Mississippi had medical tort reform in 2002 and 2004. After 2004, there is a tendency for an attenuation in the rate of increase of total Medicare Part B reimbursements, as compared with the U.S. average reimbursement (Fig. 2A). In addition, Figure 2B shows a tendency for lower utilization in Professional and Laboratory services and Medical Care after 2004, and Figure 5 shows a modest decrease in physician reimbursements after 2004. However, there is little observed effect on total Medicare reimbursements; total Medicare Part A reimbursements (Fig. 2A); and diagnostic, laboratory, and x-ray reimbursements (Fig. 2B).
Nevada had medical tort reform in 2002 and again in 2004. In 2004, comprehensive reform was enacted by eliminating exceptions to the $350,000 noneconomic damages cap, eliminating joint liability, limiting attorney fees, and permitting periodic settlement payments.21 Little effect of tort reform can be seen in Figure 3A or B on various reimbursement categories. There was a small 4.6% decrease in Part B medical care and professional and laboratory services the year after passage of more comprehensive reform in 2004. However, these effects seem to be transitory and were not evident in physician service reimbursements from the second data set, which had a larger sampling (Fig. 5).
Texas had 80% of the sampled Medicare enrollees and enacted tort reform in 2003. Figures 4A and B and 5 shows an unexpected increase in all Medicare reimbursement categories after 2003, as compared with average U.S. Medicare expenditures.
Figure 1 shows Medicare reimbursements per enrollee by Medicare Hospital Referral Region (price, age, sex, and race adjusted). Wide variations of Medicare reimbursement within states are evident. For example (using 2010 data), in Nevada (ranked second in comprehensive tort reform by PRI), the state is split, with the Reno, NV, region in the lowest reimbursement category (with an average of $7999 per Medicare enrollee), whereas the Las Vegas region was in the highest category, with a 34% higher average reimbursement of $10,734 per Medicare enrollee (Fig. 1). Texas is ranked sixth by PRI in comprehensive tort reform but has one of the most expensive Medicare Hospital Referral Regions in the United States, McAllen, TX, with a Medicare reimbursement of $13,824 per enrollee. This region is 48% more expensive than the Waco, TX, referral region, which receives a Medicare reimbursement of $9346 per enrollee.
Our observations support the possibility of a slight trend of higher utilization of medical services in some states with comprehensive tort reform. This finding is inconsistent with the hypothesis that defensive medicine is a significant driver of medical overutilization or a meaningful contributor to the country’s rising health-care costs.
Our analysis of the relationship between the state PRI medical tort reform index and Medicare reimbursements reveals a slight trend of higher utilization of medical services in states with more comprehensive reform (Table 1). Again, this contradicts the theory that tort reform decreases defensive medicine. The R2 values of the negatively correlated reimbursements revealed that, depending upon the type of reimbursement, tort reform only accounted for 4% to 21% of the observed variance between the states.
This trend was also observed in Texas, comparing premedical and postmedical tort reform data (Fig. 4A and B). Piak et al22 also observed a similar trend in Texas. This is the opposite finding to that which was expected.
Of concern is that decreased accountability may result in an increase in overutilization in cost-driven systems. To quote Denham et al, many believe “Defensive medicine is as much a defense of volume as it is a defense of frivolous malpractice claims.”23 Some may also feel that this analysis supports the contention that malpractice reform weakens accountability and, thus, allows cost-driven systems to provide higher utilization of health care.
However, the number of observations contained in the data presented in Table 1 was small. There was little or no correlation observed with outpatient facility reimbursement, and the negative correlations were weak (Table 1). In addition, although a trend for increased reimbursements postenactment of reform was observed in Texas, it was not observed in Nevada, and in Mississippi, there was a possible modest decrease in reimbursements for physician and some outpatient (Part B) services.
