The True Cost of Healthcare
When I began writing this website, I had two major goals: provide some transparency to medical costs and dispel some of the many myths about these costs. In a way the second goal may be more important. If most people share a false idea about the cause of a problem then their solutions will be equally misguided. This brings me to the subject of medical malpractice and how much it really costs.
Whenever I ask anyone "how much do you think I pay for my malpractice insurance?" the answer never fails to amuse me. People usually guess anywhere from $30,000 to $150,000 per year (as if I could afford that). When I tell them, they're usually shocked and some people have even gone so far as to tell me I must be wrong. I write the check each quarter. I think I know how much it is. Well, seeing is believing, so here is my malpractice bill for all of 2012.
Thats right, $2,947.48 for the WHOLE YEAR! (It says $3046.48 because there is a $99.00 yearly PAC contribution, which is optional, though they dont make that obvious on the bill.)
So, why so little? If medical malpractice is so incredibly expensive that it's breaking the back of healthcare in this Country, why is my bill so low? Is it because Im such an outstanding doctor that my insurance provider long ago recognized that I would never be sued? Well, I'd like to think that were true but, no. I recently surveyed some of the doctors who practice near my office. Many of them have their accountant or biller take care of their bills for them so they were strangely unaware of what they paid and rather surprised when I got them to look at their bills.
I asked the nephrologist, who has an office one floor below me, to open her bill in front of me. She pays $2,953 a year. Six dollars a year more than I pay and she runs a dialysis unit.
There are two cardiologists who share an office one floor below her. One does angioplasties; which are a very invasive and sometimes dangerous procedure. He pays $5,500 a year. The other one doesnt do that procedure so he only pays $3,800.
A pulmonologist, whose office is around the corner from them, pays $4,200 a year and he oversees an ICU and does bronchoscopies (another invasive and potentially dangerous procedure). Before getting him to look at his bill, he assured me several times that it was twice that amount.
An ophthalmologist I know pays $3,800 a year and does eye surgery, though he told me that his premiums were cut in half when he stopped doing complicated eye surgeries. Emergency Room physicians (who have a very high exposure to malpractice suits) pay about $12,000 a year. Anesthesiology: $14,000, General surgery: $18,000, Orthopedic surgery: $20,000.
Of all the doctors I spoke to, only Obstetrics/Gynecology paid enough in malpractice premiums as to be a burden (surgeons make a lot even by a doctors standard so most can afford $18,000-$20,000 a year). The one Ob/Gyn doctor I asked told me he pays $40,000 a year (and he's never been sued).
Its easy to see from these examples that medical malpractice premiums don't have much financial impact on me or most of my colleagues. So why are we always being told that medical malpractice is driving up medical costs? Perhaps we should begin with some data on national trends before trying to answer this question (Warning: the following explanation involves statistics).
Researching medical malpractice isn't as easy as it might seem. To get to any actual data I had to fish through an ocean of blogs arguing against tort reform. Still, I managed to find three good references with actual numbers from the Kaiser Family Foundation. The first reference was written in 2005 and gives a very sober explanation of malpractice law in the United States (Link Here).
The above graphs are from pages 18 and 20 of the first reference. You can see from the first graph that malpractice payouts rose steadily through the 90s and, by one estimate, were about $4.45 billion in 2003. The tables below are from the 2010 version of the second and third references (Link Here and Here for the 2011 numbers which came in after this was written). From them, you can see that by 2010, the total amount paid in the U.S. for malpractice claims dropped by as much as 25% to $3.33 billion. In 2011 paid medical malpractice claims dropped even further to $3.18 billion.
Further examination of the 2010 malpractice payouts show that about $1.2 billion (36%) of these payouts occurred in just three States: New York, Pennsylvania and Florida. If you add Massachusetts, New Jersey and Illinois you can account for 52% of total malpractice dollars paid in 2010 (20% in New York alone! See Figure Here). If you examine the number of paid claims in each State in 2010, again you can see that three States (the first three above) were responsible for 31% of the total paid claims in the U.S. that year.
On the second graph (from page 20 of the first reference) you can see that the total number of claims peaked nationally at 16,682 in 2001. From the table below, you can see that they dropped about 40% to 9,894 claims by 2010 (9,497 claims in 2011). Here in California (where I practice) we had only 909 total paid malpractice claims in all of 2010. Thats only 909 payouts in a State with over 37 million people and nearly 100,000 doctors! So, it appears as though medical malpractice has rapidly receded in all but a few States.
