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Five Myths about Expanding Tort Reform in Iowa

Five Myths about Expanding Tort Reform in IowaPublic discussion is gearing up on a very contentious healthcare topic: Medical tort reform. In a span of two days last week, there were two opposing viewpoints in the Des Moines Register opinion section on whether or not tort reform should expand in Iowa.  A Waterloo OB/Gyn wrote a piece supporting expansion, while I penned an opposing view one day earlier.

In Iowa, two bills are in the legislature, HSB 596 and SSB 3085. Both are being pushed by the healthcare provider community to ensure their medical-malpractice premiums are held in check by hard-capping ‘non-economic damages,’ at $250,000 – damages that “arise from pain, suffering, inconvenience, physical impairment, mental anguish, emotional pain and suffering, loss of chance, loss of consortium, or any other nonpecuniary damages.”

The specific argument being made by the Iowa Medical Society and others who support this legislation is that “Iowa’s health care crisis” has experienced five lawsuits since 2017 – whereby Iowa juries awarded plaintiffs more than $63 million for “non-economic damages.” The argument being made is that physician’s malpractice insurance policies have a $1 million – $2 million limit, while hospitals also have policy limits. Consequently, when juries award a large amount beyond these limits, the doctors and hospitals are forced to pay the rest out-of-pocket.

According to an article written by the Iowa Clinic in the February 14 edition of the Des Moines Business Record, the ‘simple solution’ is for the Iowa legislature to place a firm dollar hard cap of $250,000 on “non-economic damages,” but patients could still receive unlimited “economic damages” to cover treatment costs and lost wages. By placing a “reasonable” limit on “non-economic” damages, lawmakers, not juries, can ensure “fair awards” for plaintiffs, providers and hospitals “while keeping costs down for all Iowans.”

There you have it. Can we assume that hard-capping “non-economic” damages will miraculously eliminate “Iowa’s health care crisis” as we know it?  The quick answer is “NO.” But to better understand why Iowa’s on-going healthcare crisis will not be remotely solved by these bills, it is helpful to know the pertinent facts conveniently left unshared by the Iowa medical establishment.

There are five myths that the medical establishment would like for lawmakers (and key health payers) to believe. I will summarily refute each myth with some verifiable facts.

1. Iowa malpractice premiums are greatly increasing

Overall, insurance is a risk tool that is predicated on the experience of those being insured. If claims go up, the premiums will also move up. As is often the case, insureds are encouraged to mitigate the inherent risks within their organizations to keep the premiums affordable. The same principle applies to physicians and hospitals. If ‘safety’ and ‘best practices’ that help avoid preventable medical errors are widely pursued, adopted and implemented as the new culture of a medical organization, claims and, consequently, med-mal premiums would indeed go down.

For some Iowa physicians and hospitals, it is true that med-mal premiums are increasing. Much of this will depend on the actual claims experience for each physician practice and hospital. Here is what we currently know about med-mal premiums in Iowa:

  • Over the last 10 years, the medical liability insurance industry has taken in $709 million in premiums from the Iowa medical profession, and paid out just $308 million in combined losses and expenses. Stated another way, the med-mal insurance industry has $401 million in surplus premiums. (Source: NAIC Countrywide Summary of Medical Professional Liability Insurance – Calendar Years 2009 – 2018)
  • The average Iowa medical malpractice insurance premiums have increased 0% for Iowa doctors over the last 10 years. (Source: Annual Rate Survey, Medical Liability Monitor, October 2009-2018)
  • Over a 20-year period (1990 – 2010)*, only 1.73 percent of Iowa physicians were responsible for one-half of all the money paid out for medical malpractice in Iowa. Most of these physicians had multiple malpractice payments. If this small proportion of physicians were either ‘re-trained’ or ‘restricted’ from practicing in this same pattern of behavior, the claims could be cut in half. But only 16 percent of these doctors had reportable action – not even a slap on the wrist reprimand – by the Iowa Board of Medicine. About 10 percent had any reportable action taken against their clinical privileges by an Iowa hospital. Consequently, only about one-sixth of the 1.73 percent of physicians have had any action taken against their licenses – and only one-tenth of them have had any action taken against their clinical privileges. (Source: Robert E. Oshel, Ph.D., retired Associate Director for Research and Disputes for the National Practitioner Data Bank at the U.S. Dept. of Health and Human Services.)

