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Study Attributes 10% of Health Insurance Costs to Malpractice-Related Expenses
(BestWire Services Via Thomson Dialog NewsEdge)
Medical malpractice litigation and the "defensive" measures doctors take to avoid it combine to account for 10% of the cost of health insurance, according to a new study prepared by PricewaterhouseCoopers.
The report, sponsored by America's Health Insurance Plans, provided a breakdown of cost drivers in the U.S. health-care system and their role in the increase in health insurance premiums over time.
The study estimated 2% of the cost of private health insurance could be attributed directly to the cost of malpractice. This partly reflects the prevalence of so-called "defensive" medicine, which study co-author Michael Thompson defined as a doctor's choice to "perform a procedure or choose a more intensive procedure than they think is medically necessary" to avoid a lawsuit.
"We've estimated that the lion's share is coming out of the physician and outpatient sector, with some attribution to the other sectors as well," said Thompson, a principal with PricewaterhouseCoopers' health-care practice. He pointed to defensive medicine's role in greater utilization of more intensive diagnostic testing, which he said contributed eight-tenths of a percentage point to the 8.8% increase in health insurance premiums between 2004 and 2005.
Among other things, medical liability and defensive medicine combined to account for 18.2% of the cost of outpatient services; 12.5% of the cost of physician services; and 16.7% of the cost of "other" medical services.
Thompson and co-author Jack Rodgers cited a 2002 Juran Institute study that found 30% of all direct health-care spending could be attributed to overuse, misuse, and waste of health-care resources. As much as one-third of this "cost of poor quality" in health care results from deviations from best medical practices driven by the practice of defensive medicine, they said.
Karen Ignagni, AHIP's president and chief executive officer, said the study underscores the contentions often made by doctors' groups that malpractice "has a real, tangible impact" on the cost of health care.
"We have this number of $150 billion going in aggregate into defensive medicine, both direct and indirect, which a number of people have been using in the policy arena. But we're never really had this light shed upon what that means, from service to service," Ignagni said.
The report, which follows up on a previous PwC study issued in 2002, noted that an 8.8% premium increase between 2004 and 2005 was 36% lower than the 13.7% found by the prior report. The researchers attributed 43% of this year's increase to greater utilization of services and 27% to general inflation, as measured by the Consumer Price Index.
The authors attributed the remaining 30% to increases in health-care prices that exceeded inflation, such as those resulting from broader-access health plans, provider consolidation, higher labor costs and adoption of newer and more expensive technologies.
Overall, 86% of premium dollars went toward paying health expenses, with 6% going toward premium taxes, compliance costs, claims processing and other administrative costs; 5% going to consumer services, provider support and marketing; and 3% representing insurers' profit.
(By R.J. Lehmann, Washington bureau manager: raymond.lehmann@ambest.com)
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