Medianism

Why We Have Malpractice Suits

The Hippocratic Oath is often thought to mean “First do no harm,” but the part that come closest to this famous phrase actually says, “I will prescribe regimens for the good of my patients according to my ability and my judgment and never do harm to anyone.” The Oath really suggests that doctors try to avoid harm to the best of their judgment. Some harm is an inevitable side effect of diagnosis and treatment because of random side effects that can be lethal. Doctors and patients accept some risk in the hope of gaining bigger benefits because some risk is unpreventable.

But preventable medical errors are also a serious problem. Generally speaking, preventable errors are the kind of stupid mistakes that are caused by distracted medical professionals who do something that they consciously know is wrong like removing the left kidney instead of the right kidney. Forbes gives some examples of avoidable errors:

The sponge left inside the surgical patient, prompting weeks of mysterious, agonizing abdominal pain before the infection overcomes bodily functions. The medication injected into a baby’s IV at a dose calculated for a 200 pound man. The excruciating infection from contaminated equipment used at the bedside. Sadly, over a thousand people a day are dying from these kinds of mistakes.

These errors kill more Americans than the combined annual mortality of all murderers, car accidents, and airline fatalities using fairly conservative estimates. It is difficult to estimate mistakes because health providers tend to try to hide them to avoid malpractice suits, but the Institute of Medicine (IOM) estimated in 1999 that up to nearly 100,000 Americans are killed annually and HealthGrades estimated in 2004 that up to nearly 200,000 Americans are killed. In 2013, a third estimate was published in the Journal of Patient Safety which estimated that up to 440,000 Americans are killed every year. That would mean that medical errors are the third leading cause of death after cancer and heart disease.
Given that medical errors have reached epidemic levels that dwarf the combined mortality of diabetes accidents and strokes, the Harvard School of Public Health argues that malpractice (tort) litigation is serving its function well:

The debate over medical malpractice litigation, which raged during the last presidential campaign, continues as a hot-button political and health care issue in the U.S. The Senate is expected to vote soon on legislation to impose a federal cap on noneconomic damages in malpractice suits, following on similar bills that passed the House of Representatives but stalled in the Senate last year. One popular justification for tort reform is the claim that “frivolous” medical malpractice lawsuits—those lacking evidence of substandard care, treatment-related injury, or both—enrich plaintiffs’ attorneys and drive up health care costs. A new study by researchers from the Harvard School of Public Health (HSPH) and Brigham and Women’s Hospital challenges the view that frivolous litigation is rampant and expensive.
The researchers analyzed past malpractice claims to judge the volume of meritless lawsuits and determine their outcomes. Their findings suggest that portraits of a malpractice system riddled with frivolous lawsuits are overblown. Although nearly one third of claims lacked clear-cut evidence of medical error, most of these suits did not receive compensation. In fact, the number of meritorious claims that did not get paid was actually larger than the group of meritless claims that were paid. The findings appear in the May 11, 2006 issue of The New England Journal of Medicine.

“Some critics have suggested that the malpractice system is inundated with groundless lawsuits, and that whether a plaintiff recovers money is like a random ‘lottery,’ virtually unrelated to whether the claim has merit,” said lead author David Studdert, associate professor of law and public health at HSPH. “These findings cast doubt on that view by showing that most malpractice claims involve medical error and serious injury, and that claims with merit are far more likely to be paid than claims without merit.”

…The reviewers found that almost all of the claims involved a treatment-related injury. More than 90% involved a physical injury, which was generally severe (80% resulted in significant or major disability and 26% resulted in death). The reviewers judged that 63% of the injuries were due to error. The remaining 37% lacked evidence of error, although some were close calls.

Most claims (72%) that did not involve error did not receive compensation. When they did, the payments were lower, on average, than payments for claims that did involve error ($313,205 vs. $521,560). Among claims that involved error, 73% received compensation. “Overall, the malpractice system appears to be getting it right about three quarters of the time,” said Studdert. “That’s far from a perfect record, but it’s not bad, especially considering that questions of error and negligence can be complex.” The 27% of cases with outcomes that didn’t match their merit included claims that went unpaid even though the injury was caused by an error (16%); claims that were paid but did not involve error (10%); and claims that were paid but did not appear to involve a treatment-related injury (0.4%).

However, the study did not paint a uniformly positive picture of the current malpractice system. The costs of litigating claims, including defense costs and contingency fees paid to plaintiffs’ lawyers, averaged $52,521 per claim. Overall, these administrative costs amounted to 54% of the compensation paid to plaintiffs. “Deciding negligence is a very expensive process,” said Studdert. The authors also found that it took an average of five years from injury to resolution of the claim—a long time for plaintiffs to wait for compensation and for defendants to endure the uncertainty that litigation entails.