It is also possible that differing methodologies of state medical tort rankings might yield a variation in results. In our analysis, we used the methodology of a conservative think tank, PRI, for data analysis because PRI’s data regarding the cost of defensive medicine has been used by the Heartland Institute18 and the Massachusetts Medical Society14 and can be found on the state of Florida’s Website.24
What can be more firmly stated is that there did not seem to be a significant total Medicare reimbursement savings with enactment of tort reform. This is in line with the findings of Thomas et al.25 In a review of 35 clinical specialties, the authors found the results of studies regarding the cost of defensive medicine were inconclusive and concluded that for every 10% reduction in premiums, there was only a 1% reduction in medical costs across specialties.25 Baicker et al26 also observed that an increase of 10% in malpractice payments per physician was associated with a 1% increase in Medicare payments for total physician services; similar observations were made for malpractice premiums. “Our findings add to the accumulating body of literature that defensive medicine may not be an important driver of healthcare costs.”
An Undetected Confounding Factor
Two observations argue against other confounding factors negating the effect of tort reform enactment and accounting for higher utilization rates that are depicted in Table 1.
The first is that there can be substantial differences of utilization within a state (Fig. 1). Wide regional variations can be seen in Nevada and Texas, where utilization between the regions of Reno and Las Vegas varied by 34%, and in where reimbursement between McAllen and Waco varied by 48% (see Fig. 1).
The large variation of reimbursements per enrollee within a state is a key observation that points to cost-driven health-care systems being at the heart of the problem. It is unlikely that the variations seen between McAllen and Waco in Texas or those between Las Vegas and Reno in Nevada are due to differences in patient population. Both states have enacted comprehensive medical tort reform. Similar variations can be found in California, Arkansas, and New York.20
The second is that, when data are compared over time, there is not a consistent pattern to the effect on reimbursement after passage of tort reform. In Nevada, medical tort reform seemed to have had little effect on Medicare reimbursements (Figs. 3A and B and 5). In Mississippi (Figs. 2A and B and 5), after the 2004 tort reform, there was a tendency for decreased reimbursements in physician and some outpatient services. However, in Texas, there was a tendency for an increase in reimbursements faster than the U.S. average. In none of the 3 states was there an observable decrease in total Medicare reimbursements.
In Texas, tort reform was touted as a “vote for your doctors and for affordable health care.”27 However, other researchers have also not observed a savings in health-care costs after passage of reform.24,27 Piak et al examined the effects of tort reform in Texas.22 They performed a county-level analysis and found no evidence that tort reform decreased health-care spending in “low-malpractice risk” counties and found “some evidence of increased physician spending in high-malpractice risk counties.” They concluded that they could find no evidence that tort reform lowered health-care costs. Lincoln et al also observed that after tort reform was enacted in Texas, Medicare spending and private insurance premiums in Texas have risen faster than the national average.27
Taken as a whole, these 3 states gave inconsistent results and did not produce convincing evidence that enactment of medical tort reform saves a significant amount in total Medicare expenditures. The observed variations in results may be reflective of the philosophy of the medical community (cost driven versus patient centered).
Current Tort Reform May Not Produce Enough Relief
It is also possible that, despite the many provisions in tort reform and the lowering of the amount of noneconomic damages, there can still be a significant risk of financial loss. One can argue this point using the example in Nevada where in 2008, about 3000 medical liability suits were filed over the possible contraction of Hepatitis C at a gastroenterology clinic, regardless of the plaintiff’s hepatitis C status21; 114 cases were possibly linked to treatment at the clinic.28 A recent award of over $500,000,000 dollars was given to 3 plaintiffs for punitive damages.29 Criminal charges have been also been filed, raising the question if tort reform has the potential of switching malpractice from the civil to the criminal arena.30 Depending upon the policy, malpractice insurance may pay for punitive damages, which are leveled for gross negligence. However, many carry an exclusion for criminal acts that violate a statue or law.
In contradistinction, in 2004, Mississippi tort reform created a more comprehensive limit on noneconomic damages, which was associated with a decreased number of Ob-Gyn lawsuits filed per year from an average of 44 to almost 15, along with reducing malpractice premiums.31 In this example, it can be argued that the impact of reform had decreased Medicare reimbursements. However, our analysis indicates that the economic impact was less profound, with a modest decrease in physician and some outpatient services but without an appreciable effect on total Medicare reimbursements.
