Those poor doctors

There is one criticism that malpractice attorneys and their spokesmen make which resonates with many people. That is that the doctors would be perfectly able to afford the malpractice insurance premiums if they got rid of their million dollar homes and their $100,000 dollar cars and lived like the rest of us.

I will leave aside my appraisal of the homes of these attorneys and the types of cars they drive. Instead, I will focus on the money doctors make and the money malpractice attorneys take out of the system. To be sure, this money is awarded by juries for compensation of their clients. The juries are not told the fact that the majority of the award goes to the attorneys. The other costs of the malpractice industry (for example, supposedly $60 billion a year in additional expenses for "defensive" medicine) will not be addressed at this time.

The NY Times today has an article on the specter of deflation in the US economy. Included in that article is a chart from the Bureau of Labor Statistics (not available on the web). This chart shows that deflation in certain sectors but, interestingly, show that one indicator of medical costs has increased 12% in the last year. None of that money has gone to doctors. Physician reimbursement has declined. Health insurance has gone up, but the insurance companies are paying the doctors less. Malpractice insurance has gone up, and the insurance companies are paying the lawyers more. Costs for medications and medical supplies and equipment have gone up. Costs for X-rays have gone up as has utilization of imaging and ancillary tests or treatment. Reimbursement for ambulatory (out-patient) centers and hospitals has basically been flat. Let's consider the economics of a medical practice.

These are data from a colleague's gastroenterology practice. In a typical gastroenterology practice, procedures such as EGD and colonoscopy constitute about 50% of income. In a market such as South Florida, Medicare patients account for some 70-75% of patients. Most private insurers pay based on Medicare rates. Medicare HMOs typically pay 80-90% of Medicare; private insurers usually pay 100% of Medicare rates. Net income for many practices has essentially been flat for the last 5 years while expenses have increased 2-6% per year. The net result is a 5-8% decrease in income per year. If a physician sees the same number of patients in the next 4 years, income will decrease 7-10% per year. Of course, doctors could see more patients each day and spend less time with each one. This is what the CMS (Center for Medicare Services) calls "increasing productivity" like that is good thing.

Now consider the lawyers' take from the system. The following chart has been previously presented. The bottom line is the total paid losses in malpractice case per doctor. The upper line is premiums per doctor (data from AM Best).

This data has been adjusted for the "rate of medical inflation" as pointed out here. If one removes this adjustment and re-plots the data in actual (not adjusted) dollars, the result is below.

Most analyses show that 60% of the malpractice dollar goes to the system, including court costs, attorneys' fees and attorneys' expenses. So, in the last year for which there was data, the aggregate malpractice attorneys' take was about $4300.00 per doctor. The patient payment was $2800 per doctor. The total amount of payments to attorneys and the malpractice industry last year was $3.2 billion, that's $3.2 billion which could have gone to patients as compensation. Unlike doctors, attorneys' expenses are passed on to the plaintiff and attorneys' fees go up at will. The attorneys get their cut first, then the injured party is left to manage with the left-overs.

We can expect the lawyers to fight tooth-and-nail any attempts to reform or eliminate the malpractice industry. This is the life's blood of many legal practices and the main income of a large number of lawyers. If we go to a no-fault type system or a state-run system like Workman's Comp, there will still be room for some lawyers, but a markedly reduced number. In this system, attorneys' fees are set, but there are a number of specialized practices here locally who make a good living within this system.

Posted by Gordon at January 19, 2003 04:46 PM | E-mail Author | Back to main page