2010 June 29 Tuesday
Defensive Medicine Minor Cost Overall

Much is made of the costs of defensive medicine where doctors order extra tests in order to protect themselves against medical malpractice lawsuits.

"About $60 billion is spent annually on defensive medicine and many physicians feel they are vulnerable to malpractice lawsuits even when they practice competently within the standard of care," said Tara Bishop, MD, Associate, General Internal Medicine at Mount Sinai School of Medicine, and co-author of the study. "The study shows that an overwhelming majority of physicians support tort reform to decrease malpractice lawsuits and that unnecessary testing, a contributor to rising health care costs, will not decrease without it"

But how about some perspective?

US health care costs grew by $134 billion in 2009 over 2008. So one year's cost growth is more than twice as great as the cost of defensive medicine. Yet defensive medicine is frequently cited in some quarters as a major source of high health care costs. Next time you hear that claim ask yourself whether the person making it is ignorant or deceptive.

Over a longer period of time the growth in US health care costs has been enormous.

Expenditures in the United States on health care surpassed $2.3 trillion in 2008, more than three times the $714 billion spent in 1990, and over eight times the $253 billion spent in 1980.

...

In 2008, U.S. health care spending was about $7,681 per resident and accounted for 16.2% of the nationís Gross Domestic Product (GDP); this is among the highest of all industrialized countries. Total health care expenditures grew at an annual rate of 4.4 percent in 2008, a slower rate than recent years, yet still outpacing inflation and the growth in national income.

US health care costs were 17.3% of GDP in 2009. The costs of defensive medicine add up to less than half a percent of GDP. That's much less than the rhetoric about defensive medicine would lead you to expect.

It might be possible to cut defensive medicine costs via tort reform. However, a different approach focused on quality improvements seems a better bet. It is certainly possible to cut medical costs by a much larger amount by reducing medical mistakes and improving the quality of performance of medical providers. That'd cut the lawsuits and lower medical malpractice insurance costs while simultaneously improving quality of care and health outcomes.

Share |      By Randall Parker at 2010 June 29 09:28 PM  Economics Health


Comments
Elizabeth said at June 30, 2010 4:44 AM:

I think that the two biggest problems are: (1) an aging population; and (2) a self-indulgent population. Seventy to seventy-five percent of health care costs are life-style related, but most people would rather take medication or even undergo surgery, or suffer or take a chance rather than change their behavior. Another problem is that most medical care is free or nearly free, so it's wasted. People go to the doctor for trifling problems. The elderly especially go because they're bored or lonely or because they can't accept the fact that they're old. A great deal is spent on end-of-life care, too, or on keeping alive people who are decrepit or severely disabled: individuals who in the 1950s or even the 1980s would be dead.

v said at June 30, 2010 5:38 AM:

This whole minor savings point glides over the fact that this is the single largest saving that won't impact patient care negatively...All other significant savings will do so while quality improvement savings are usually a myth propagated by trial lawyers....

dk said at June 30, 2010 8:27 AM:

test I cant usually post

dk said at June 30, 2010 8:35 AM:

Just wanted to say medicare is a major driver of this. I have a friend on medicare with congestive HF. Before he was on medicare he bought generic ace inhibitors because they were roughly 150$ a month cheaper. Now he pays 6$ for a 90day supply for generic and 9$ for the latest and greatest. The doctors have been moving him to a new brand name as soon as the generic goes off patent. It's funny really but so irresponsible. Maybe they get kickbacks from the drug companies, or maybe advertising works on doctors too. I dunno.

gcochran said at June 30, 2010 6:44 PM:


It's just a lie. The argument that more direct costs of malpractice insurance and settlements have been a major factor driving increased medical costs is also a lie. You would probably save more money just by forcing MDs to follow best practice on line infections: make them (1) wash their hands with soap, (2) clean the patientís skin with chlorhexidine antiseptic, (3) put sterile drapes over the entire patient, (4) wear a sterile mask, hat, gown, and gloves, and (5) put a sterile dressing over the catheter site once the line is in. Forcing MDs to get every detail of this process right, by using a checklist, drastically reduced line infections. One of which killed a friend of mine, by the way, which I suppose makes me a trial lawyer.