Finally, physicians have malpractice insurance to shield them from financial loss. However, even a reduced chance of a significant financial penalty may still elicit defensive medicine. The process of going through a lawsuit is extremely stressful and emotionally draining for all parties involved, regardless of the financial loss or gain. A no-fault system such as that adopted by Sweden, Denmark, Finland, and New Zealand may address this concern.32 Vermont is also investigating this type of system.33 These systems would be expected to provide free health care to the patient to treat the event, to have no fault placed, and to have transparency of claims paid. However, there has not been a groundswell of support in the United States from either plaintiffs or defendants on adopting such a system.
Remedies for Health-care Overutilization
If tort reform is not a definitive answer to overutilization, what else can be done? A wide variety of possible mechanisms to reform health-care expenditures can be implemented with accountable care organizations (ACOs). These organizations are designed to share the risk between providers and insurers and are often mentioned as a mechanism for implementation of bundled payments.34 Participation in ACOs is voluntary. Initial evaluations of ACOs whose primary focus is the rewarding for quality have not reported significant health-care savings.35,36 However, the use of bundled payments produced a savings of 10% for coronary bypass surgeries.35 Almost 1 in 4 doctors are participating in or plan to participate in ACOs, and a significant number of private insurance companies are also participating.34 Accountable care organizations are similar to HMOs such as Kaiser Permanente, which is an integrated health-care delivery system. However, the governance structure of ACOs can be different, and CMS allows them to experiment with new types of payment systems.
One caveat with the ACO governance structure is that the fiduciary responsibility of ACO boards is to the ACO, and board members “must act consistent with that fiduciary responsibility.”37 ACO boards are designed to be composed primarily of providers,37 but providers are increasingly becoming employees of large integrated hospitals systems,38 which may also be cost driven.19
To control the ever increasing health-care expenditures, a bundled payment system may be necessary, but to assure health-care quality, such a system must be patient centered, and safeguards must be in place to prevent medical underutilization by cost-driven systems.
LIMITATIONS OF THE STUDY
As with any study on this topic, statistical significance is hard to prove because the number of states in the analysis is limited to 50. It is also difficult to prove a negative. However, the effects of tort reform is a very important policy topic and decision making on tort reform policy by legislators, mimics courtroom litigation; a decision needs to be made, and it is based on the best available data. In addition, there is a difference between statistical significance and relevance. Even if the number of observations were increased, the change may be real but still not nearly large enough to have a meaningful effect on the Medicare budget. In addition, data from Medicare Advantage Plans were not available for analysis. Because Medicare Advantage Plans are predominantly managed care plans, many of which have precertification and utilization control, one would expect even less of an effect on these Medicare provider reimbursements with tort reform.
The comparison of data from the Dartmouth Institute of Medicare reimbursement per enrollee with the PRI’s malpractice reform state rankings did not support the hypothesis that defensive medicine is a significant driver of medical overutilization and rising health-care costs.
Medicare reimbursements per enrollee were tracked over time, prereform and postreform, for 3 states. In Texas, where 80% of the analyzed Medicare enrollees resided, a trend was observed of increasing Medicare reimbursements, as compared with the U.S. average, after tort reform in most analyzed categories. There was little discernible effect observed in Nevada and a trend for reduced reimbursements for physician services in Mississippi. In none of the 3 states did total Medicare expenditures seem to be substantially affected by tort reform.
The question arising from this study is as follows: Does a decrease in accountability increase or decrease healthcare utilization? The answer may vary in each community and depend on whether income and volume are the primary motivators in the provision of health care (cost-driven systems) or if goals are centered on the patient. As a mechanism for total Medicare cost savings, medical tort reform seemed to have little to no effect.
This is not to say that tort reform is not needed. Both plaintiffs and defendants vehemently complain about the system; some medical specialties are still severely impacted by costly premiums. However, our analyses indicate that defensive medicine may not be a major driver of increasing health-care costs. If tort reform is undertaken, it should be done in the context of not promoting overutilization in cost-driven systems.
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Keywords:© 2014 by Lippincott Williams & Wilkins
Medicare; utilization; reimbursements; health-care costs; tort reform; malpractice reform; Pacific Research Institute; Dartmouth institute; atlas; U.S. health-care expenditures