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Posted On February 25, 2013 Personal Injury

Lies and Lethal Mistakes: Myths about Medical Malpractice and Healthcare Costs in the United States

Jackpot justice. Runaway juries awarding multimillion dollar verdicts to “barely injured” plaintiffs. These news items grab headlines and ignite public outcry about the civil justice system, especially when they apply to medical malpractice claims. Insurance companies and physicians scream that these verdicts are the reasons for skyrocketing healthcare costs. They cry out for tort reform and caps on damages, while providers threaten to leave for more “doctor friendly” states. An investigation into these claims reveals two things: doctors don’t really know what their healthcare costs are, and malpractice is the very last thing affecting consumer premiums in the United States. So what’s actually causing the crisis? The truth is far simpler than the propaganda.

How Much Do Medical Malpractice Claims Cost?

The total cost of medical malpractice claims in the United States is just 2 percent of the entire nation’s healthcare spending, according to a recent article in the CHEST Journal. The article, compiled by a team of medical doctors, suggests that insurance companies spend less to handle malpractice claims because they occur less frequently and the payouts are lower – down 46 percent from 1992. Many have pointed to tort reform and caps on damages as the reason behind the steady decline in payouts, but the federal government disagrees with that notion.

Medical errors rarely impact the assets of doctors thanks to their insurance coverage. Photo Credit: Flickr (Creative Commons license).

According to the Congressional Budget Office, broad analysis of medical conditions and their costs found “no measurable reduction” in healthcare spending as the result of caps on damages or other so-called tort reform initiatives. If malpractice claims occur less frequently, and the payouts are smaller, how are healthcare costs still rising? A classic example of this phenomenon occurred in Texas, a state that passed aggressive caps on civil damages in 2003. The law, states the CHEST Journal, reduced overall payouts by 75 percent, but had no quantifiable effect on healthcare spending levels. Could it be that insurance companies simply pocketed the extra savings and passed no benefits onto consumers and doctors?


Healthcare costs continue their historic rise while medical malpractice claims and payouts maintain a steady decline. What’s the real reason for these price increases? Photo Credit: Flickr (Creative Commons license).

Doctors Have Medical Malpractice Insurance for a Reason

Malpractice insurance offsets the financial impact of negligence a doctor might incur when an injured patient files a personal injury claim against them. Many states have coverage requirements in the hundreds of thousands of dollars to protect the assets of physicians, and ensure victims actually obtain compensation. In spite of widespread physician fear that malpractice claims will wipe out their savings, very few physicians suffer any financial impact. From the National Practitioner Databank:

  • Insurers regularly pay settlements that are in excess of physician malpractice policy limits.
  • Out-pocket-payments for doctors with ≥$500,000 in malpractice coverage are “extraordinarily rare.”
  • Personal injury attorneys don’t like to seek compensation directly from individuals – doctors or otherwise – because of the probable lack of funds to satisfy a settlement or judgment in their favor.
  • States across the country require anywhere from $100,000 to $1,000,000 in professional liability insurance for doctors to remain licensed to practice, according to the American Medical Association.

How Big are the Healthcare Cost Increases?

Healthcare premiums continue to rise ahead of consumer salaries, making it difficult for some families and individuals to keep their coverage. Premiums spiked 4 percent in 2012 raising the cost of buying coverage for insured workers to $15,745, according to CNN Money. In less than 10 years, healthcare premiums in the United States have ballooned 97 percent – three times the rate of inflation and wages. That means the cost of healthcare is outpacing the paychecks of employees and the costs of other goods and services. Left unchecked, what Americans pay for health insurance could eventually swallow up our income and leave nothing to put food on the table.


A recent article in Time Magazine showed startling discrepancies in costs and price in American hospitals. Highlights include charging $1.50 per tablet for regular strength Tylenol. Photo Credit: Flickr (Creative Commons license).

