How are Health Expenses Affected by Medical Malpractice Costs?

A growing population segment points toward rising medical malpractice costs as factors for increased national healthcare expenses. This is especially true in the United States, where medical liability insurance continues to rise. Many people suspect that these costs increase individual insurance premiums as well as augment physicians’ service fees. Research indicates, however, that the true burden of medical malpractice costs is carried directly by victimized patients in the form of lost wages and increased medical costs. Economists in the U.S., United Kingdom, Canada and Australia generally disagree that malpractice costs influence national healthcare spending.

As medical malpractice insurance costs have risen steadily in the last 10 years, many wonder how this influences overall healthcare expenses. In the United States, for example, medical liability insurance premiums for all physicians nationwide increased an average of 15 percent between 2000 and 2002, with higher increases for specialists in such fields as obstetrics and gynecology and general surgery. These rates have also risen in the United Kingdom and Canada. Many economists thus wonder how to implement affordable liability coverage for medical providers without impacting additional healthcare costs.

Medical malpractice is generally the professional failure of physicians or hospitals to provide adequate care for a patient. Also known as medical negligence, this failure may lead to substantial injury, illness or even loss of life. Many countries around the globe, including the United Kingdom, Ireland and the Philippines, have instituted laws that confront and manage medical malpractice. As a result, physicians are often legally obligated to retain medical malpractice insurance to pay for possible legal expenses.

Many citizens today posit that rising healthcare costs are in part the result of large medical malpractice costs. Some conjecture that insurance companies shift the burden of expensive malpractice lawsuit payouts to insurees in the form of individual premiums, while others theorize that doctors charge higher fees for services to offset their insurance costs. A growing number of people thus argue that imposing caps on lawsuit awards would lower medical malpractice costs and alleviate overall health expenses.

In the United States, however, healthcare experts estimate that malpractice costs account for less than two percent of national health spending. Significant reductions in these costs may therefore only modestly affect the growth in overall expenses. Concerns have also been raised over the practice of defensive medicine, which is a collection of techniques intended to avert malpractice lawsuits. Examples may include tests, procedures or office visits that do not necessarily benefit the patient but rather reduce the doctor’s exposure to malpractice liability. Mixed results from analyses, however, cannot determine the true cost of such procedures.

Proponents of healthcare spending reductions often cite the potential impact of malpractice premium expenses on access to and availability of health services. To illustrate, physicians may be less inclined to practice in an area where rates are substantially high, thereby closing clinics and forcing residents to seek treatment elsewhere. It is believed that without competition from multiple providers, healthcare costs can rise exponentially in facilities where services are available. While such events may be true in some regions, research on this cause-and-effect is limited and does not provide an accurate conclusion.

One way in which medical malpractice costs do drive expenses is in the burden they pose to patients and their families. Such costs are largely thought to be on the part of hospitals and doctors paying great sums of money to patients in lawsuits. In reality, however, the costs are reflected in additional medical expenses, time missed from work and pain and suffering experienced by patients every year. Research further shows that a majority of those patients do not sue physicians, thereby negating the potential for legal proceedings.

Data analyzed from the United States, Canada, Australia and the United Kingdom in 2001 demonstrated that U.S. citizens file more malpractice claims than citizens in the other countries, but the distribution of compensation is approximately the same. In all four countries, medical malpractice costs accounted for less than 0.5 percent of health spending in that year. Many economists therefore conclude that medical malpractice costs do not drive national healthcare expenses. In the U.S., health spending is thought to be much greater than other nations simply because of higher physician incomes and increased medical care prices.