My personal malpractice premiums reflect this trend. In 2003 (the first year that I paid for my own malpractice insurance) I paid about $8,500 in premiums for the year. In 2010 it had dropped to just over $5,000 and by 2012 it was just below $3,000. In 2013 it's now just over $3,500. Apparently medical malpractice suits have nearly disappeared in most States so neither malpractice premiums nor suits appear to have much impact on medical costs. So why are doctors and other healthcare providers constantly complaining about them? In order to answer that, I thought I'd share my personal perspective on the medical malpractice industry and how I believe it really affects most doctors.
To begin with, I've never actually been sued. I was once named in a case but I had no real involvement in that case and the case was dropped shortly after it was filed for lack of merit. Still, I received a letter of intent and had to phone my insurance provider to tell them what was happening. I've also worked with doctors whove garnered huge profits as "expert" witnesses in a number of medical malpractice cases and I know a few doctors who were dragged through the malpractice process as defendents. Finally, it's impossible to train as a doctor without having the aura of medical malpractice constantly haunt you.
From the moment I entered medical school we were reminded, quite frequently, of the fact that, at some point in our career, we would probably be involved in a malpractice suit. We were taught right from the beginning how to protect ourselves from these inevitable lawsuits. Much of what we were told was good advice in general. For example, we were told that we need to be open and honest with our patients and explain everything as best we can. We were also told to document everything we do and say and why we did it in order to defend our actions in court (most chart notes are written for legal not medical reasons).
The most important thing we were told, though, is that we need to be likeable (or at least not disliked). We were told time and again the one factor that most determines whether a doctor is sued and whether he prevails in a suit is how likeable he is. Patients are far more likely to sue a doctor they don't like and, in any complex case, juries are far more likely to rule against a doctor they don't like. This means that any doctor who had a reputation for having a less than rosy personality risked having malpractice attorneys home in on him like sharks to a bleeding porpoise. To address this, medical schools adopted a national program of intense likeability training for the students. Its called Introduction to Clinical Medicine or ICM.
The purpose of ICM is to begin to teach us how to interact with patients from the start. We all formed groups and were instructed to talk about our feelings; how we felt about taking care of patients, how we should feel about patients, how we felt about all of these feelings and so on. We were also taught the basics of interviewing patients and doing physical exams. Then we would meet periodically with standardized patients. Standardized patients were actors and actresses who (as you might have guessed) acted out the role of a patient with a particular problem or complaint. We would take turns interviewing or examining this person while they would deliberately say or do things that would confront us or otherwise make us uncomfortable. Meanwhile the rest of the group watched and then gave us feedback on our performance.
After enduring a number of these performances, we would be given a standardized patient test. The test would go something like this: There would be a number of exam rooms in a hallway. Standing outside each room would be a medical student. The student would read a note on the exam room door giving him instructions on why the patient was there and what needed to be done. When a bell rang, the student entered the room and had 10-15 minutes (time limits would vary on different exams) to complete the expected tasks while being recorded on camera. When the bell rang again, he was to leave the room and go to the next door. A typical exam would have about six to eight such encounters.
In one such encounter (that I still remember vividly) the note on the door stated that the woman inside had recently had a mammogram that showed a lesion that was highly suspicious for malignancy (remember, she was only an actress, not an actual patient). My tasks were to inform her of the result, explain to her what it meant and then examine her breasts (to see if the mammogram was right??). The woman in the room was more than a little excitable. The second I entered the room she began to talk a mile a minute and I was forced to interrupt her to tell her she might have cancer (she kept cutting me off while I was trying to explain that). When I finally was able to give her the bad news, she went completely ballistic and I had to spend a few minutes calming her down before doing the breast exam (which was awkward to say the least).
So, in summary: I was expected to enter a room, introduce myself to a complete stranger, tell her she might have cancer, calm her down from a hysterical fit, and then ask her to undress so I could examine her breasts. All of this was to be done in fifteen minutes and while a camera was recording me. What's more, the same faculty who designed a test like this was also responsible for teaching us how to be more likeable! Certainly that was the most extreme example I can remember, but almost all of the encounters we had in these tests were designed to catch us off guard.
I cant blame the medical school faculty too much for what they put us through. Their goal was to teach us to remain professional even while being made uncomfortable and to communicate clearly even when it was very difficult. Their purpose was to train us to avoid being misunderstood as much as possible. As with everything, they just over did it a bit. Unfortunately, as a result of their enthusiasm, most of us were left with an unrealistic impression. We felt that as long as we could communicate everything we thought to someone with no medical training in a way in which they could understand AND get every one of our patients to like us, we had nothing to worry about. Needless to say, most of us were worried.
And there appeared to be plenty to worry about. We heard about malpractice cases everywhere: from doctors who had been sued to expert witnesses who made their fortune testifying in multiple suits. There were a number of journals that would arrive in my mail each week presenting the latest cases in medical malpractice as vicarious lessons on how we could protect ourselves from a similar suit. In any bad outcome, the list of things for which we could be sued appeared endless. As examples, we were often told:
And so on. In a business in which bad outcomes are inevitable (everyone will eventually get sick and die in even the best of care) being misunderstood was clearly dangerous. What's more, there was an entire industry making huge profits from our being misunderstood.
