Reducing Health Care Costs Through Tort Reform—A Myth Not A Reality.

The idea that tort reform, specifically caps on the amount of money paid to satisfy medical malpractice claims, would reduce health care costs is a myth. Instead of saving the average American money, these caps will simply increase the profits of the already wealthy medical malpractice insurance industry.

Reducing the amount that has to be paid to satisfy medical malpractice claims does not reduce the cost of health care in our country. It does not even reduce the costs health care providers incur in providing health care. Defending and resolving medical malpractice claims is not part of the business of health care—instead, it is part and parcel of the medical malpractice insurance business. Reducing the amount spent to pay judgments and settle claims by putting a cap on what a medical malpractice victim can recover simply reduces the medical malpractice insurance industry’s cost of doing business and increases its profit. The cost doctors and hospitals incur relating to medical malpractice claims is not the actual cost involved in doing so, but the premium doctors and hospitals pay the medical malpractice insurance companies for shielding them from those claims.

Take, for example, a patient who would normally be entitled to receive $2,000,000 as compensation for the harm he has suffered due to a hospital’s medical negligence. If there is a $250,000 cap on medical malpractice damages, the cost of resolving that patient’s claim has just been reduced by $1,750,000. That’s a pretty significant savings but it is just a savings to the medical malpractice insurance company who insures the hospital. It only indirectly impacts the hospital’s cost of doing business if the medical malpractice insurance industry decides to share the windfall profit by a reducing its premiums and thereby allow some of its profits to trickle down to its insured doctors and hospitals.

But with enactment of a cap on damages, the medical malpractice insurance industry most likely would keep all or at least the bulk of its windfall savings rather than let them trickle down. Medical malpractice insurance, after all, is a business and the goal of any business is to make as much profit as it can. There is also nothing to stop the insurance companies from pocketing 100% of the savings. The legislation to cap damages offered by the advocates of tort reform does not contain any requirement that the medical malpractice insurance industry identify the amount of savings it receives from those caps and pass that savings on to the medical profession via a reduction in insurance premiums. There also is no “market” pressure on the insurancde companies to pass along savings since there is so little competition in the medical malpractice insurance industry. The industry is exempt from federal anti-trust and price fixing laws that apply to almost all other businesses in our country.

Imagine the discussion in the corporate boardroom of a medical malpractice insurance company after enactment of federal tort reform legislation that placed a $250,000 cap on damages. The discussion would come down to something along the lines of “Shall we keep the money we are going to save or shall we reduce our premiums? Let’s see, keep the money, reduce the premiums, keep the money, reduce the premiums…..” Tough decision but the common sense guess is that the vote will be to keep the money.

Even in the unlikely event that the medical malpractice insurance industry decided to reduce its premiums a tad and allow some of its new found profit to trickle down to the medical profession, you and I as the ultimate consumers of health care are not going to benefit from it. All that would happen is that the insured hospital's and physician's cost of doing business would decrease by the amount of the decrease in the premiums they had to pay and in turn result in an increase in the profits of the hospital and physician.

We would need a second trickle down before any real difference to national cost of health care could happen. The hospitals and doctors would in turn have to voluntarily decide to reduce their medical fees and thereby pass their cost of doing business savings on to their patients. It is easy to imagine a corporate boardroom scene similar to the one described above except this time it is the boardroom of a large hospital whose medical malpractice insurance premiums have just been reduced. “Shall we keep the money we are going to save or shall we reduce our fees? Let’s see, keep the money, reduce our fees, keep the money, reduce our fees…..” Tough decision but the common sense guess is that the vote again will be to keep the money.

A cap on damages in a medical malpractice case is legislation that directly benefits only the insurance industry. It has nothing to do with the cost of health care unless you assume that two major for profit businesses (medical malpractice insurance and the medical health industry) will both voluntarily chose to decline the windfall profit they would realize from a federal cap on damages and pass the savings on for the common good. You don’t have to be a cynic, only a realist, to conclude that any cost savings realized from a cap on damages is only going to line the pockets of the medical malpractice insurance industry.