Tort or Payment System Reform?

My curiosity is often piqued by the rhetoric around the need for tort reform in the health care industry. Most commentators cite highly charged cases that seem to be without merit leading to large awards or settlements. Like many, I can cite cases where plaintiff’s counsel may have brought suit without sufficient due diligence that have been costly to hospitals and physicians.

Physicians have long complained about the impact of our litigious society on the number of consults, diagnostic tests, prescribed medicines and other therapies they order.  Clearly, some  level of change in the legal system around health care professional liability is indeed in order, provided the rights of people who have been legitimately harmed are protected. There is also much that the industry could do to lessen its exposure to lawsuits (e.g. developing a safety culture, being more transparent and forthcoming with patients and their families when something does go wrong, etc.).

My issue with tort reform is one of priorities. From the standpoint of the those paying for health care, malpractice awards and professional liability insurance make up only a tiny part of the total cost of the “system”.  And, the so-called defensive medicine associated with a physician’s fear of being sued is only one factor contributing to the rampant over-utilization inthe “system.”

The larger issue is the over-utilization associated with the current payment systems being used by private and governmental payers. Last year, the Healthcare Financial Management Association suggested that payment reform is the key to slowing the upward trend in the cost of health care in the United States. Every single hospital Chief Medical Officer (CMO) will, over a drink, tell you disturbing stories about a doctor or doctors in their particular “system” that willfully over-utilizes care to maximize their own income. (As a side note, today most CMO’s drink. Draw your own conclusions about why they drink!)

So how does this work? Under the current “system”, physicians are paid based upon a fee-for-service (FFS). In other words, every office visit, every diagnostic test requiring interpretation, every office visit and so on, results in a payment to the doctor. The same is true for hospitals; every admission, every outpatient surgery and diagnostic test, etc.

So, as Medicare and private insurers cut payment rates to providers, doctors (and hospitals as beneficiaries of the doctors’ orders)  make up the revenue gap by seeing more patients, ordering more tests and admitting them to the hospital. This isn’t the fault of the doctors, but rather the responsibility falls squarely on the shoulders of our policy makers, who have long known about this issue, but have repeatedly failed to make the needed changes to bring about needed change.

Now granted, both issues, defensive medicine and payment-system related over-utilization drive up costs. But, given the relatively small numbers of large settlements, it makes logical sense that fee-for-service driven over-utilization is the larger issue and therefore, the first priority.

What’s likely to happen? Look for changes in payment systems over the next several years. Medicare and private insurers have experimented with so-called pay-for-performance systems for several years now. While its unclear what will be in the reform bill on this topic, you can be sure experts within Medicare are exploring bundled payments tied to some measure of outcomes and/or quality.

I think it will take both tort and payment system reform, along with a host of other measures, to lower the cost of care and improve quality. I fully expect there will be some level of tort reform and I hope it happens first.  If the legal environment is fixed first, I believe the FFS  payment system will be shown to be the more significant driver of over-utilization.

Hospitals and Physicians who anticipate these changes and take steps to develop the competencies and systems to succeed in such an environment will be the winners when the new world order emerges. What are you doing to prepare your organization for these changes?


One Response

  1. “I fully expect there will be some level of tort reform and I hope it happens first. ” I think you’re dreaming on this one. Tort reform is a non-starter with this presdient and congress. They don’t believe it’s needed. Defensive medicine is costing billions of health care dollars. I agree with you that it is only 1 factor responsible for overtuilization of health care. See

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