Here’s what is stopping tort reform

In his Sept. 9, nationally televised speech before a joint session of Congress, President Barack Obama made news by saying that medical-malpractice litigation “may be contributing to unnecessary costs” in the U.S. health care system.

Since then, trial-lawyer advocates — including their lobbying arm, the American Association for Justice (AAJ), and various allied “consumer” groups such as the Center for Justice and Democracy — have been engaged in a fierce counterattack. Front-and-center among the lawyer-advocates’ arguments is that litigation is too small a piece of the health care puzzle to make much difference.

In a letter to Senate Finance Committee chairman Max Baucus, such self-styled consumer groups claimed that costs consumed by medical-malpractice litigation represent “less than 0.6 percent of all health care spending.”

To reach this number, the groups are playing a deceptive fraction game, in which they embrace a small numerator based on a ridiculously narrow interpretation of litigation costs and a large denominator encompassing every dollar spent on health care.

The lawyer-allies would count as litigation expenses only the malpractice litigation claims paid out directly by insurance companies in a given year. Conveniently, the lawyers’ advocates ignore self-insured hospitals and legal-defense costs, not to mention defensive medicine — the cost of excessive tests, procedures and referrals that doctors order due to fear of liability.
 
Ninety-three percent of doctors say they have practiced defensive medicine, and the real cost savings from reforming malpractice liability stem from curbing such wasteful practice. Academic researchers have reached different conclusions on how much money tort reforms save by preventing defensive medical practice, ranging from 2 percent of all health costs in some studies to as much as 9 percent in others.

Such a percentage itself is much larger than it might seem. If we look at the difference in U.S. health spending relative to that in other developed countries — such as Canada, Germany or France — medical-malpractice reform would eliminate anywhere from 6 to 27 percent of all additional health costs.

While defensive medicine costs a lot, it is hardly the only cost-escalation stemming from lawsuit abuse. The lawyers’ advocates try to ignore the vast health-related litigation — apart from medical-malpractice lawsuits, which target nursing homes, pharmaceutical manufacturers and HMOs.

And the cost of this litigation matters, too. From 1992 to 2003, the cost of litigation per nursing-home bed rose 700 percent. When trial lawyers almost sued the vaccine manufacturers out of existence in the 1980s, they drove up vaccine prices as much as 4,000 percent.

After that vaccine-liability crisis, Congress acted responsibly to establish an alternative compensation system outside the tort system, which hurt the trial bar’s profits but preserved the vaccine markets. But Congress will not take any meaningful steps to curb lawsuit abuse as a part of comprehensive health reform this year, notwithstanding that 83 percent of the American public wants them to do so.

The reason is clear — money. The trial lawyers’ political action committee is the second-largest donor to Democrats’ federal campaigns, and lawyers gave $127 million to Congressional candidates in the 2008 political cycle — more than doctors and health professionals, hospitals and nursing homes, pharmaceutical companies and HMOs, combined.

As medical doctor and former Democratic National Committee chairman Howard Dean admitted in a town-hall meeting this summer, “The reason why tort reform is not in the bill is because the people who wrote it did not want to take on the trial lawyers.”

It’s a myth to think that liability reform alone could cure the nation’s health care problems, but it is equally a myth to think it doesn’t matter. Unfortunately, because of the trial lawyers’ stranglehold on Congress, meaningful liability reform — this year — is simply wishful thinking.

James R. Copland is the director of the Center for Legal Policy at the Manhattan Institute and the project manager for its Trial Lawyers, Inc. series, including a brand-new Health Care update.