And the profits were huge but, make no mistake; being sued wasn't about the money; at least not for the doctor who was being sued. To the doctor in question, being sued was no more about the money than a major traffic accident is about the money. A doctor would usually first hear the news of an impending lawsuit by receiving a letter of intent in the mail. This letter would contain a lot of colorful language about how the doctors incompetence, negligence, dishonesty, stupidity and/or otherwise horrendous behavior resulted in death, disability, tremendous pain and suffering, etc...
The doctor in question may or may not have anything to do with the case in question. The plaintiff's attorney has a limited amount of time to file each case so, to avoid missing anyone, hell just send the same letter to everyone whose name is on the plaintiff's chart no matter how incidental or remote the connection may be (then sort them out later). It's then the duty of the doctor in question to phone their malpractice insurance provider to explain the situation. It's important for us to inform our insurance provider because, in addition to covering any damages, they also provide us with the legal support for our defense. Thats not out of the kindness of their hearts of course (remember: theyre an insurance company). They simply know that by overseeing our defense, they will likely minimize their loss.
Unfortunately, that doesnt always work to our advantage. The insurance companies protect our interest only to the degree that it coincides with their own. If our malpractice provider believes they're likely to save 50 cents by not fighting the case and just settling out of court; no problem. Our reputation is of no interest to them. They'll just compensate for our loss by raising our premiums. Also, the advice they give us is aimed primarily at protecting their assets. The first piece of advice a doctor named in a suit will get from their insurance provider is to talk to no one; not their coworkers, friends, family, spouse; NO ONE! Anyone you talk to about any aspect of the case can be called as a witness to testify about what you told them.
In addition to the pure creepiness of being told that anything said in a private conversation with your spouse could be used against you in court, this advice also has the effect of completely isolating you. Medical malpractice cases usually take about two years to make it to court and so for two years youre told you cant talk to anyone while the plaintiff's attorneys take every chance to hurl insults at you about how horrible a doctor you are in letter after letter asking for more details about the case. The insurance companies give this advice for your (and their) protection. They know that if you go around complaining about the case to everyone you know, you might end up saying something that will incriminate you and word might get back to the plaintiff (rumors travel fast).
But this advice also plays into the plaintiff's hands. After two or more years of being isolated, alienated and insulted, there's a good chance that a doctor (or anyone else) would be feeling a bit hostile. Remember, a key aspect of how juries rule in medical malpractice is how likeable they find the defendant. If the doctor in question starts spouting about how unfairly hes been treated the minute he gets on the witness stand, the jury will likely hate him and the plaintiff's attorney can immediately put a down payment on a new condo.
When the court date arrives the show can begin. Each side; the defense and plaintiff's; attempt to cast the defendant in the starkest image possible. The defense wants the jury to see their client as Marcus Welby while the plaintiff's attorney does everything in his power to cast the defendant as Jack the Ripper. The jury is selected specifically in a manner to ensure they have as little knowledge of medicine as possible (knowledge, as we all know, is nothing more than an invitation to bias). Anyone who presents to a jury pool with any history of medical training would be automatically excluded.
Since the jury has little understanding of any medical issues, it's the duty of expert witnesses on each side to educate the jury about the relevant medical issues regarding the case. Expert witnesses are physicians (usually specialists) hired by each side to provide their expert opinion about how the case in question was handled or mishandled. These "experts" have supposedly the highest level of knowledge in their respective fields. Yet, strangely, each teams expertise leads them to the exact opposite conclusion about the defendant's performance than the other teams "expert".
Expert witnesses play a pivotal role in most malpractice cases. Many of the cases that aren't settled out of court require advanced medical knowledge beyond what the jury, judge or attorneys would likely have. Therefore, the testimony of these "experts" is about all anyone in the courtroom can use to render any kind of informed judgment. Because they are so pivotal to the case, these experts are treated quite well by both sides. A typical expert is paid about $500 an hour for all hours spent on the case in or out of the courtroom (they even get to log their own hours since their honesty is always beyond question).
There are certain expectations that both sides have of their experts (other than, of course, their expertise). They are not to have known or have had any prior contact with either the plaintiff or defendant in any way, whether personal or professional (that would make their testimony appear biased). They are also expected to have testified about equally for both plaintiff's and defendant's (again so as not to appear biased). Still, since the benefits are so good, there is always a generous supply of experts available to both sides for any case in spite of these restrictions. The lawyers from each side are often free to pick and choose which expert they think will best represent their client. Not surprisingly, each side chooses someone who they think will best relate to the jury. In other words, personality and theatrical skills are the most important aspects of any expert witness' "expertise".
