Wednesday, July 1, 2009

The Vast Left-Wing Courtspiracy

Almost all the good ideas on health reforms so far have come from Democrats. Republican have mainly launched hack attacks against such Democratic initiatives. "Hack" here means trying to sway opinions by using any means necessary, including misleading and irrelevant arguments that even the author doesn't believe to be valid.

For example, partisan hacks use phrases like "socialised medicine" or "a bureaucrat coming between a patient and his doctor" to denounce the public insurance option. Never mind that our socialized armed services, socialized police force, socialized public school system and socialized Medicare program seem widely preferred to purely privately run alternatives. Or why should a private insurer whose payouts directly decrease profits be better at serving patients and paying doctors, compared to an automatic Medicare style system of public billing?

But the June 30 Op-Ed by law professor Richard Epstein of the University of Chicago is different. He spells out several reasons why the dysfunctional US malpractice system is much worse than that in other developed countries. This is an issue that Democrats and even their most effective spokesmen for reforms like Paul Krugman completely ignore. While malpractice payouts are less than 1% of total healthcare costs, they cause much larger damage by inducing the practice of defensive medicine.

In that sense health industry groups traditionally aligned with Republicans are more "efficient" in enriching themselves. The annual US health care tab is inflated by hundreds of millions of dollars due to overpricing, including by doctors benefiting from managed scarcities, and by hospitals and insurers facing inadequate competition. But at least this money flows more directly to the recipient interest group.

In contrast, defensive medicine and "excess" malpractice insurance costs as much as 10% of the total health bill or over $200 billion annually if we believe some studies. Yet trial lawyers get at most half of the total malpractice payout of about $6 billion annually, or under 1.5 % of the cost imposed on the system. To misquote Winston Churchill, never have so many paid so much to benefit so few. Even as they push for other changes, Democrats have no excuse to block malpractice reforms.

Epstein says the main reasons the US system (as different from others as in Europe) drives up malpractice costs are:
  • Jury trials that can veer out of control and introduce significant uncertainty, coupled with a contingency fee system and each side bearing its own costs. This encourages trial lawyers to litigate excessively, as they have a good chance to win big with little downside if they lose.
  • American judges frequently allow juries to decide whether honest mistakes are negligent, and to infer medical negligence from the mere occurrence of a serious injury. American plaintiffs sometimes aren't required to identify any particular acts of negligence, or showing the connection between the negligent act and the injury.
  • Damage awards in the US tend to dwarf those made elsewhere.

As a result, Americans file claims about 3.5 times more often than Canadians. Yet the frequency of medical malpractice in Canada is about the same as in the US (so much for the deterrence of the costly US system) - for about a tenth of the total cost.

I agree with Epstein's recommendation to (a) replace juries with specialized commissions like those in France that reduce litigation expenses and promote uniformity in case outcomes across regions, and (b) have a national cap on damages for pain and suffering, such as those already enacted in over 30 states that are set between $250K and $500K.

Two concluding caveats to Epstein's article, though. First, not everyone agrees that malpractice coupled with defensive medicine imposes such heavy costs. A 2004 report titled "Limiting Tort Liability for Medical Malpractice" by the Congressional Budget Office uses terms like "weak", "inconclusive" and "ambiguous" to describe a lot of the evidence. Second, Epstein couldn't leave well enough alone, and took a pot shot at the vitally needed (in my opinion) public option in his concluding sentence: "Market-based solutions that make the private sector more responsive should in turn undermine the case for moving head-first into a government-run health-care system with vast, unintended inefficiencies of its own."

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