Saheli*: Musings and Observations
Monday, March 21, 2005
 
Medical Malpractice Revisited

I found out recently that a post of mine about medical malpractice had attracted some (probably Technorati-driven) attention from PointOfLaw, an anti-litigation blog sponsored by the Manhattan Institute (a conservative New York think tank.) You may recall that about a month ago, the New York Times came out with an article on medical malpractice insurance, suggesting that the recent steep rise in premiums is not due to a correspondingly steep rise in payouts, and that therefore it might not be particularly well cured by so called tort reform. They sported a graph, plotting the inflation adjusted amount of malpractice premiums alongside the inflation adjusted amount of dollars. I wasn't actually too concerned with this whole shebang, since the real point of my blogpost was to highlight Andru Ziwasimon's affordable clinic in New Mexico, but I did write this:
What jumps out at me is that even at the point of narrowest difference, there's at least $1 Billion in gross revenue for the insurance industry--and at some points, as much as $4 Billion. That's a lot of medical expense that doesn't really have anything to do with medicine.
Walter Olson, at PointOfLaw, devoted several posts to excoriating the Times piece and its citers, including me, specifically by including me in a list of bloggers who cited the Times piece "uncritically":
Saheli (who seems tempted to construe the gap between the two chart lines as markup, just as we warned some readers would do)
To be fair, I did not explicitly acknowledge the real cost that Olson cites and the Times does not--that is, the cost there is to defending lawsuits where the doctor wins and no claim is paid. But I certainly was not thinking that the 1 Billion gap represented pure profit for the insurance industry--hence my use of the words gross and expense. I see payouts, at least to some extent, as being a legitimate cost of the job of doing medicine. The Hippocratic oath is "first, do no harm," and when doctors screw that up through neglect, they have to pay the price. We can debate about the terms and amounts of that price, but it's a core principle of accountability. Assuming that the payouts are justified by some metric, a large chunk of the other money filling the gap between payouts and revenue, even if not pure profit, is cost that is not really the cost of doing medicine.

In his main post, however, Olson makes a couple other points that I must briefly quibble with.
1) He writes:
If so, then payouts have risen nearly 10-fold after inflation over 28 years, since the 2003 number is shown as being a little below $6 billion. Meanwhile, the figure for premiums charged (likewise inflation-adjusted) has risen from what looks like about $3 billion in 1975 to about $10 billion in 2003.
This seems to bizarrely imply that both of these factors must be rising multiplicatively as a function of time, that is, that each year's value is a product of the previous year's value and some factor. But looking at the New York Times graphic, it's clear that the payout function is best modelled as a line, with a constant slope o f$ .18 Billion per year. The premium function has a steeper slope: $.233 Billion per year. So saying payouts are rising at "a fast clip," as Olson does, begs the question of "fast with respect to what?"

2) Olson also seems to say that the investment revenue of the late 90s was only applied to bridging the gap between premiums and payouts, and that recent "catch-up" is necessary only because of the high payouts. It seems just as plausible that insurers took advantage of the stock market of the late 90s to post huge profits without actually increasing efficiency, and now have to catch up to the expectations they've created on the part of their stock holders.

It's a complicated issue, and Shakespeare buff though I am, I'm not surprised if the solution can't be reduced to killing all the lawyers.
 


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Saheli Datta started this when she was a journalism student at Columbia in New York. Now she lives in the Bay Area. *Old people call me R. New people, call me Saheli. Thanks! My homepage. Specifically, my links. Email me: Saheli [AT] Gmail [dot] Com

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