Health reform bound to affect malpractice

A result of health care reform may be an increase in valid medical malpractice claims, says Philip J. Edmundson, chairman and chief executive officer of brokerage William Gallagher Associates in Boston. He advises hospitals and health care providers to prepare for an increase in litigation after a reform bill is passed. He also says increased transparency would be “like putting a bull's-eye on the back of many hospitals.”

Health care reform will have some unforeseen consequences and one of the areas that may be most impacted will be medical malpractice.

Several of the proposed elements of health care reform—which would, in effect, ration services—will lead to increased valid claims of medical malpractice and otherwise will increase the vibrancy of the plaintiff's bar for valid and questionable claims.

Also, increased outcomes transparency will make it easier for plaintiffs' lawyers to identify class action and individual outcome outliers as prime malpractice fodder. Hospitals and other health care providers would do well now to gear up for an increase in litigation that will show up in the coming years.

The first goal of health care reform is to increase access to health care through expanded insurance programs. The problem with expanded access is, of course, that there are higher overall costs to the system. While there may be some savings from reductions in inefficient emergency room-delivered care and some overall benefit to the economy from having a healthier population, the immediate impact will be to increase costs. Hence the debate being conducted about how to pay for increased access. Whether the expense is paid for by providers, insurers, consumers, businesses or, most likely, some combination of them all, the increased cost will force an even greater examination of the rising cost of health care and it will lead to the implementation of further cost-control, or rationing, strategies.

Some of these will be beneficial to the economy. For example, an increased use of electronic medical information systems will provide efficiencies. Other techniques are less certain to deliver savings but still may be worth testing out—more transparency on medical outcomes at hospitals, for example.

But transparency also will provide the public and plaintiffs lawyers with information about which hospitals have the worst outcomes for various procedures. This is like putting a bull's-eye on the back of many hospitals.

The system in place in Massachusetts demonstrates the veracity of these predictions. The health care reforms instituted in 2006 have delivered great results in terms of increased health care access—the state now has the lowest percentage of uninsured persons in the country. Other elements of the law such as promotion of electronic records and outcomes transparency initiatives are starting to come into effect and will be open for further judgment long before national health care reform sets in.

Expenses for the whole system have increased, supported by greater state and federal spending alongside more premiums from individuals and companies. The primary players in Massachusetts health care have started to take the more difficult cost-control reforms with their recent announcement of the goal of establishing a “global payment” system, which is being heralded as having the ability to cut out procedures that are not necessary.

Global payment is a new phrase for capitation which was tried and failed in the 1990s. Perhaps this time around it will be more successful.

Among other things, it calls for paying doctors fixed salaries rather than a fee for service. This aspect of global payment will be popular with front-line physicians but more problematic with specialists such as orthopedic surgeons and ophthalmologists who don't get paid as much if the public is less inclined to get their knees replaced or their cataracts corrected. Will a global payment system reduce the number of procedures in areas like this that are among the greatest drivers of the increased costs of health care? If it does, it may leave many people unhappy with their care when they are told that they may not qualify for certain treatments.

The Massachusetts global payment system also is likely to pay providers fixed amounts of insurance reimbursement per diagnosis. So, a case of leukemia or hepatitis will be reimbursed by an insurer at a fixed dollar amount. Hospitals will then need to expend these funds most efficiently. That means more pressure from hospitals on their doctors to limit spending on the latest drugs and treatments that have the highest cost.

Once again, the effect may be that some patients will feel that they have been poorly served because they are unable to get the most expensive treatments on demand. Some of these patients will not have good outcomes and their cases will be easy prey for the plaintiffs bar.

In short, these types of rationing will lead to more medical malpractice claims. Compounding these trends will be increasing action on medical outcomes transparency. While the long-run impact of transparency will be beneficial to the system, reports about which hospitals have the best (and worst) outcomes directs the plaintiffs bar to cases that are most likely to produce sympathetic cases before juries. More transparency also leads to easier access to data for plaintiffs to build their cases.

Major legislation always has unintended consequences. Hospitals and other providers need to prepare for more litigation. The ultimate answer to this will be renewed calls for tort reform but that is unlikely to end up in this round of legislation. The pendulum will take many years before swinging back to these important concerns.

Philip J. Edmundson is chairman and chief executive officer of brokerage William Gallagher Associates in Boston.

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