Finally, the authors found that the claims that did not involve errors absorbed a relatively small piece of the costs of compensation. Eliminating those claims would decrease the system’s compensation and administrative costs by no more than 13% to 16%. “Many of the current tort reform initiatives, such as caps on noneconomic damages, are motivated by a perception that ‘jackpot’ awards in frivolous suits are draining the system,” explained Michelle Mello, an associate professor of health policy and law at HSPH and a co-author of the study. “But nearly 80% of the administrative costs of the malpractice system are tied to resolving claims that have merit. Finding ways to streamline the lengthy and costly processing of meritorious claims should be in the bullseye of reform efforts.”

Public Citizen argues that malpractice payments at 0.6% of medical expenditures are, if anything, too low to prevent serious errors and compensate victims. They point out that every hour many Americans will be killed from preventable medical error but chances are better than even that none of their families will get any malpractice payment because the vast majority of deaths due to medical negligence are never compensated at all. One study found that only 1.5% of negligent malpractice injury even filed malpractice claims. The tort system is incredibly inefficient at identifying malpractice, compensating the victims, and disciplining the wrong-doers because malpractice suits are so rare.

Another study of 51 cases found that the courts were more likely to award a malpractice payment claim if there was disability than if there was negligence. The juries in this study treated malpractice awards more as a way to help injured people than as a way to prevent negligence by punishing bad doctors. A better study of 1452 malpractice claims found that claims not involving errors were only 13%-16% of malpractice costs, and the juries were generally motivated by a desire to help out sympathetic plaintiffs with unfortunate injuries even though the doctors were not at fault.

US malpractice costs are similar to costs in other countries. Even though the US spends a bit more on malpractice than any other nation I have seen studied, the US has a much higher total expenditure on healthcare per capita than any other nation, so US actually spends a smaller percentage of our healthcare budget on malpractice payments than some other countries like the UK.

Suppose we eliminated malpractice suits. Should we provide any other incentive to reduce medical error and compensate victims of malpractice? An alternative might be to just have the government compensate victims and monitor doctor quality, but that could be even more expensive. Malpractice is a relatively free-market means for accomplishing these aims even though it is too rare, small and inefficient to reduce much error and help victims. And tort law gives professionals more incentive to hide problems rather than make them public knowledge so that they would be easier to fix.

Analysts who compare differences in the approach to errors in aviation versus in medicine often suggest that healthcare should adopt more of the safety methodology of the airlines, but the main reason that aviation has fewer malpractice lawsuits is that their safety methodology is better at reducing actual malpractice. Atul Gawande persuasively argues that the best way for medicine to adopt their methodology is by adopting their use of checklists.

Posted in Health

International Health System Comparisons

The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care is a New York Times bestseller from journalist T.R. Reid. The book contrasts health care systems in several different countries with the health care models in the United States. I cobbled together an overview from several sources:
Businessweek Review:

Many Americans [think we have] the best health care in the world, even though the U.N. ranks the U.S. system 37th, based on a broad range of measurements. Reid, a former Washington Post correspondent, decided to take his reporter’s curiosity and examine the health-care systems of higher-ranked nations to determine what works and what doesn’t.

He also took his aching shoulder. To give him more movement and less pain, an American surgeon had recommended replacing it with one made of titanium—major surgery with all the attendant risks. The cost, though covered, would be astronomical, and there was no guarantee he would feel any better. So Reid got opinions from top orthopedists in Britain, Canada, France, Germany, India, Japan, Switzerland, and Taiwan. None recommended such a radical solution.

Slate’s Review:

And Reid’s shoulder? His U.S. doctors recommended extensive reconstruction, at likely cost of “serious pain, months of rehabilitation, and tens of thousands of dollars.” In the other countries, reconstruction was often offered as an option, but doctors told him he’d be much better off with steroid injections (Japan); physical therapy (France, where insurance will pay for a spa); acupuncture (Taiwan); a regimen of herbs, yoga, massage, and spiritual meditation (India); and merely learning to live with it (the U.K.). Reid opted not to get reconstruction, had some success with the steroids, and got no relief from acupuncture. The only treatment that led to “significant improvement,” oddly, was the folk medicine in India, for which he paid out of pocket. Reid does not make too much of this, and neither should you.