Black Death said at June 30, 2010 7:16 PM:

I wasn't able to access the Bishop article online, so I couldn't evaluate the methodology, but $60 billion seems an awfully low number for the costs of defensive medicine. Doctors, hospitals and other providers spend about 1% of total health care expenditures to purchase malpractice insurance, so that would put it at about $25 billion for 2009. That's not exactly a small number, but actual costs of defensive medicine run much higher. For example, in 2009, Jackson Healthcare, using physician survey methodology, found:

A report from The Centers for Medicare and Medicaid Services recently estimated overall U.S. healthcare spending in 2009 to be $2.5 trillion. If physician estimates are accurate, according to Gallup and Jackson surveys, between $650 billion and $850 billion are being spent each year due to defensive, or lawsuit-driven, medicine.

Jackson Healthcare's online survey also found that the impact of defensive medicine practices extends beyond inflating costs. Its consequences are 1) limiting access to care for high-risk patients, 2) over- and under-treating patients with life-threatening illnesses, and 3) fostering distrust among patients and their physicians, which has resulted in lowered physician morale and manpower.

As long as physicians are personally financially liable for medical errors or omissions, they will continue to practice defensive medicine, because they have to put their careers, reputations and personal net worth at risk every day. This is placing an unnecessary burden on patients by subjecting them to unnecessary tests and treatments, while inflating their out-of-pocket expenditures.

....

The whole report is worth reading: http://www.jacksonhealthcare.com/healthcare-research/healthcare-costs-defensive-medicine-study.aspx

The studies on this problem are all over the place, but I think Jackson's numbers are closer to the truth than Bishop's.

It seems that the American healthcare system is designed to encourage waste. For example, suppose Grandpa is in the ICU, and things are looking grim. The doctors inform the family, who insist that "everything has to be done" to try to save the old boy. Why shouldn't they? Medicare or some other agency is paying the bills, so the family do not have to worry about the money. They can make themselves feel better by "doing everything" to help Gramps. And the doctors are only too happy to comply - after all, they get paid for what they do and, in the unlikely event that they are challenged, they can just point out that they were following the family's wishes.

Malpractice-driven waste works the same way. Suppose a kid falls off his bike and bumps his head. He gets taken to the ER, and the examining doctor thinks there's nothing really wrong. But then the doctor remembers that, if he misses some subtle and very rare brain injury, he will be sued. And it costs the doctor nothing to get some imaging studies of the brain and maybe even get a neurosurgeon to see the patient. Now all this extra stuff may be unnecessary and is certainly very expensive, but why should the doctor care - he's not going to see the bills - just the lawsuit if he misses something, however obscure. So off to Radiology the kid goes. And an encounter that should cost maybe $200 ends up costing $2000. Medicine in the US is chock full of this kind of stuff. We'll never get health care costs under control until we get the liability system reformed and make patients (and their families) an least partially responsible for costs.

gcochran said at June 30, 2010 7:32 PM:


The article Randall cited talked about the incidence and costs of real procedures. That trumps all the survey data ever taken.

Since ordering extra tests and procedures entails more revenue for the doctor in almost every case, a cynic (someone who's not always wrong) might wonder about the true motivations for ordering unnecessary tests. He might even note that such tests are much more common when the MD has ownership of the testing provider.

I have seen many an argument by MDs in defense of the existing medical economic structure. In every case I have looked at closely, the argument was a lie.

gcochran said at June 30, 2010 8:24 PM:


I used to like hearing MDs explain that expensive, newfangled gadgets such as MRI and CAT-scans were the major cost drivers, but of course that was all hooey too. Maybe they're not lying: maybe they can't count. Reminds me of the stories about all the MDs who are leaving medicine because of all the lawsuits and complicated billing and various economic reasons - to, uh, do what? Live off their investments, probably - it's not like they can instantly turn into lawyers or managers.

not anon or anonymous said at July 1, 2010 9:39 AM:

Suppose a kid falls off his bike and bumps his head. He gets taken to the ER, and the examining doctor thinks there's nothing really wrong. But then the doctor remembers that, if he misses some subtle and very rare brain injury, he will be sued.