After both sides have presented their case, the jury gets to choose whose performance they thought was better. If they side with the defendant, the plaintiff (and the plaintiff's attorney) goes home with nothing and the defendant's reputation is spared. His malpractice insurance premiums will still probably go up (being sued, even if its unsuccessful, is a sign that someone didn't like you and to an insurance company, that looks bad). Also, hes lost two years of his life waiting for his case to make it to court (which hell never get back, of course). Still, he gets to go home with the satisfaction that he didn't fight for his reputation in vain.
If they side with the plaintiff, then begins the penalty phase of the trial to determine the damages that will be reimbursed to the plaintiff. In the penalty phase, the jury decides how much the plaintiff actually lost due to the defendant's negligence. In many States the damages can be awarded proportionally. For example, if the jury believes that the doctor made a mistake but it was the plaintiff's actions that caused most of the tragedy (didn't take prescribed meds, didn't show up for an appointment, etc..) then the jury might award the plaintiff only a portion of the damages. The doctor might be given 40% of the blame so the plaintiff is awarded 40% of the assessed damages.
To determine the damages, the jury must consider both economic and noneconomic losses the plaintiff sustained as a result of the malpractice. Economic losses are seemingly straightforward and usually include lost wages and ongoing medical expenses. Noneconomic losses are much more subjective. They include factors such as pain, suffering and emotional trauma the patient may have endured. Since these losses can never be quantified objectively, they are probably the most contentious issue in medical malpractice. Personality and theatrics often weigh heavily on how these damages are assessed.
Except for a letter of intent and the resulting conversation with my malpractice provider I have no direct experience with the details I just provided about a medical malpractice trial. That's just as well. I hope never to experience any of that first hand which is why Im glad that medical malpractice suits have become far less common than they were ten years ago. That doesn't mean that I don't believe physicians should be held accountable; I do. Physicians are no different from any other professional. We're human beings who are in no way above corruption or conflicts of interest. As with any profession we have our fair share of incompetents, charlatans, con artists and criminals. But medical malpractice is a business driven almost purely by profit through tragedy. Decisions often hinge on the theatrical performance of two competing teams to an audience selected specifically for their lack of knowledge regarding the issue they're judging. There has to be a better way.
One question that remains is why malpractice dropped so dramatically in the last decade. As it turns out, the answer isnt very obvious. When I began researching malpractice, I assumed the answer was tort reform. By 2010 tort reform bills had been enacted in 35 States. In some States these bills have had a dramatic effect (e.g. Texas) but in other States it's not so obvious. I noted earlier in this section that more than half the malpractice dollars paid in 2010 were paid in only six States. One of those States; Pennsylvania, passed a supposedly robust tort reform bill in 2003 and yet in 2010 was still ranked second in both number of paid medical malpractice claims and total dollars in paid claims. In California, the story is even more confusing. California did pass a strong tort reform bill that, among other things capped noneconomic damages at $250,000. But that happened in 1975! Clearly, a number of other factors occurred since then because California didnt start to see a significant drop in medical malpractice before the year 2000.
Perhaps all of our sensitivity training in medical school helped. It seems hard to believe now that there was a time when medicine was such a paternalistic profession that we were never expected to consult with a patient about any treatment plan or procedure (I'm the doctor, you're the patient was the expected answer to any question). It was once considered unethical even to inform a patient of a bad prognosis (we felt it would be detrimental to their health if they knew they were dying). If it took the threat of malpractice to change all of that and force us to be honest and open about what were doing then I guess that result was more than welcome.
Another question that remains is: To what degree does the fear of malpractice add to medical costs? Are doctors ordering a lot unnecessary tests and running up medical bills to avoid being sued? It's certainly possible. Fear leads to irrational behavior in any profession. And, if true, I dont know how such an effect could be verified or quantified. It's important to remember, though, that the only time a doctor could be sued for not ordering a test would be if that test would have revealed a problem the doctor missed. In other words; not ordering a test that should have been ordered; which, by the way, is the definition of malpractice.
When I was asking my colleagues about their malpractice premiums I also asked them "In the last five years do you know of anyone who has been sued?" Most answered no and the few who did know someone had to admit it was for a legitimate reason. I have little doubt that most, if not all, of the 909 successful medical malpractice suits in California in 2010 were for legitimate reasons and not just because of misunderstandings or personality issues. As I said before, doctors need to be held accountable as much as anyone else. Certainly more, not less oversight is needed in a profession as important as ours. That being said, I dont miss the threat of being sued for simple misunderstandings any more than I miss the higher premiums I paid a decade ago.