From Wikipedia with additions from PBS

4 Major forms of international health care systems:

1. The Bismarck Model

This is the model followed in Germany and in its rudimentary form was laid out by Otto von Bismarck. The system uses private initiatives to provide the medical services. The insurance coverage is also mainly provided through private companies. However, the insurance companies operate as non-profits and are required to sign up all citizens without any conditions. At the same time all citizens (barring a rich minority in case of Germany) are required to sign up for one or the other health insurance. Government plays central role in determining payments for various health services, thus keeping a decent control on cost. The Bismarck model is found in Germany, of course, and France, Belgium, the Netherlands, Japan, Switzerland, and, to a degree, in Latin America.

2. The Beveridge Model

This model adopted by Britain is closest to socialized medicine. Here almost all health care providers work as government employees and government acts as the single-payer for all health services. The patients incur no out-of-pocket costs. This tends to be the cheapest system. Countries using the Beveridge plan or variations on it include its birthplace Great Britain, Spain, most of Scandinavia and New Zealand. Cuba represents the extreme application of the Beveridge approach; it is probably the world’s purest example of total government control.

3. The National Health Insurance (NHI) Model

Canadian model has a single-payer system like Britain, however the health care providers works mostly as private entities. The system has done a good job of keeping costs low and providing health care to all. The classic NHI system is found in Canada, but some newly industrialized countries — Taiwan and South Korea, for example — have also adopted the NHI model.

4. The Out of Pocket Model

Only developed, industrialized countries, about 40 of the world’s 200 countries, have any kind of insurance like the above three systems. Most of the nations on the planet are too poor. In these countries the rich get medical care; the poor get little or none and stay sick or die. Hundreds of millions of people in poor countries go their entire lives without seeing a doctor. People mostly pay for the services they receive ‘out of pocket’. However, this leaves many underprivileged not getting essential health care. Almost all these countries have much lower life expectancy and high infant mortality rates. The author gives his experience with the system in India, and a brief description of ancient medical system of Ayurveda. It is inexpensive and mostly provided by practitioners without much formal education in healthcare.

The American Model for Health

The United States follows all four of the international systems in bits and pieces.

For most working people under sixty-five: The model is closest to Bismarck system [#1] adopted by Germany and Japan. Unlike in Germany and Japan, health insurance companies can be for-profit enterprises in America.

For Native Americans, military personnel, and veterans: America follows the Beveridge Model [#2] of Britain, where the government acts as both the payer and provider.

For those over sixty-five: The American model here is very close to Canadian single-payer model [#3] . The government ends up acting as the insurer, while the private sector provides the medical service.

For uninsured Americans: Americans with no health insurance experience the health care world of poor people in various underdeveloped countries who pay out of pocket [#4] . Much medical care is too expensive for these people and they are left with little or inferior health care.

A major difference between the American model and most poor countries is the EMTALA law passed by Ronald Reagan which guarantees all people, regardless of legal status and ability to pay, the right to emergency care in emergency rooms and once someone is admitted, they cannot be discharged until their life is no longer in immediate danger. This law also specifically covers all women in labor. Most poor countries do not mandate that virtually all their hospitals must provide universal emergency treatment because it is largely an unfunded mandate and hospitals in poor countries could not afford it. There are a few boutique hospitals in the US that specialize in wealthy clients that can legally refuse to care for indigent patients, but any hospital that receives Medicare or Medicaid must accept everyone under EMTALA, and most hospitals could not survive without funding from Medicare and Medicaid which pay the vast majority of hospital revenues in the US.

Singapore has a unique system that is largely organized around a fifth category of health financing:

5. The forced-savings model.

In Singapore between 6% and 9% of most workers’ salary is automatically deducted and put in mandatory government-run health savings accounts that cannot be touched except to pay for government-approved expenses so that every worker has money to pay for healthcare out of pocket. This is similar to the Health Savings Accounts (HSAs) in the US except that Singapore’s HSAs are directly funded through government mandated payroll deductions into government accounts. It works just like the automatic Medicare payroll deduction in the US except that individuals can choose what kind of healthcare they buy with it. The HSA system in the US has expanded rapidly since 2004 when the government created policies to make them possible and subsidized their use with tax benefits, but because contributions are voluntary, most people have very little money in them. By 2016, nearly a third of American employees had a HSA. But at the beginning of that year, the average balance was only $1,604 which is insufficient to cover the high deductibles of the health insurance that must accompany a HSA. Ninety-eight percent of Americans have their HSA funds invested in a demand-deposit account (“cash”) that bears no significant interest because most people treat their HSA not as an investment for saving money, but as a checking account that they only have to avoid paying income taxes. One study found that 55% of Americans spend down everything they deposit into their HSA within the same year. In contrast, in 2014, the average Singaporean HSA had about sixteen thousand dollars (US) in it.