Isn't this the efficient outcome? After all, rare brain injuries sometimes cause very real damage to patients. If anything, he real problem is that the resources used by the doctor are underpriced. The hospital could choose to forgo costly tests for rare injuries, but it would be only fair to compensate the few patients who sustain damages due to slipping through the gap.

Black Death said at July 1, 2010 11:51 AM:

Isn't this the efficient outcome? After all, rare brain injuries sometimes cause very real damage to patients. If anything, he real problem is that the resources used by the doctor are underpriced. The hospital could choose to forgo costly tests for rare injuries, but it would be only fair to compensate the few patients who sustain damages due to slipping through the gap.

....

No, it's not the efficient outcome. True, rare brain injuries (or other rare diseases) can cause serious problems, but it's not efficient to test every patient for every rare and exotic condition, no matter how serious they may be. That's what a physician's judgment is supposed to do. But when the physician bears all of the cost of a mistake (i.e., a malpractice suit) and none of the cost of exclusion (testing and consultation) what's the likely outcome? Costs go through the roof, which is exactly what we have.

Macrographic said at July 1, 2010 7:33 PM:

If doctors would only make their fatal mistakes on malpractice lawyers, public sector union personnel, and HHS bureaucrats, some sense of poetic justice might return to medicine!

A lot of the medical mistakes and medical procedures that are happening are secondary and tertiary errors on patients who should have never been admitted for their primary complaint. Medical insurance sets the table for the feast, and a lot of people are getting rich. Amazingly enough, the doctors are not the ones who are making the most loot off the scam, although the misinformed generally focus on the doctors and their "mistakes."

Idiots who do that should perhaps go to medical school themselves and show how it should be done. Incompetent loud mouthed fucks.

ziel said at July 1, 2010 8:04 PM:

Randall, do you have any idea how that 17% figure is developed? I've looked all through the BEA numbers and haven't found anything like it (the figures they have are much lower). So I assume it's things that are included elsewhere like manufacturing and equipment and structures that account for the difference. But I've never seen any explanation of the methodology.

For example, for the most recent quarter, health care services came to $1,169b, which is about 11% of GDP (and this includes Medicaid and Medicare paid services - they're not included under government expenses). To get to 17% requires another $811b. Total non-residential private investment amounted to $1,368b, so for the remaining health care costs to be included there would require that 59% of private non-residential investment be in medical equipment - not plausible. I don't doubt the 17% figure - but I'm missing something big (and no doubt obvious) somewhere that accounts for it.

bbartlog said at July 1, 2010 8:50 PM:

gcochran is right. 'defensive medicine' is not as big a problem as profit-maximizing medicine, and anyway in most cases these aren't opposed. Look at the c-section rate (compared to Europe's, and they have as good or better outcomes...). Simple, hook up fetal monitor, look for an elevated heart rate or a lowered heart rate or whatever, declare fetal distress and the necessity of a c-section. Cha-ching. The same scenario plays out in other situations. Lots of people get an IV for hydration even if they don't need it. On the flip side, so long as your facility is not dirty enough to be sued for negligence, why try to make it cleaner? People with infections mean money for the hospital, whereas hiring staff to scrub things extra-clean and sterile just damages the bottom line.
There is a fundamental problem of information and incentives in the way our medical system is set up. Radical transparency might help on the information side, but the benefits would go mostly to people who were already well-informed and skeptical.

Amazingly enough, the doctors are not the ones who are making the most loot off the scam

For a while they did all right with their cartel, but ultimately the med schools, the sellers of loans, and various other groups latched on to the gravy train and now the doctors are just passengers who get thrown a bone once in a while. I suspect that for the work and effort becoming a doctor is not a great deal financially; it's only because it's a fairly high-status job that it still pulls in a lot of people.

