How Capitalism Will Save Us (62 page)

I
n the introduction to this book, we explained that two essential conditions to the successful operation of democratic capitalism are trust among individuals in the marketplace and a legal system that allows for fair and equitable resolution of disputes. Both trust and dispute resolution have broken down in the health-care economy. The reason: today’s blizzard of malpractice litigation. It’s not just a legal and medical problem, but a critical economic issue.

In New York City, for example, malpractice insurance premiums for obstetricians are an astounding $137,000 on average—and even more in some suburbs.
⁴³
According to an article in the
New York Daily News
, the high cost of litigation and medical malpractice coverage is the reason why Long Island College Hospital in Brooklyn and other smaller hospitals in the area have closed their maternity wards and stopped delivering babies. It is why Thomas Middleton, a resident of rural Maryland, couldn’t find a new doctor who would take him when his primary-care physician retired. He told the
Baltimore Sun
, “I had to go through three different doctor groups before someone would take me.”
⁴⁴

A 2004 study by the
Journal of Medical Practice Management
estimated that runaway malpractice suits caused a 6 percent decline in physicians in the United States, many of whom work in critical specialty areas, depriving up to 14.4 million people access to critical medical services.
⁴⁵

Malpractice suits increased the annual cost of employer-provided health insurance by as much as 12.7 percent. Researchers blame this malpractice-driven inflation for a decrease of 2.7 million in the number of workers and their families who were able to get coverage.

Philip Howard, chairman of Common Good, a nonprofit organization devoted to eliminating lawsuit abuse, explains that the direct costs of premiums and litigation are only a small part of the total toll malpractice exacts from the health-care economy. There’s a much greater cost—the “defensive medicine” practiced by lawsuit-fearing doctors and hospitals. Howard says that all the wasteful and inefficient tests and examinations may cost as much as $100 billion. Howard testified before Congress about his personal experience having to go through such expensive, unnecessary tests:

Howard said that hospitals have become “a kind of slow motion zone.” Every choice doctors make is “accompanied by forms in triplicate and precautionary procedures.” He testified:

Defensive medicine is destroying the trust that is critical to the doctor-patient relationship and to the functioning of the market. Every patient is a potential plaintiff. As a result, Howard says, doctors and patients end up eyeing one another suspiciously: “Quality, cost, professionalism, patient empathy, accountability and effective compensation for injured patients are all adversely affected.”

“The defensive culture,” as Howard calls it, has other indirect costs: it discourages Good Samaritan physicians from donating their services to charitable organizations, such as the Medical Reserve Corps, for fear of being subject to a legal suit. Clinics, as a result, are having a harder time affording physician care for low-income patients. The proportion of physicians in the country providing any charity care fell from 76 percent to 72 percent between 1997 and 1999 alone.

No one denies that it can be necessary to sue a careless hospital or physician. According to the Institute of Medicine, avoidable medical errors take more than one hundred thousand lives each year. However, Philip Howard makes the point that the current system doesn’t do a particularly good or consistent job of policing the profession or protecting patients.

Emotion, not the facts of the case, are what drives lawsuits and settlement. According to the
New England Journal of Medicine
, amounts paid to malpractice plaintiffs were driven by the severity of the patient’s disability, not by whether a provider was negligent, or even whether an injury had occurred.

Litigation also imposes an immense cost burden on pharmaceutical makers and is a key factor behind the high cost of drugs. According to the Manhattan Institute, the pharmaceutical manufacturer Wyeth (now part of Pfizer) maintains a $21
billion
reserve for litigation related to its weight-loss drug fen-phen, which was taken off the market. Lawsuits over the anti-inflammatory drug Vioxx may end up costing Merck as much as $50 billion. The astronomical cost of these legal battles represents nine to twelve times more than each company’s annual research and development budget.

The specter of a Vioxx- or fen-phen-sized legal nightmare is not only straining the financial resources of these medical care providers and drug makers. It is inhibiting them from taking risks on and investing in new drugs and technologies.

How do you reform this dysfunctional environment? One solution Philip Howard proposes is a specialized health court system that works the way bankruptcy court and tax courts currently do. Those courts would rely on judges with specialized expertise in medical issues to make decisions. They would eliminate juries, which are too often swayed by emotion and reach verdicts unsupported by medical evidence. Reforms that have been adopted by some states include subjecting lawsuits to expert review, instituting a statute of limitations on filing a claim, and limiting awards “for pain and suffering.” Wider implementation of these changes would bring some sanity back to the system and restore some trust and common sense to the practice of medicine.