In addition to Singapore’s forced-savings model, their health system also has elements of the Bismark, Beveridge, and NHI models.

The CATO Institute has recommended that we repeal Obamacare and replace it with larger HSA contribution limits to fix healthcare in the US. The more radical part of their plan is to eliminate the existing system of employer health insurance and force employers to pay that money into individual HSAs instead. Then employees could choose whether to use it to buy health insurance or to just pay out of pocket.

Expanding HSAs would give workers a $9 trillion effective tax cut, without cutting spending or increasing the deficit, and would drastically reduce government control over Americans’ health decisions. Most important, “large” HSAs would spur innovations that make health care better, cheaper, and more secure — particularly for the most vulnerable.

Because Congress does not tax employer-paid health insurance premiums, the vast majority of Americans with private coverage get it through an employer. Yet employers finance such coverage with money they would otherwise pay workers — an average of $12,000 per worker with family coverage, for a total of $735 billion this year, and $9.1 trillion over 10 years.

Large HSAs would let workers take that money as a tax-free HSA contribution, and thereby let taxpayers own and control $9 trillion of their earnings that someone else currently controls. That’s an effective tax cut equal to all of the Reagan and Bush tax cuts combined, and nine times more than taxes would fall by repealing Obamacare. Workers could use those funds to remain in their employer plan, purchase better coverage elsewhere, buy medical care directly, or save for future medical needs. All tax-free.

Moreover, Large HSAs involve no income redistribution and create no dependence on government. They would bring health care within reach of those with low-incomes by turning hundreds of millions of other Americans into cost-conscious consumers who force prices downward.

…For decades, prominent conservatives advocated an individual mandate. The left then picked up the idea and gave us Obamacare. …Expanding HSAs is more compassionate and provides a direct route toward freedom and better health care.

This is an interesting idea and it might work for replacing employer-based health insurance. CATO just hasn’t provided enough details here to know how well this proposal might work. But the idea that this plan would especially help “vulnerable” individuals with “low incomes” is ridiculous. The most vulnerable Americans have never had employer-based health insurance and wouldn’t get any employer contributions into HSAs. And low-income people certainly won’t benefit from the ability to contribute more money into their HSAs because only a few percent of Americans are so wealthy they are currently maxing out their tax-free contribution limits. Most middle class Americans can’t even put enough money into their HSAs to cover the deductible on their health insurance, much less max-out their tax benefits from making contributions.

Posted in Health

The Topic of Depression Economics in a Nutshell

Brad Delong has a good post on depression economics: Grasping Reality with Both Hands:

…how you should think about the topic of “depression economics. …Why should there be such crashes in the level of employment? How can it be that there is not enough spending, not enough demand in the system to put everyone who wants to work to work productively? Back in 1803 Jean-Baptiste Say observed that nobody makes except to use or to sell. and nobody sells except to buy. Thus, he argued there can be particular shortages of demand in some commodities balanced by excesses of demand for others. But “overall excess demand” is self-contradictory because everybody’s spending is someone else’s income and everyone’s income is then spent sooner or later on something. How is it that the economy can wedge itself into a position like it is in today? That is an important question.And this question has an answer. The answer is that what we try to spend our money on does not have to be currently produced goods and services. Say’s Law says that if there is excess supply for something there has to be excess demand someplace else in the system is sound. But the excess demand does not have to be for currently-produced goods and services. The excess demand can be for financial assets. People can be trying to switch their spending away from currently-produced goods and services in order to build up the amount of financial assets they have.

That is what gets the economy wedged in a position of high unemployment—like it is today.

This is bad news for Say and good news for us. It is bad news for Say because it means there is a hole in his logic that the market system would always work well on a macroeconomic level. It is good news for us because it suggests a way to cure even a big down turn in employment and production. Such a downturn should have a cure in the form of a strategic financial intervention by the government. Find a way for the government to fix the excess demand in financial markets, and you fix the deficient demand for currently-produced goods and services—you fix the economy.

Historically, we have had three types of excess demand for finance that have produced big downturns in economies.

