NCPA - National Center for Policy Analysis

Lawsuits Hike Health Care Costs

July 31, 2002

Medical malpractice suits are driving up the cost of health care says a new study by the U.S. Department of Heath and Human Services (HHS).

Medical liability is extremely costly to the medical industry. It adds $60 billion to $110 billion to the costs of private health care each year and another $30 billion to $60 billion to federal government payments for Medicare, Medicaid and other programs.

A primary component of these rising costs is medical malpractice insurance. Excessive lawsuits and massive awards drive up the costs of insurance, which doctors must pass on in increased fees. However, most lawsuits are simply wasteful and benefit trial lawyers more than patients. For example:

  • The vast majority of medical liability claims (up to 70 percent) do not result in any payments to patients, but each of these cases costs almost $25,000 on average to defend against.
  • Lawyers' fees account for 40 percent or more of multimillion-dollar payouts.
  • Less than 30 percent of all the money that doctors pay in liability insurance fees goes to patients.

The HHS argues that states should put reasonable limits on non-economic damages ($250,000 to $350,000). This has slowed the rise in insurance premiums in several states. States without any limits on non-economic malpractice damages are experiencing rises of 44 percent in the cost of insurance on average, while states with limits are experiencing only 12 percent on average.

These excessive lawsuits also raise medical costs by forcing doctors to order unnecessary tests to protect themselves. For example, 79 percent of doctors surveyed admitted that they ordered more tests than medically necessary. Excessive tests, procedures and prescriptions raise the cost of health care for everyone.

Source: "Confronting the New Health Care Crisis: Improving Health Care Quality and Lowering Costs By Fixing Our Medical Liability System," July 24, 2002, Office of the Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services.


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