A survey conducted by CNN Money also found that low-income workers are paying higher deductibles for healthcare coverage than their higher-income counterparts. According to the study, companies where 44 percent of employees have low-paying ($24,000 or less) jobs face annual deductibles of $1,000 or more compared with 29 percent of companies with many high-paid workers.

We’re paying more for healthcare coverage and paying more in the way of deductibles to access our insurance. Costs are out of control, and it turns out that no two doctors understand what their expenses are, or just how much different procedures should cost.

Wide Gaps in Healthcare Costs among Providers

An Iowa-based research team contacted the top-20 orthopedic hospitals across the country and asked them for a price quote for the same procedure – a hip replacement. The ‘control patient,’ a fictitious grandmother with no health insurance or Medicare eligibility, told every hospital she had cash to cover the procedure, and wanted to have it done right away. She also asked for the lowest price possible. Research findings, published in February 2013 in JAMA Internal Medicine, found that only 45 percent of top-rated hospitals contacted were able to give a bundled price that included both facility and doctor fees. That figure drops to a startling 10 percent when factoring in all other 102 hospitals outside the top-20 contacted by researchers. Here are some other highlights of the survey:

  • Hospitals quoted prices ranging from $11,100 to $125,000 for the same procedure.
  • Some hospitals were unable to give price quotes without contacting insurance companies.
  • Others providers said giving price estimates could not be done.
  • The report alleges that many doctors don’t know the prices of the products/services they sell.

How can hospitals and medical providers claim their costs are skyrocketing, when they seemingly have no idea how much to charge for a common elective procedure? There’s no reason why a patient in California should have to pay $100,000 more for a hip replacement than someone in Nebraska receiving the same implant and the same treatment. The massive variation in pricing, and secretive nature of medical valuing, needs greater transparency to streamline costs. Who knows? Perhaps we could see a reduction in healthcare costs across the board if regulations required hospitals to be upfront and open about their fees and costs. This action could allow patients to shop for the best care at the lowest possible price. We know this practice by another name – a free market.

Medical Malpractice Payments: Life is Cheap

The median payments on medical malpractice claims vary widely by the nature of the injuries sustained. However, the survivors of those who die due a doctor’s carelessness receive surprisingly less than those who survive, according to information compiled by the CHEST Journal. Victims of medical malpractice who sustained “grave permanent” injuries received average compensation for damages of $1.25 million. Meanwhile, the mean damages award for the survivors of someone killed by doctor negligence was near less than half at about $600,000.

In short, insurance companies pay out lower awards when the actions of medical doctors result in the deaths of their patients. The dead have no need for further medical care, and can’t incur additional costs that could warrant higher settlement amounts. Does that sound like a trend that’s good for long-term patient health? The last thing we could want is a healthcare system that effectively says to its doctors, “If you’re going to make a mistake, make sure it’s a lethal one.”

What are the Best Reforms Out There?

Caps on damages and reformation of the medical malpractice system do not make patients safer, reduce healthcare spending, or improve the liability system, according to researchers writing for the CHEST Journal. If anything, all tort reform has done in states that have adopted such laws is reduce the compensation that victims of medical malpractice receive for their injuries. That means victims dealing with real physical problems have less financial wherewithal to recover. Meanwhile, doctor assets remained protected and insurance companies limit their payouts through tort legislation.

Let’s be clear on one thing: malpractice is not a product of the liability system. It’s a result of medical negligence.

Patient safety initiatives, adopted by many states across the country, target a reduction in medical mistakes and hospital readmissions for the same condition. These reforms encourage greater accountability in the system and reduce the severity of medical errors, according to the CHEST Journal. How we hold physicians and insurance companies responsible could be one of the defining aspects of healthcare spending and costs moving forward. Let’s cut through the urban legends about malpractice and deal with the real-life implications of the steep cost of doctor mistakes.

Reduce the mistakes. Save more lives. Along the way, we might just cut costs as well.