*This calculation was made by Dr. Oshel in 2010 for each state, but has only been repeated since then on a national level only. The calculation is Dr. Oshel’s own independent, unpublished research using the NPDB Public Use File for reports information from www.statehealthfacts.org for the number of physicians in the state. This data was last updated using June 2019 data. According to Dr. Oshel, “the results for this almost 30-year period were very similar to what they have been for the 20-year period using the 2010 data. I would expect 30-year Iowa data also to be very similar.”

2. Tort reform reduces medical errors

The tort reform push in Iowa does nothing to address the root causes of why preventable medical errors occur in the first place. The medical establishment wishes to use hard caps to mitigate their claims and hold down their insurance premiums, but hard caps do not address or incent physicians and hospitals to provide safe care more effectively, through best practices.

After Texas implemented a hard-cap tort reform (passed in 2003), a University of Texas School of Law report years later (authored by Silver, Hyman and Black) stated that “Using standard patient safety measures, we find evidence that hospitals made more avoidable errors after the adoption of HB4 (name of reform).” This report, by the way, does an excellent job of detailing the actual subsequent outcomes of malpractice claims, healthcare costs, influx or exodus of physicians due to tort reform, and other issues that refute many of the arguments made by hard cap supporters.

A study by Black & Zabinski examined five states that enacted caps during 2003-2005 used standard Patient Safety Indicators (PSIs) that were available for at least two years prior to caps being implemented in each state allowing for comparisons later. When comparing data in the five states (Florida, Georgia, Illinois, South Carolina and Texas) to PSIs from previous years, and with other ‘control’ states, the authors determined:

  • “Consistent evidence that patient safety generally falls” after caps are passed.
  • “We find a gradual rise in rates for most PSIs after [caps were passed], consistent with a gradual relaxation of care, or failure to reinforce care standards over time.”
  • “We find evidence that reduced risk of med mal litigation, due to state adoption of damage caps, leads to higher rates of preventable adverse events in hospitals.”

(Source: Bernard S. Black and Zenon Zabinski, “The Deterrent Effect of Tort Law: Evidence from Medical Malpractice Reform,” Northwestern University Law & Economics Research Paper No. 13-09 (July 2014). http://ssrn.com/abstract=2161362.).

The ultimate question that Iowa lawmakers must answer is whether hard caps will reduce medical errors. Unfortunately, rehabilitation of health providers to provide better and safer care is not baked into this tort reform, and other states consistently prove this point. Eliminating financial deterrents for medical providers will only shield them from having accountability to their patients.

3. Tort reform will reduce healthcare costs

The Texas report does confirm one key initiative that physicians and hospitals supporters wish to have:  Hard caps through tort reform greatly reduces the frequency of paid med mal claims, in addition to sharply reducing total payouts.

But implementing hard caps will do little-to-nothing toward curtailing healthcare costs. Various national sources indicate that between 21 – 47 percent of healthcare costs are considered to be waste. This waste, which represents about $1 trillion in the U.S., comes from six categories:

  1. Administrative Complexity
  2. Overtreatment – includes excessive and inappropriate care
  3. Fraud and Abuse
  4. Pricing Failures
  5. Care Delivery Failures
  6. Care Coordination Failures

Many of the above problems exist due to inefficiencies in a poorly-functioning healthcare system. Tort caps are nothing but a small band aid to a much larger systemic problem that the medical establishment fails to meaningfully address. When using this information, the estimated annual waste in Iowa employer health premiums is $2,400 for single and $6,600 for family coverages.

A 2014 study by Black, Hyman and Paik, examined healthcare spending trends in nine states that enacted caps during the period, 2002-2005, and compared this with data from other ‘control’ states. The authors found:

  • “Damage caps have no significant impact on Medicare Part A (hospital) spending, but lead to 4-5 percent higher Medicare Part B (physician) spending.”
  • “[O]ne policy conclusion is straightforward: There is no evidence that limiting med mal lawsuits will bend the healthcare cost curve, except perhaps in the wrong direction. Policymakers seeking a way to address rising healthcare spending should look elsewhere.”

