How to lower medical costs and spur the economy
Ok, not the complete solution for lowering medical costs but a step in the right direction …
30 years ago my sister had an appendectomy and it cost around $2,000. Eight years ago my daughter had an appendectomy and it cost roughly $10,000. This year a friend of mine had the same procedure and it cost $33,000. Okay, to be fair this last one was in Dallas which has become synonymous with exorbitant medical costs. But this is an appendectomy for crying out loud. They don’t even open you up any more, it’s high technology.
Two doctors I know – an emergency room practitioner and a cardio-thoracic guy, both in very high risk disciplines- pay upwards of $250,000 in malpractice insurance. They pay this, not because they’re bad, but this has now become the price of admission. Think of it as a practice tax.
Quick digression: Malcolm Gladwell in one of his books (I read all three at the same time and they are a bit of a blur) talks about malpractice and its likelihood. Fascinating discussion. In the surveys and tests that they ran they showed that you can predict very accurately when there will be a malpractice lawsuit. It has no bearing on how the surgery went (though you’d think that would be an important ingredient). It has everything to do with the way the doctor was able to communicate with the patient and the patient’s family. They took snippets of hundreds of taped conversations between doctor and patient and patient’s family and garbled the words so that all you could hear was the tone of the voices as the parties spoke to each other. You had no clue what was being said. They took these snippets of garbled taped conversations and had audiences listen to the tone of the voices in conversation and then asked them at the end of the snippet, did this conversation result in a malpractice suit. The audience was able to accurately predict malpractice over 92% of the time. So malpractice is about connecting and communicating with your patient and their family. End of digression.
I bring this up and I mention these astronomical amounts many doctors pay out in malpractice insurance to get to one of the single largest costs built into our system: malpractice insurance or think of it as product (or service) liability tax. What if you taught doctors how to communicate with their patients better? What if you could take that $250,000 and drop it to $5,000? Multiply that savings times the millions of doctors, nurses, caregivers and hospitals that are paying exorbitant malpractice insurance. Do you think if you erased those costs that that would have a significant downward pressure on medical costs? I do.
But it goes even further than this. It’s not just doctors passing this cost onto us. This product liability tax is built into every syringe, every stethoscope, every swab, every heart machine in use today. All of them cost more than they should because of product liability insurance. 20 years ago (I keep harping back to a better times) The Economist published an editorial saying (and I quote liberally): something is wrong in America, somewhere along the line in the last 5 years if someone falls off the ladder, it’s no longer their fault for doing something assinine, it’s the ladder’s fault for falling down. At that time they were showing that fully 33% of a ladder’s cost was due to product liability insurance.
I realize there are cases when one person is doing all the right things. There was a case in the 90’s where a guy went over to his neighbor’s house and was having coffee with the wife when her 10-year-old son came into the kitchen with the father’s gun and accidentally shot the guy. The bullet hit his spine and he was paralyzed waist down for the rest of his life. He didn’t want anything. He did ask the neighbor’s insurance company to cover his medical costs and they refused. They claimed the son was unbalanced and tried to counter sue him. All along the insurance company blocked any redemptions to this guy. It got very ugly, he finally sued (and he was only looking for money to cover his medical expenses, he was not trying to become a millionaire). The insurance company fought it and the jury found for the guy and tripled the damages. The insurance company fought back and appealed and in appeals the judge found for the guy on the grounds that the insurance company did not deal in good faith and tripled the damages again. The insurance company tried to appeal further and was advised to shut up and pay. By the time they shut up that tens of thousands of dollars had become tens of millions of dollars. Not too mention all the legal fees they had to pay.
Insurance companies are run for profit. They want to collect fees (product service or product liability taxes) and make sure that they pay out very little. That way they are profitable, they make their boards very happy and they make good commissions.
There will always be extraordinary circumstances which can be used for arguing either side of this debate, but here’s where I come down. Industries should be regulated for safety concerns, no question. Insurance companies do not provide that service. They could but they don’t (or at least they don’t do it enough given all the billions of dollars going their way).
Claims -except in extenuating circumstances in which there were egregious faults- should be capped and minimal. They should cover expenses and any losses incurred. The day of the multi-million dollar lawsuits for spilt coffee have to end. If we do this then by extension we should be able to drop the amount of money paid in product liability fees and malpractice insurance.
I’m betting this could drop our medical costs and the costs of most products 20-35% across the board.
Wouldn’t that be nice! And don’t you think all the newly-found money and lower prices could spur the economy?
Thanks for writing, I very much liked your newest post. I think you should post more frequently, you evidently have natural ability for blogging!
Many thanks!
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Oh thank you!
[…] a house, a car, a doctor’s appointment without having the proper insurance coverage. And -as mentioned in a previous blog- when you buy a product nearly a third of the cost is consumed by product liability. So, again, […]
[…] a house, a car, a doctor’s appointment without having the proper insurance coverage. And -as mentioned in a previous blog- when you buy a product nearly a third of the cost is consumed by product liability. So, again, […]
Great post! Just wanted to let you know you have a new subscriber- me!
Thanks. I’ve got to stay more current.
You think everything sounds like existentialism.
Interesting thoughts. Not sure any of our esteemed economists saw it coming but capitalism and the Hippocratic oath mix like oil and vinegar, especially in these days of “he who dies with the most toys, wins” greed philosophy.
All these guys belong behind bars.