Randall Parker said at July 1, 2010 11:19 PM:

ziel, Heritage Foundation puts Medicare at 3.1% GDP and Medicaid at 1.9% GDP for 5.0% GDP total between them. I find that puzzling because I've read that the US government now accounts for over half of medical spending. So where's the other 12.3% coming from?

I'll try to look into it Friday night. Gotta get some shut-eye now.

Randall Parker said at July 1, 2010 11:26 PM:

ziel,

Some more federal medical spending numbers:

Medicare, Medicaid, and CHIP: Three health insurance programs ó Medicare, Medicaid, and the Childrenís Health Insurance Program (CHIP) ó will together account for 21 percent of the budget in 2010, or $753 billion. Nearly two-thirds of this amount, or $468 billion, will go to Medicare, which provides health coverage to around 46 million people who are over the age of 65 or have disabilities. The remainder of this category funds Medicaid and CHIP, which in a typical month in 2010 will provide health care or long-term care to about 64 million low-income children, parents, elderly people, and people with disabilities. Both Medicaid and CHIP require matching payments from the states.

Benefits for federal retirees and veterans add up to 7% of the federal budget. Not clear on how much of that is medical. Maybe that adds another 1% of GDP due to medical costs? Also, state expenditures on Medicaid are large. That's got to be another big source.

ziel said at July 2, 2010 4:27 AM:

Randall, thanks - it is puzzling. VA hospital costs would not be included in the "Services" sector of GDP - but all the other stuff - medicare, medicaid, ChIP - would be in that 11%. At least that's my interpretation of this document: http://www.bea.gov/national/pdf/NIPAhandbookch5.pdf

bbartlog - I think you're right on about the c-sections - it's an absolute epidemic.

ziel said at July 2, 2010 5:34 AM:

Correction - government medical reimbursements go into the Personal Consumption Expenditures category, which includes services, but also goods, for things like aspirin, catheters, etc. "Other Non-durable goods" amounted to 824b in total and "other durable goods" were 149b. So I suppose it's a little more plausible that within the combined $2,341b for Other-Durable, Other-non-durable, and Non-Residential-Investment, about a third of it is attributable to health care. I'll keep looking, too.

ziel said at July 2, 2010 8:29 AM:

Sorry to hijack your thread, but while I'm looking this seems as best a place to capture these notes as any:)

From NIPA table 2.4:
Other-durable: therapeutic appliances and equipment - $44.6;
Other-non-durable: Pharmaceutical and other medical products - 279.4;
Financial Servics: net health ins - 161.8.
Total Health Goods - 486.
These are from 2008, so bumping them up by the 07-08 change, figure 500b.

Private Investment
NIPA table 5.4.5:
Non-residential structures: Health care - 44.0
NIPA Table 5.5.5:
Equipment and software: Medical - 68.7

Total Health Investment - 112.7. Bumped up for June 10, figure 120b.

Ok, so that takes care of 620b out of the missing 811b. That would leave 190b for government expenses in administering Medicare, Medicaid, and governement run instituions (like VA hospitals). That doesn't seem unreasonable, when you consider federal + 50 state governments and the net private insurance output of 162b. An initial search of the the government expenditure tables didn't uncover any supporting details, but the figure seems close enough to me not to completely doubt the 17%.

One caveat, however - health care services include about 110b of dental services. I think dental should be excluded in these calculations, because no one worries about the rising cost of dental services or universal dental coverage. I wonder how much of the other items above include dental goods and equipment?

Have a good 4th of July weekend!

Malcolm Merrinof said at July 2, 2010 9:19 AM:

Right. If you want to see catastrophic mistakes being made, look at government run health care.
All the rosy, naive predictions made for Obamacare are going to appear hopelessly jejune in hindsight.
Futuristic websites seem to get stuck in child-like thinking about the real world. As if the writers of such blogs are academics or journalists and have never held a real world job in their lives.
If you think you have seen a lot of fatal and disabling mistakes in US healthcare up until now, just wait until the government makes all the important decisions. Don't make stupid comparisons with Europe. European countries are small and relatively homogeneous.
When you think of the US, think of Detroit or Baltimore city workers. That's the future. That's who's gonna take care of you when you get old and drool runs down your chin.
Heavens help you if you wreck your car and end up quadriplegic in a home. Dirty, sloppy, deadly. The future of American medicine under government.
You ain't seen nothin' yet if you think it's bad now.

