Hiltzik With a Reality Check on Tort Reform

Michael Hiltzik of the Los Angeles Times has a helpful column cutting through some of the noise in the health-care debate on tort reform.

Hiltzik isn’t the first to point out that malpractice litigation and so-called defensive medicine aren’t a critical factor in driving health-care inflation. They cost a lot of money, some $50 billion a year, but you’ve got to put that in context: That’s just 2 to 3 percent of total health-care costs.

But what Hiltzik points out, and what proponents (and, oftentimes, journalists) don’t, is that only a fraction of that $50 billion is due to “frivolous lawsuits.” Think about it: There’s a lot of real malpractice out there and people deserve to be compensated if they’re hurt. They surely account for the largest portion of that $50 billion.

How to quantify it? Hiltzik points to a study in The New England Journal of Medicine that found frivolous claims are actually pretty rare:

An extensive study she helped conduct of malpractice case files showed that frivolous cases, as usually defined, are rare — and those that do get brought usually don’t yield a payment to the plaintiff.

I looked at the study and it found that the majority of cases were really injuries caused by medical error. Some 37 percent were real injuries not caused by medical error. Just 3 percent were cases with no injury.

More interesting, though, is that the study found that claims due to actual medical error accounted for 84 percent of total costs among 1,500 cases it examined. If that holds broadly, it would mean just $8 billion a year of that $50 billion total is spent on cases with no medical error (it’s unclear how much of the defensive medicine portion would be due to this minority of cases). And not all of those cases are frivolous.

And as Hiltzik points out, the researchers found that more legitimate claims get denied than illegitimate claims get money.

He also looks at the state of California for lessons on how effective tort reform might be. California capped “pain and suffering” damage awards at $250,000 thirty years ago and hasn’t adjusted it for inflation. But doctors’ insurance premiums continued to soar after the cap passed and insurers in the state last year paid out only 17 cents in claims for every dollar they take in in premiums.

So next question: How much of that $50 billion goes to the insurance industry’s bottom line?

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.