The Actuary Magazine December 2004 - Letters


By John P. Glynn and Allen Elstein

The following is written in response to an article that ran in the October issue of The Actuary, titled "The Medical Malpractice Crisis: A Top–Down Solution."

Medical Malpractice: A red herring? (With a solution at the end)

Mr. Elstein's article ?The Medical Malpractice Crisis: A Top–Down Solution? in the October 2004, The Actuary, uses as an example of the cost of malpractice as $600 out of a hypothetical $3600 budget plus another $1000 for defensive medicine. Kerry–Edwards, in the Presidential debates, quote a recent CBO study putting the cost at 0.5 percent of medical costs. None of the avid fact checkers contradicted this, so I assume the CBO study was quoted correctly. I've also heard 2 percent tossed around in similar contexts. Which is it, 1 percent to 2 percent or 15 percent to 20 percent? At the 1 percent level the "crisis" hardly warrants discussion other than as a political football. Certainly it does not warrant an inversion of the legal system as proposed by Mr. Elstein.

Often the answer is yes, the actual cost is low, but doctors are forced to practice "defensive medicine," a very expensive proposition in Mr. Elstein's example, but again, we don't have actual data. "Defensive medicine" sounds a lot like prudent professionalism. Sure we could cut out a few (relatively inexpensive) tests here and there at the cost of a few extra dead and maimed. Who among us would volunteer to be a patient of a doctor who swore off "defensive medicine"? As in, "You may have cancer, but let's wait to see."

Which brings me to my own modest solution to the "Malpractice Crisis," the "No Mal–practice Health Service Contract." Patient agrees not to sue physician, hospital or any other health service provider. Gets lower health charges (dramatically lower or slightly lower, experience will tell), fewer unnecessary tests and procedures and lower insurance premiums, reflecting the reduced malpractice liability. Victim agrees to some type of arbitration process with a built–in schedule of reward limits. This addresses the issue directly, is market sensitive, limits no one's freedom and does not require major government intervention. Who would sign such a contract? Or do we all want our shot at the services of those pesky trial lawyers should the need unfortunately arise?

The Society of Actuaries, as a fact–based profession, could provide a valuable public service by making clear what the costs of medical malpractice litigation truly are, at least to the level where we know if we are talking 2 percent or 20 percent.
John P. Glynn, FSA


Reply from Allen Elstein

Mr. Glynn makes a number of interesting points and has presented some interesting opinions on what he thinks is the right direction. My response will be rather narrow.

Malpractice reform is a highly charged subject. How data is presented to the public is often shaded by one's position. For example, proponents might state that a reform package could save a family of four $200 a year. Opponents might characterize the same proposal as only saving $4 per person monthly.

The annual cost of medical malpractice is many billions of dollars, no matter who is doing the measuring. Ratios to total health costs can be deceptive. Very low ratios to health care costs can be obtained by restricting the numerator to either just total malpractice premiums or current awards and including in the denominator a wide range of health care costs, such as prescription drugs or acute–care nursing homes. Such ratios often exclude in the numerator the cost of unnecessary defensive medicine, as well as calls on doctors' time and money for excessive documentation or dealing with malpractice training or litigation. Additionally, certain liability costs associated with items in the denominator may not be reflected in the numerator.

The Congressional Budget Office report referred to by Mr. Glynn is likely the January 8, 2004 CBO high level report titled "Limiting Tort Liability for Medical Malpractice." As I understand it, its primary objective was to look at the effects of limiting awards for non–economic damages; the report has been selectively used by certain politicians and lawyer groups. It is best read in its entirety. The report states: "A 2003 study... found that two restrictions–a cap on non–economic damages and a ban of punitive damages–would together reduce [malpractice] premiums by more than one–third... Malpractice costs amounted to an estimated $24 billion in 2002, but that figure represented less than 2 percent of overall health care spending. Thus [such a reduction in malpractice costs] would lower health care costs by only .4 percent to .5 percent." While the .5 percent is the sound bite currently in the press, a more complete citation would also note that malpractice reform, even using the CBO numbers, could materially reduce the impact of medical malpractice insurance for doctors.

Allen Elstein, FSA

The opinions expressed in this letter are those of the author and do not represent the expressed or implied opinion of the Connecticut Insurance Department.