One of the principal myths surrounding medical malpractice is its effect on overall health care costs. Medical malpractice is actually a tiny percentage of health care costs, in part because medical malpractice claims are far less frequent than many people believe.
In 2004, the CBO calculated malpractice costs amounted to “less than 2 percent of overall health care spending. Thus, even a reduction of 25 percent to 30 percent in malpractice costs would lower health care costs by only about 0.4 percent to 0.5 percent, and the likely effect on health insurance premiums would be comparably small.” i
Five years later, the CBO revisited the issue of medical negligence costs. This time, they attempted to account for the indirect costs of medical negligence, mainly the idea that doctors order extra tests to avoid liability. Again, the CBO found that tort reform would only save 0.5 percent of all health care costs.ii
Other authorities have also found that the direct costs associated with medical negligence are a tiny fraction of health care costs. According to the National Association of Insurance Commissioners (NAIC), the total amount of money spent defending claims and compensating victims of medical negligence in 2010 was $5.8 billion, or just 0.3 percent of the $2.6 trillion spent on health care in the U.S. that same year.iii
i Limiting Tort Liability for Medical Malpractice, Congressional Budget Office, January 8, 2004; for the purposes of the chart, Personal Health Care Expenditures is taken from the Centers of Medicare and Medicaid Services and is $1.88 trillion (http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf - tables 1 & 2), and total spent on medical malpractice insurance is Tillinghast Towers Perrin (2008 Update on U.S. Tort Cost Trends, Tillinghast Towers Perrin, 2008); The CBO has reaffirmed its earlier findings that tort reform does not lower health care costs. In 2008, the agency found that “the effect [of tort limits] would be relatively small— less than 0.5 percent of total health care spending.”- Budget Options Volume 1 Health Care, Congressional Budget Office, December 2008.
ii Bernard Black, Charles Silver, David A. Hyman, and William M. Sage, Stability, Not Crisis: Medical Malpractice Claim Outcomes in Texas, 1988-2002, Journal of Empirical Legal Studies, 2005.
iii Personal Health Care Expenditures taken from the Centers of Medicare and Medicaid Services and is $2.6 Trillion. Total spent on paying and defending medical malpractice claims from National Association of Insurance Commissioners (Profitability By Line By State 2010, National Association of Insurance Commissioners (NAIC), 2011), and is $5.8 Billion. Percentages may not round up due to both rounding and the fact that CMS does not regard medical negligence costs as health care costs.