(Source: Bernard S. Black, David A. Hyman and Myungho Paik, “Do Doctors Practice Defensive Medicine, Revisited,” Northwestern University Law & Economics Research Paper No. 13-20; Illinois Program in Law, Behavior and Social Science Paper No. LBSS14-21 (October 2014), http://ssrn.com/abstract=2110656.)

The Texas study mentioned earlier found that “tort reform is unlikely to reduce overall healthcare spending, and could even lead to higher spending…that overall (healthcare) growth is driven primarily by rapidly rising costs for prescription drugs, and by healthcare providers, especially hospitals, charging ever-higher prices for doing much the same things as before.” The report found that “Doctors who fear liability may sometimes do more (conduct more defensive tests and procedures) but they may also sometimes do less (avoid risky procedures). Texas was among the higher spending states per capita before (tort) reform, and is among the higher spending states today.”

4. Tort reform will increase physicians in our state

If tort reform in Iowa is the solution to attract and retain physicians, we can learn from Texas and other states that have already implemented these reforms. A major finding from the Texas study revealed that “neither an exodus of physicians before the passage of HB4 nor an influx thereafter…Texas had a lower ratio of physicians to population than most other states before reform, and has a lower ratio today.”

Another study by Black, Hyman and Paik, examined physician supply in nine states that enacted caps during 2002-2005, and compared this data to other “control” states. The authors found:

  • “No evidence that cap adoption predicts an increase in total patient care physicians, in specialties that face high med mal risk (except plastic surgeons), or in rural physicians.”
  • “[W]e find no evidence that the adoption of damage caps increased physician supply in nine new-cap states, relative to twenty no-cap states.”
  • “Physician supply does not seem elastic to med mal risk. Thus, the states that want to attract more physicians should look elsewhere.”

(Source: Bernard S. Black, David A. Hyman and Myungho Paik, “Does Medical Malpractice Reform Increase Physician Supply? Evidence from the Third Reform Wave,” Northwestern University Law & Economics Research Paper No. 14-11; University of Illinois Program in Law, Behavior and Social Science Research Paper No. LBSS 14-36 (July 2014) http://ssrn.com/abstract=2470370.)

A suggestion to Iowa lawmakers would be to find new approaches to support effective strategies ensuring the Iowa Board of Medicine has all the resources it needs to take action when confronted with physicians who repeatedly have malpractice claims and payments brought against them. Self-policing of doctors can be effective when appropriate culture allows for this to happen. Additionally, Iowa hospitals should be encouraged to ensure that peer reviewers take needed actions. As mentioned earlier by Dr. Oshel, restricting or retraining this small proportion of physicians would be most beneficial to patients and other doctors practicing within Iowa.

Another issue that was raised by the OB/Gyn physician who wrote the DMR Op-Ed is rural communities and their hospitals. It is true that rural hospitals are financially struggling. Rural providers are not seeing as many patients as they have in the past, and because of an older patient mix, they are increasingly being paid at reduced amounts by public payers, such as Medicaid and Medicare. This requires a host of other difficult decisions and solutions, but this discussion and any subsequent solutions goes well beyond med mal issues. This is not only an Iowa problem, it is a national concern.

5. Tort reform reduces defensive medicine

It is true that defensive medicine – a practice by which physicians and hospitals perform additional tests to help mitigate potential lawsuits – is a problem. But as mentioned earlier, there are six primary categories that are extremely wasteful in our healthcare system that require major reform.

A 2010 paper by Mello et al. attempted to determine the cost of defensive medicine in the U.S. The authors took great effort to review other reports on this topic, but conveyed language from the U.S. Congress Office of Technology Assessement, stating, “that defensive medicine is highly prevalent, [but] reliable estimates of its cost are notoriously difficult to obtain.” Mello et al. ventured to estimate that the overall health system cost of defensive medicine to be $55.6 billion in 2008 dollars, approximately 2.4 percent of total national healthcare spending in 2008.

