One common complaint was that I omitted any mention of the medical malpractice system and administrative costs. As one reader wrote, ”you fail to address that more bureaucracy, more paperwork and persistent unchecked liability are at the root of price hikes.”
Let’s start with medical malpractice. Its direct costs — premiums, payouts, legal fees, etc. — amount to about one-half of 1 percent of total U.S. health-care spending. It’s barely a rounding error.
I specify “direct costs” because there’s a separate question related to “defensive medicine” — tests and treatments doctors prescribe to protect themselves from lawsuits. The problem is it’s very difficult to figure out what is and isn’t defensive medicine. In a world where patients and their families want every treatment that might help and where doctors and hospitals are paid more for every additional treatment they try, there are plenty of incentives pushing doctors to do more. Fear of lawsuits is simply one of many.
In October 2009, in response to a request from Sen. Orrin Hatch (R-Utah), the Congressional Budget Office took a careful look at the evidence on defensive medicine and concluded that aggressive reforms to the medical malpractice system “would reduce total national health care spending by about 0.5 percent.”
Absent in this conversation, however, is the fact that many medical malpractice lawsuits aren’t frivolous, and the United States actually has a higher rate of medical errors than other countries. One of the most common medical errors occurs when surgeons leave a “foreign body” — a sponge, for instance — inside a patient. According to the Organization for Economic Cooperation and Development, such errors are more frequent in the United States than in any other developed country, except Switzerland and New Zealand.
So while I’m for medical malpractice reform — I believe we should have “safe harbor” provisions that protect doctors who follow accepted best practices — it’s not a cure-all for our cost problem, and it can’t be used to hide the very real mistakes that lead to these lawsuits in the first place.
Which brings us to billing and other administrative costs. A 2007 report by the McKinsey Global Institute estimated that high administrative costs accounted for 21 percent of America’s excess spending on health care. Most of those costs were on the private market. Medicare, they found, spends about 3 percent of its budget on administration. But private insurers spend much more. The excess is mostly attributable to “underwriting health risks and sales and marketing — costs that do not arise in the public systems of most [other industrialized] countries.” And private insurers lead to higher administrative costs for doctors and hospitals, too, as they have to negotiate different insurers with different payment processes who are paying different rates. That’s another thing doctors in other countries don’t deal with.