that are able to generate price increases far in excess of the cost of doing business. As we move toward universal coverage, it’s hard to justify that they need those kinds of profits—called “retained earnings” for non-profits—to cover uncompensated care.

TL: Was this discussed during the debate?

RB: No. Most of the talk was about insurance companies driving up premiums and insurers became a convenient—and often deserved—target, whereas hospitals and other providers were viewed more favorably. But what’s partly driving up premiums is providers demanding higher prices and fighting limits on the excessive volume of services they generate.

TL: What should be done?

RB: The new law has important pilot programs for serious cost containment approaches, but the market power of providers is not addressed. Also, there needs to be more evidence-based medicine. That would hold providers to account for producing services that serve their own financial interests, rather than what is best for their patients.

And a much more vigorous attack on fraud is needed. Agencies such as the Centers for Medicare and Medicaid services (CMS) often can’t spend one dollar to save ten dollars in fraudulent activities. So whatever budget constrains are placed on administrative budgets, it would be foolhardy to reduce the resources that CMS and other agencies need to go after fraud and abuse. There are fewer employees at CMS today than in 1980. That’s crazy.

TL: What do providers do to exploit these weaknesses?

RB: A growing minority of physicians apparently are putting their financial interests above the interests of their patients and society. Many argue they have no duty to be prudent in the spending they generate. I am not now referring to the outright crooks, a different group altogether.

TL: Can you give some examples?

RB: There are examples where physicians are succumbing to financial incentives and doing things that are not in the best interests of their patients. A lot of cardiologists own CT angiography and PET scanners that have limited role in diagnosing heart disease, but are very lucrative. Some oncologists promote fourth and fifth rounds of chemotherapy within days of death. Other oncologists have said their colleagues are concerned more about their pocketbooks rather than having admittedly difficult conversations with patients and families about end-of-life care.

TL: Will the so-called accountable care organizations (ACOs) control costs?

RB: This is still a concept in evolution. The basic concept is that physicians, hospitals, and other institutions like nursing homes, which are all doing their thing in separate silos, would be incentivized to come together into an organization that would work together to achieve common quality and spending targets. But in contrast to how managed care works, patients would not be “locked-in” to the ACO. The ACO would have to earn its allegiance by actually producing what patients want. That’s the concept. It’s a compelling one. The next five years should be spent getting the details right as this will be new for all involved—providers, payers and patients. I am concerned that the ACO will be seen as a magic bullet and be rushed—and then fail to measure up. I have said we have other things we can do in the short term to reduce spending.

TL: What’s the difference between an accountable care organization and HMOs?

RB: There’s no requirement that patients will be locked into the organization’s networks as there is with HMOs. Also, the ACOs are provider organizations, not insurers, so that eliminates the middleman, which takes ten to fifteen percent off the top to support administration, marketing, and profits. The action is with the doctors and hospitals themselves.

TL: Will they lower costs?

RB: The prospect of integrated care—providers talking to each other within a fixed budget—offers great potential. But it’s not clear providers who are doing quite well, thank you very much, working in silos and paid fees for their services, will make the adjustments needed to make this happen. Some may see it as an opportunity to use market power to raise prices, and that might result in more consolidations but not greater efficiency. That could lead to the lack of desirable competition.

TL: How useful is pay-for-performance—giving higher Medicare payments to docs who do a better job?

RB: If the jury came in today, it would show that pay-for-performance has been disappointing in its impact. Increasingly, the academic literature says that process measures do not predict outcomes we care about like mortality. It’s clear we don’t have lots of measures we need to properly assess quality, and the measures we do have are not robust. We don’t measure whether a surgery was necessary, but we do measure whether the patient got antibiotics before a surgery that may not have been necessary. Often we’re measuring relatively trivial things because that’s what we can measure. Pay-for-performance has a role—but a relatively small role—as a complement to global payments, which give providers one payment to cover all the services a patient needs.

TL: What’s your prediction for where we will be on the cost problem ten years from now?

RB: For one thing, states will play a larger role in attempting to control costs. We’ll have all-payer rate setting arrangements at least in some states. We had success in the 1970s where independent commissions or departments of health determined the rates for hospitals that applied to all payers—Medicare, Medicaid, and commercial insurers. These rate-setting approaches eliminate the failed process of negotiations between plans and providers. Often either providers or payers have too much negotiating power. This would promote equity and limit inflationary price increases. That will mean hospitals caring for Medicaid patients would get more, and hospitals in affluent areas would get less. I think some form of regulation over provider prices actually would encourage beneficial competition over quality and efficiency, not prices among providers and health insurers.

TL: What will be the impetus that finally gets us to this point?

RB: I remember President Nixon saying that health care cost inflation was unsustainable. Forty years later, somehow we have muddled through without seriously addressing the problem. There is plenty we can do if we have the political will to get on with it. So at this point I am willing to say that the current growth in health care spending is unsustainable. There is no magic bullet solution, but rather a series of complementary actions that together could alter the trajectory of the cost curve.

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Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR's healthcare desk, which is part of our United States Project on the coverage of politics and policy. She also blogs for Health News Review. Follow her on Twitter @Trudy_Lieberman. Tags: , , , , ,