The argument that defensive medicine is expensive has merit, but we must not be led to believe that it makes up a large component of high healthcare costs – it does not. It is important to keep our eye on the true drivers of healthcare costs and the associated waste.

Summary

I do not support unwarranted lawsuits that result in large payouts. But I will say, especially with this particular issue, there are two sides to this story. Much too often, the lobbyists who represent the medical establishment are powerful, vocal – and extremely well-financed – to promote their own self-interests at the public’s expense. They will use this particular issue to leverage the argument about why we have skyrocketing health costs in our state and country. I wish it were that easy.

Iowa and the U.S. does indeed have a “health care crisis.” But it is not because of malpractice costs…which is merely a symptom of a much larger issue. Medical errors are the third-leading cause of death in the U.S.  Based on my analysis in 2016, “Silently Harmed’ in Iowa,” using Iowa and national hospital data, an estimated 2,400 Iowans die and 85,000 are harmed in Iowa hospitals by preventable medical errors each year. Even if the actual numbers were a quarter of these estimates, we would still have an absolute crisis on how care is performed in our state and country. It must be said that estimates are necessary because medical providers often fail to report medical errors, which would be a useful process to gauge future improvement initiatives.

True reform should not come in the form of med mal caps, but rather, how Iowa medical organizations practice and behave in the delivery of medical care. Additionally, the small proportion of Iowa physicians who make up about half of malpractice costs must be held accountable, primarily through the authority and appropriate action of the Iowa Board of Medicine.

Former Senator Daniel Patrick Moynihan said it quite well, “Everyone is entitled to his own opinion, but not to his own facts.” This discussion represents the other side of what we are being led to believe as truth.

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Proposed Healthcare Merger a Charade?

Strengthening patient choices of hospitals and physicians through competition is imperative. Promoting cost and quality transparency so employers, consumers and policymakers have access to this meaningful information is equally important.

With this in mind, I wrote the following Op-Ed that was published by the Des Moines Register on September 14.

The proposed merger between two major Midwestern hospital systems, Sanford Health and UnityPoint Health, is deeply troublesome for two key reasons – cost and health outcomes.

For 20 years, I have researched employee benefits in Iowa, including healthcare costs paid by employers and their employees. Since 1999, Iowa employer premiums have skyrocketed by 240 percent (single) and 251 percent (family). Today’s annual Iowa family premium is about $20,000. In 10 years, assuming a five-year average increase of 7.6 percent and no benefit changes are made, the family premium growth could compound to $40,596 (see graphic below).

Over this same 20-year period, Iowa health plan deductibles have increased dramatically, with the average family deductible reaching almost $4,000, with no relief in sight.

Despite the elevated costs paid by Iowans, the level of care received is equally troublesome. The care Iowans receive for the egregious prices we pay suggests we are not receiving commensurate value. With a scarcity of patient information on Iowa health outcomes, we performed the first-of-its-kind study on Iowans’ experiences with the medical care they received – specifically regarding medical errors.

The results we found were stunning. One-fifth of randomly-surveyed Iowans in 2017 indicated they or someone close to them experienced a medical error while seeking care during the previous five years. Of those, 60 percent indicated the error had ‘serious health consequences’ while another 23 percent reported ‘minor health consequences.’ Iowans also incurred serious financial consequences, as a result.

On the surface, the Sanford-UnityPoint proposed merger is touted to be a win-win for these two regional non-profit giants and for the payers of care, including the patients covered in the respective markets. We’re led to believe that such mergers will broaden “access to care” and “increase efficiency” which will help “lower costs and improve care.” These symbiotic relationships generated by mergers may sound intuitive, even for those who regulate anticompetitive business practices, such as the Federal Trade Commission (FTC) and state attorneys general.

But the devil is in the details, and substantiated results of these details show a clearly different, and problematic story that must become public.

The proposed Sanford-UnityPoint merger would amass 76 hospitals, outpatient and long-term-care services across 26 states – employing 2,600 physicians and 83,000 staff. It would be among the top 15 largest nonprofit health systems in the U.S. and have more than $11 billion in combined operating revenue. In 2018, the combined operating income of both non-profit organizations was nearing $213 million.