First, we have seen excess demand for bonds—for the pieces of paper corporations and the government issue that pay interest and eventually return your principal—for the savings vehicles that enable you to take your purchasing power, store it up, and use it in the future, with interest. When there is an excess demand for bonds—when planned savings is greater than planned investment—we then have downward pressure on the flow of currently-produced goods and services as individuals try to build up their stock of savings vehicles beyond what is possible. How large a downturn? We have a master equation from the income-and-spending approach to enable us to calculate how far the level of production will fall. We fix this kind of downturn by having the government do something to restore balance in the market for savings vehicles, the market for bonds. If it can reduce the demand for bonds or increase the supply, it can fix the excess demand for bonds and thus the deficient demand for currently-produced goods and services.

That is the type of downturn we saw in 2002. It is not the kind we have now. If it were, then bonds would be expensive—there would, after all, be high and excess demand for them. But right now risky bonds are cheap.

Second, we have also seen in history excess demands for liquid cash money. Such an excess demand produces a monetarist downturn as nearly everybody cuts back on their spending on currently-produced goods and services in order to try to build up their holdings of liquid cash money above what is possible. It is possible to tell when there is monetarist downturn: since everybody is trying to build up their stocks of liquid cash money, everybody is selling their other financial assets and thus their prices—stocks, bonds, whatever—and all their prices are low. That is not the kind of downturn we have today: today the prices of some financial assets—the liabilities of credit-worthy governments, for example—are very high.

In a monetarist downturn there is also a master equation to calculate the size of the fall in production: the quantity theory of money equation.

And here again we know how to fix the problem with the economy. If the Federal Reserve increases the stock of liquid cash money in people’s pockets enough by buying short term government bonds for cash, it relieves the excess demand for cash and so cures the deficient demand for currently-produced goods and services. That is the kind of downturn we saw in 1982.

Today, however, we have a third kind of downturn: a different kind of downturn than one generated by a shortage of money or of bonds, than a monetarist or a Keynesian downturn. We know we do not have a monetarist downturn because the prices of a number of non-money financial assets are very high. We know that we do not have a Keynesian downturn because the prices of some savings vehicles are very low. So what do we have?

We conclude that the excess demand in financial markets right now on the part of investors is an excess demand for safety: for high quality AAA-rated assets for people that hold in their portfolios. Prices of risky financial assets are low—there is no excess demand for them. Prices of safe financial assets are high—there is an excess demand for them.

Thus businesses and households have cut back on their spending on currently-produced goods and services as they all have concluded: “We don’t have enough safe assets in our portfolios. We need to stop spending so much until we build up our holdings of safe assets to a higher level.” And the fact that they cannot do so because there is a shortage of safe assets in the economy is what is keeping us wedged in this current situation of high unemployment and low capacity utilization.

Where did this excess demand for safe assets come from?

It came as a consequence of the deregulation of finance and of the securitization of mortgages, from the housing bubble and the crash, from the fact that then it turned out that investment banks that had created brand new derivative securities based on mortgages had not originated-and-distributed them but had, to a remarkable and astonishing degree, originated and kept them. They were supposed to sell off all the pieces o real estate risk in small bundles to savers all over the world. They did not.

When it turned out that these mortgage-backed securities were actually a lot riskier than had been claimed, the natural response was to fear. For not only were those securities exceptionally risky, but all debts of any financial organization thought to be holding any significant amount of mortgage-backed securities became risky as well. Thus the economy-wide supply of safe assets fell massively just at the very point in time when increasing uncertainty and the coming recession made everyone wish to hold more safe assets in their portfolios.

So what do we do now?

Cutting-edge macroeconomic theory—the theory of Say (1803) and Mill (1829)—tells us that we can fix the real-side economic downturn if we fix the excess financial market demand for safe assets. Successfully doing that would be a neat trick. Figuring out how to regulate financial markets so that we can keep it from happening it again would be an even neater trick.

So how is the government doing at this task?

There are two ways to look at it: half-full and half-empty.

The half-full way is that of Alan Blinder, adviser to the Obama campaign, and Mark Zandi, adviser to the McCain campaign. They have a paper claiming that if the government had simply stepped back in the fall of 2008 and let the economy “liquidate” itself, that right now our unemployment rate would be 16%.

The fact that the unemployment rate now is only 9.6% rather than 16%—Henry Paulson who was Bush’s secretary of the treasury and Tim Geithner who is Obama’s secretary of the treasury take pride in that as a substantial accomplishment: their policies have kept 6.5% of the American labor force from becoming unemployed.

The half-empty way is to say: “Wait a minute. The unemployment rate ought to be 5%. Even an generous estimate of how much extra structural unemployment there is in America today the unemployment rate should still not be much above 6%. But it is 9.6%. It is way above where it ought to be if the market were working smoothly and well. Policy simply has not done enough.”

That is the spine of the topic of depression economics.