Saturday, August 29, 2009

Public Financing and Tort Reform

A mantra of Conservatives is that tort reform is a necessary component of healthcare reform. Big dollar lawsuits drive up the cost of delivering healthcare and have a tendency to drive small firms out of business.

I share the Conservative distaste of big law, but have a different take on the solution.

My last post brought up the plight of David Goldhill. His father contracted a hospital-borne vector during a routine doctor's visit. The system consumed some $600,000 in expenses in unsuccessful attempts to remediate the disease before Mr. Goldhill's father gave into the disease.

On researching hospital-borne diseases, David Goldhill discovered that hundreds of thousands of people suffer similar fates. Even worse, he discovered that simply precautions would have prevented the infection.

Much as I hate tort lawyers, I have noticed that the threat of big lawsuits often improves practices in those industries being sued.

Rather than just rail against groups I dislike, I asked myself the question: "Why hasn't the threat of big lawsuits forced hospitals to take the precautions that would reduce hospital borne infections?"

The answer to this question is that the mix of public financing and law creates perverse incentives for people to work against their best interests.

We can see this in public education. Liberal educations learned years ago that they can take advantage of the public payment system to get any program that they desired. If educators wanted to install program A, they could force the installation of the program by having a group supportive of program A sue the school in a court with a judge sympathetic to the program. The principal, who is supportive of A, would give a feeble defense and the court would then force the program into the school.

On paper we see a lawsuit of a public interest group against a school. In actuality the lawsuit was against a public who had no real representation in court. Both the plaintiff and principal have interest in the school losing.

Whenever there is a system of public financing, it is easy to rig a court battle in which the parties of the battle are working against the public.

The American public has been fooled into believing that the lawyers in insurance companies (or in public office, for that matter) are defending their interest. In some cases they do.

At a systemic level, the dynamics of tort have created a mechanism that externalizes costs onto the public.
Since insurance companies pass the cost of tort back to the public they represent, they really don't lose law suits. While an insurance company might lament about being beaten in court, the insurance company will simply jack up premiums to cover the cost of the suit. As the insurance company takes a cut of the premium, they are actually a beneficiary of the system.

The insurance industry benefits from increases in rates for malpractice insurance.

Big medicine benefits from big lawsuits as it forces them to raise their rates. Raising the rates, incidentally, increases their profit.

The system is corrupt to its core with big lawyers, big insurance, big government and big hospitals all feeding off the rotting corpse of our medical system. The fault is not simply with the tort lawyers the fault is with the misuse of public financing in health care.

Our desire to create a system of public financing has created a system with perverse incentives that reward hospitals for doing harm.

Simple precautions could have prevented the death of David Goldhill's father. Was the system geared toward the benefit of the patient, it is likely that Mr. Goldhill's father would have survived. Instead what happened is that big medicine churned through some $600,000 of expenses on futile efforts.

The system worked this way because the efforts during the Kennedy era to create a mechanism for public financing of health care created a Kafkaesque system of perverse incentives which accomplish the opposite of quality care.

The real way to improve our hospitals and to reform the tort system is to move away from this horrible system of public financing to create a new mechanism of self-financing for health care.


Jason The said...

Probably some of the worst "analysis" you've attempted so far.

From Bloomberg News:

"(A)nnual jury awards and legal settlements involving doctors amounts to “a drop in the bucket” in a country that spends $2.3 trillion annually on health care, said Amitabh Chandra, a Harvard University economist. Chandra estimated the cost at $12 per person in the U.S., or about $3.6 billion, in a 2005 study. Insurer WellPoint Inc. said last month that liability wasn’t driving premiums."

The Congressional Budget Office in 2004 concluded that medical malpractice tort reform wouldn’t have a significant effect on health care costs:

"Malpractice costs amounted to an estimated $24 billion in 2002, but that figure represents less than 2 percent of overall health care spending. Thus, even a reduction of 25 percent to 30 percent in malpractice costs would lower health care costs by only about 0.4 percent to 0.5 percent, and the likely effect on health insurance premiums would be comparably small."

And Americans for Insurance Reform, a coalition of nearly 100 consumer and public interest groups around the country, issued a report in July which found:

• Medical malpractice premiums, inflation-adjusted, are nearly the lowest they have been in over 30 years.
• Medical malpractice claims, inflation-adjusted, are dropping significantly, down 45 percent since 2000.
• Medical malpractice premiums are less than one-half of one percent of the country’s overall health care costs; medical malpractice claims are a mere one-fifth of one percent of health care costs. In over 30 years, premiums and claims have never been greater than 1% of our nation’s health care costs.

y-intercept said...

Once again Jason did not read the post.

Jason The leaves a large number of comments in which he insults the person he disagrees with, then posts unrelated talking points.

The post actually was a criticism of the Conservative view of tort reform. The post said the problem wasn't with tort law, but that tort law in combination with third party payment systems create a combination that works against the people.

I pointed out in previous posts that if single payer became the norm, the left would turn against tort law an conservatives would start defending it.