Tort reform and fee-for-service reform are two sides of the same coin

Reihan Salam has a very good piece on why tort reform is necessary if we want to rein in out of control health costs. This bit jumped out at me:

This week, Archives of Internal Medicine, an influential medical journal run by the American Medical Association, has published a survey of 1,231 physicians conducted last summer (subscription required). The poll, which queried a broad range of primary care physicians, medical specialists, surgical specialists, and other specialists, were asked to agree or disagree with two statements: (1) “Doctors order more tests and procedures than patients need to protect themselves against malpractice suits”; and (2) “Unnecessary use of diagnostic tests will not decrease without protections for physicians against unwarranted malpractice suits.”

 A remarkable 91 percent of physicians agreed with both statements.

Admittedly, this is only one problem associated with doctors over-testing (and thus over-charging) for their services. The other is the fee-for-service model set up under Medicare and used by most private insurance companies as well, which pays doctors not by the outcomes of their services but simply by services rendered. This is akin to paying a mechanic not to fix your car but only to try to fix it, regardless of outcome.

Tort reform and fee-for-service are two sides of the same coin, however. If doctors not only have to perform too many tests and procedures because of fears over being sued, and they’re paid for each of these tests and procedures, the end result is an increasingly expensive and ineffective healthcare system.

Reform would lead to lower costs and less wasted time for everyone involved. Doctors would have less paperwork, lower litigation insurance costs, happier patients, and more time on their hands to work as doctors rather than glorified accountants. Patients would have more money in their pockets to spend on things other than broken windows, and they’d be paying for results.

The problem with reforming the fee-for-service model is that it leaves doctors in an even worse legal and financial position. They are still required to over-test but now the costs of all these tests and procedures are not reflected in their fee.

In other words, without tort reform, doctors are left holding the bag at the end of the day. This leads to a shortage of doctors and medical providers as fewer and fewer people are interested in becoming doctors in the first place. A short supply coupled with an increasing demand for medical services leads to higher costs. The vicious cycle continues.

Tort reform taken as an independent issue may not be the most vital reform needed to fix our broken healthcare system, but taken as a piece of a larger whole it becomes clear quite quickly how important it really is. Unfortunately tort reform is as absent from the recently passed Affordable Care Act as meaningful market reforms.

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