Nationally, hospital and health system mergers and acquisitions have increased from 38 in 2003 to 115 in 2017. Hospitals account for nearly 33 percent of all healthcare spending – the largest portion of overall health expenditures in the U.S.  Studies have shown that consolidation is more about enhancing bargaining power that health providers have with payers, such as insurance companies and self-funded employers – and less about integration to reduce costs and provide better, safer care.

Provider consolidation serves as a ploy – leveraging its bargaining prowess with third-party payers to ensure favorable prices – resulting in hefty profits for additional acquisitions. Larger, more market-concentrated hospital systems eventually hold payors hostage by refusing to participate in the covered network of providers unless they receive favorable price increases.

Two renowned experts on this subject, Drs. Martin Gaynor and Robert Town, have frequently found that hospital mergers in concentrated markets result in significant price increases, most exceeding 20 percent. In Iowa, Sanford and UnityPoint would most likely seek to leverage a higher-fee reimbursement from private payers which would only increase the 10-year premium projection mentioned earlier. This behavior is detrimental to the well-being of most Iowans and those insured in other areas under this merger’s footprint.

Our antitrust policies must hold hospital market power in check. Attorney General Tom Miller has a long history of using anti-trust laws to protect Iowans – from fighting big tobacco to reigning in Google. Governor Kim Reynolds has made access to rural health care one of her central issues. Both Governor Reynolds and Attorney General Miller must review this merger to ensure that Iowans won’t pay more for less.

Without this, Iowans and others will continue to pay dearly by allowing this charade to continue.

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Healthcare – Time to Recognize and Confront the ‘Elephant in the Room’

Have you ever been involved with an obvious situation, either personally or professionally, that was largely ignored and going unaddressed? Perhaps a work scenario in which a manager who wields considerable organizational power was impacting the workplace culture in an extremely uncomfortable and unhealthy direction. Speaking up may cause one to lose his/her job or suffer long-term upward job mobility opportunities. Self-preservation is a natural powerful reaction when confronting a seemingly formidable opponent – we simply choose not to act at all.

The fear of speaking up is a metaphor for an ‘Elephant in the room.’

This is happening today in our healthcare delivery and payment environment. We frequently see or experience unacceptable situations that clearly require action to prevent it from happening in the future. As a reader of my blogs, you are keenly aware of the egregious nature of the medical establishment hiding their preventable medical error ‘indiscretions’ in the proverbial litterbox – covering up preventable mistakes that are not meant for public viewing. Yet, without being held accountable for their actions, the medical community will continue to repeat what should be un-repeatable.

The elephant exists in healthcare in a number of ways. Below are just a few prime examples.

Employers are Reluctant

Employers serve as the real payers of healthcare, yet oddly sit on the sidelines exhaustively complaining about the high cost of health insurance and how it adversely impacts their competitiveness in the markets they serve. Unfortunately, most employers are reluctant to bring up the inherent dysfunctional problems because hospitals and medical practices are considered to be ‘other’ large, recognizable community members that are off-limits to public correction. In fact, many business owners are board members at the local hospital, making it difficult to publicly speak up while serving in a ‘distinguished’ role. As real payers, employers can clearly climb into the driver’s seat to collectively initiate sorely-needed changes in how the healthcare establishment behaves. But to do so, they must firmly take hold of the steering wheel to begin the journey. Instead, the employers have historically farmed out this responsibility to the insurance companies.

Insurance Companies Lack Initiative

One can be equally mystified by insurance companies’ lack of initiative when it comes to medical errors. By default, these ‘third-party payers’ assume the purchasing role as an intermediary between the real payers and health providers. More often than not, employers assume that insurance companies are adequately vetting the quality-of-care their network providers are giving to their employees and family members. This is largely not happening. As a paid intermediary, insurers can play a vital role in determining whether their subscribers are receiving the best possible outcomes from the care being purchased through the insurers’ networks.

