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Complaints About Malpractice Costs — Focus on Insurers

Recently the New York Times published a story that dove into a familiar topic: health care costs. Why does medical care costs so much? Why do those costs seems to keep rising? Why are prices for services in the United States far higher than for the same services in other parts of the world? What can we do about it?

In discussing the problem, the author focused on childbirth costs–as all new mothers know, they can be staggering. In most parts of the world, childbirth is considered a single medical event with a single cost. Not so in the United States. American families are billed individually for every little service provided as part of the childbirth process–individual invoice lines for each medication given, doctor time, diagnostic test, and the like.

It should come as no surprise that this manner of billing leads to significant costs–much more than when a flat fee is charged for the entire process of having a baby. It is also indicative of a problem that injury attorneys have often pointed to: the perverse incentives of the “pay for service” model of healthcare. By tying doctor and hospital compensation to the specific services performed, a risk of providing too much care or unnecessary care is obvious. Medical patients are intensely reliant on the advice of their medical professionals, and most agree to any medical care that the doctor advises. Hence, the doctor has immense control over what work is performed, and subsequently, their own profit.
This is the system that has led to the steady rise in healthcare costs over the past few decades. The New York Times reports the cost of childbirth alone has tripled since 1996.

Misplaced Focus
Sadly, many continue to perpetuate the obviously false notion that this problem can be solved–even in part–by somehow curtailing the legal rights of injured medical patients. It is worth repeating again: medical malpractice lawsuits are not the cause of rising healthcare costs.

The Pop Tort blog recently made the same point in a post discussing the NYT cover story. The post chastises the article author somewhat for throwing in the end of the article a random mention that part of the cost problem is related to lawsuits. This ad hoc, unverified reference to med mal lawsuits happens all the time. This casual use of an untrue argument makes it increasingly difficult to tackle the actual problem.

Instead at attacking patients–like many families whose children suffer a preventable birth injury. We need to focus like a laser on the actual problem: the pay for service model and conduct of insurance companies. Insurers, in particular, pay a driving role in the cost problem and yet usually face little criticism.

One need look no further than Illinois for examples of ways the insurance industry can be regulated for the benefit of both doctors and patients. State lawmakers previously passed a tough insurance regulatory law that leveled the playing field and ensured that insurers could not act unfairly to doctors. Yet, those regulations were thrown out as part of the 2010 Illinois Supreme Court decision on the unconstitutionality of damage caps. Since then, many med mal insurers in our state are back to raking in record profits. Policymakers would be well advised to consider pushing through the same insurance regulatory measures again.

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