Randall Parker said at July 2, 2010 11:40 PM:

Ziel,

Hijacked thread: If only more people hijacked my threads to post links to real facts.

Health care investments: I do not see how these numbers should be added into the total spent. The investments have got to be funded by money spent on health care services. The money for services flows back out as money for equipment, buildings, and the like. It is what people actually spend to buy medical treatments and tests that represents the real cost of health care.

Regards dental: Good dental care reduces the incidence of heart attack, stroke, and other diseases. Infections around your gums do bad things to your blood supply and immune system. Therefore I get my teeth cleaned a few times per year. Best preventative medicine available aside from vaccines.

Malcolm Merrinof,

The worst part of Obamacare is the guarantee of eligibility of insurance for those with pre-existing insurance combined with weak penalties for not being insured. I predict the rate of uninsurance for medical will go up as a result of Obamacare, not down. Medical insurance for healthy people will go up in cost.

ziel said at July 3, 2010 7:07 AM:

Randall, interesting point about dental care. I should probably go more often for cleanings and stop being so cheap.

As far as the investments in plant and equipment, I think the way they account for it is that the services are net of expenses, including depreciation. The intent is that what the hospital charges patients isn't the entire bill, but would have all the equipment and plant depreciation deducted out of it, so that the investments in these items aren't counted twice. In other words, when the hospital is built or the MRI is manufactured, it gets included in GDP. Then when the services are provided in the hospital or the MRI scan is performed, the depreciation on these assets are deducted from what the hospital bills when counting the pure 'service' aspect in the GDP numbers. I'm pretty sure that's how it's supposed to work, anyway.

Randall Parker said at July 3, 2010 5:27 PM:

ziel,

I think outlays for services like total dollars spent by Medicare, Medicaid, and private medical insurers are more enlightening.

According to Wikipedia 35% of health care spending in the US is done by insurance companies. Whatever that figure is times 100/35 should give us total medical expenditures in the United States. Kaiser has a good pie chart on US health care expenditures.

Even better, see these Rand Corporation graphs on health care spending. These numbers appear to all be expenditures for services. In figure 6 I wonder what is behind the "Other" category of spending. Hospitals account for 38% and visits to doctors' offices account for 25%. I wonder what the growth rate is for each of those categories.

I expect within 10 years we are going to witness severe measures to cut health care cost growth. The won't be able to afford the projected cost rises shown in the Rand graphs.

mike said at July 5, 2010 5:12 PM:

As BlackDeath noted, the real cause of the increase in health care spending in the US is the "other people's money" factor. When people are paying less for the services than they're worth (Medicare and Medicaid) or think that they are not paying for them (employer sponsored health care with low deductibles), they place no limits on their purchases. That's contrary to the way we purchase virtually any other good or service. The problem isn't the expensive MRI in the Er for the guy who hits his head. It's that when the perceived cost to the consumer (patient) for the MRI is minimal, their is no reason for him not to demand an MRI. However, if the patient was responsible for the actual cost of the MRI, the doctor could give the patient truly informed consent, i.e. "OK, based on the nature of your accident and my physical exam, you have XX chance of having a head injury requiring surgical intervention. If you have such an injury and it isn't discovered and operated on, you have XX chance of permanent neurological damage or death. The cost of the MRI is $XXX. What do you want us to do?" To feign disgust at these economic realities and ignore the fact that ultimately someone has to pay for all this medical care is both foolish and irresponsible.

Randall Parker said at July 6, 2010 5:35 PM:

Mike,

I see two big problems:

- OPM (Other People's Money) as you say.

- The inability of most buyers to understand what they are buying. How can anyone but a medical doctor be an informed buyer of medical treatments?

The OPM problem could be reduced with high deductibles and Health Savings Accounts. I have an HSA-based medical policy and recommend getting one if you can.


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