Because the medical community will not admit their playful litterbox games, an appropriate opportunity for safety-conscious insurers would be to randomly survey their members after they have been discharged from a hospital to learn about their experiences – specifically as it relates to preventable medical errors. Doing so could be a great branding opportunity for innovative, forward-thinking insurance carriers. Over time, when enough patient feedback has been collected and analyzed, insurers can then become a more engaged advocate for employers and their employees when vetting network providers. Why are insurers not performing this difficult but necessary work on behalf of their members? Great question. They should.

Medical Community Touts Economic Strength

The medical community, specifically hospitals, spend a good deal of our[1] money to help perpetuate their economic value in the communities they serve. Recently, the Iowa Hospital Association purchased airtime on at least one local television station to help educate Iowans about the “economic impact” hospitals have in Iowa, including:

  • Number of hospital workers employed in Iowa
  • Benefits hospitals provide to the communities
  • Number of additional jobs created by hospitals

Similar to a certain species of cicadas, which are insects that remain underground from 2-to-17 years before emerging to be seen and heard, the hospital community will annually reveal themselves to promote their substantial workforce and economic growth – but remain curiously silent on the indiscretions buried deep inside the litterbox. Apparently, this marketing scheme successfully elevates their status as the elephant in any room, whether it be in Iowa or some other state. This diversional tactic makes it difficult for others to honestly speak out about the associated problems the elephant causes within our communities. After all, who doesn’t want jobs? No one wants to be ridiculed as a ‘naysayer.’ Unfortunately, honesty may come at a great expense.

Joe Gardyasz of the Des Moines Business Record recently wrote an insightful piece (subscription required) about healthcare jobs in Iowa. Even though jobs in the healthcare sector have surpassed U.S. manufacturing and retail sectors for the first time in 2017, Iowa’s manufacturing sector – at least for now – still outpaces healthcare jobs in our state.

Why healthcare has become the most dominant sector in our country

Other than rising demographic trends of an older population requiring more healthcare services, the most plausible reason for more healthcare jobs is likely due to gross inefficiencies in an inordinately complex environment. As mentioned in my previous blog, “Healthcare Billing Process – The Cost of Doing Business,” non-healthcare industries might typically employ 100 full-time equivalents to collect payment for $1 billion in services, but healthcare employs 770 full-time equivalents per $1 billion of physician services. Keep in mind, healthcare is now a $3+ trillion-dollar industry – which primarily explains why healthcare jobs are soaring past other more-efficient sectors.

Put another way, if non-healthcare sectors wish to tout their economic dominance in their respective communities or state, they would need to become bloated with inefficiencies that would inflate costs, revenue and increase employment opportunities. Thankfully, largely due to powerful market forces that are embedded with price and quality transparencies, those sectors are forced to act efficiently by offering reasonably-priced products and services that are of the highest value. The healthcare industry, it seems, is oddly immune from having to play by these transparency rules. According to Warren Buffett, “Healthcare is the tapeworm of the American economy.”

Through our entrenched relationships (e.g. family, work, business and community), we are too often reticent about changing the status quo when it might possibly ‘threaten’ the comforts of doing nothing. Employers, insurance companies and the medical establishment are each capable of making the necessary changes, but at times, must be ‘nudged’ to do so. The late Stephen Hawking made a great point by writing, “I have noticed even people who claim everything is predestined, and that we can do nothing to change it, look before they cross the road.”

What IS the Elephant?

Regarding healthcare, if each of us fails to recognize, acknowledge and confront the elephant in the room, we too become complicit in this persistent, serious and increasingly costly and harmful problem. If we continue to sit on our hands and do nothing, we eventually enable the elephant to become even larger and more undisciplined.

So what is this elephant in our collective “healthcare room?” John Atkinson of Wrong Hands developed a ‘chartoon‘ about this metaphor, whether the elephant appears in healthcare or elsewhere.

Isn’t it time to begin “eating” this elephant one bite at a time? It starts by recognizing and acknowledging the elephant in the room, and then crossing that road to initiate necessary improvement.

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[1] For the services they provide, hospitals are predominantly recipients of our tax dollars, government-related grants, philanthropic donations, insurance premiums and personal out-of-pocket payments.