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Caps on Medical Malpractice Damages Do Not Lower Insurance Premiums or Healthcare Costs

An article in the National Journal last year reported that medical mistakes cost the nation‘s health care system tens of billions of dollars every year. Unfortunately, instead of getting serious about eliminating those errors, many tort reform advocates continue to argue for a change in personal injury laws, including caps on awards for medical malpractice. Far from offering robust healthcare savings, a look at the numbers and malpractice rates shows that the insurance companies are the only real winners in tort reform.

It is no secret that the healthcare industry spends billions of dollars in medical malpractice suits every year. According to Pamela Villarreal of the National Center for Policy Analysis between 18 to 45 cents of every dollar spent on healthcare in the U.S. is related to a mistake made by a healthcare provider. Jill Van Den Bos and colleagues at Milliman‘s Denver Health Practice reported that in 2008, cases involving post-surgery infections cost the industry $3.36 billion. In the same year, bedsores, a completely preventable condition, cost the industry $3.27 billion.

Considering the staggering costs to patients and medical providers, one might assume that there would be universal focus on making medical care safer. Not so. Instead, certain interest groups are actually working to reduce the degree to which medical providers are held accountable for their errors. New Mexico, for example, places several limitations on damages in civil cases. Under the Medical Malpractice Act (Act), NMSA 1978, there is a $600,000 cap for damages for medical malpractice. The cap excludes past medical costs and benefits, but the Act prohibits monetary damages for future medical expenses, which are paid as they are incurred. The Act also limits an individual health care provider‘s (or more accurately his or her insurance company) personal liability to $200,000.

Insurance companies argue that tort reform in general and caps on damages in particular are necessary to reduce healthcare costs, lower insurance premiums for medical professionals, and promote improvement in care so that doctors are not engaging in “defensive medicine.” Countless studies show that this is not the case. On the contrary, healthcare costs are rising, healthcare insurance premiums are higher, and there is little progress in preventing medical mistakes and malpractice. This is all in spite, or maybe because of, caps on damages.

There is ample evidence to support the proposition that medical malpractice caps have little to no impact on healthcare costs. A 2010 Robert Wood Johnson Study revealed that medical malpractice insurance premiums account for less than 2% of all healthcare costs. According to the same study, there would be very little impact on healthcare costs even if the most stringent tort reform measures were put in place. The 2011 report by Public Citizen, “A Failed Experiment,” which studied the effect of Texas‘ $250,000 cap on non-economic damages, revealed that since the cap has been law, Medicare costs have risen faster in Texas than in the rest of the country and health insurance premiums have risen above the national average.

Similarly, damage caps have not lowered insurance premiums for medical professionals. A National Center for Policy Analysis study was unable to find a correlation between damage caps and malpractice insurance premiums. Other studies have found that premiums rise in response to a broad range of economic factors, not the amount of malpractice payments. Yet others have shown that insurance premiums rise at a higher rate in states with caps than in states without caps. What all of this research shows is that if anything, caps have a negative effect on the cost of insurance premiums for malpractice coverage.

What may be even more frightening is that caps on damages may eliminate the incentive to improve health care in general. There are several studies of hospitals and healthcare centers that have instituted successful prevention programs after being forced to pay out a large malpractice suit. The possibility of an expensive medical malpractice suit has incentivized providers to invest in programs that eliminate errors. Without this incentive, medical providers will have fewer reasons to seek to improve quality and avoid mistakes, resulting in an increased number of deaths and injuries that could have been avoided. As it stands now, it is estimated that up to 98,000 patients each year die as a result of medical malpractice.

As states continue to enact caps on medical malpractice damages, the returns are meager. Contrary to what tort reformers promise, healthcare is getting costlier and less safe for the average person. The only real winners in all of this are the insurance companies.

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