Frivolous lawsuits may increase medical spending in two ways: i) they increase the cost for physicians to practice medicine by raising malpractice insurance premiums, and ii) they increase utilization of unnecessary services when physicians practice ‘defensive medicine’.
Creating a ‘loser pays’ tort system may be the best way to stop frivolous lawsuits.
Loser-pays in the U.S. and Around the World
In a loser-pays framework, the individual who loses a lawsuit must pay the legal costs of the winning side. This framework decreases the incentive of brining cases to court where the plaintiff is unlikely to win. According to the Economist, “‘Loser pays’ is the norm in many countries, including England, Canada and Germany. But there, “loser pays” is the rule in most torts.”
However, the ‘lower pays’ framework has appeared in the U.S. Alaska currently has a loser-pays framework, but the loser only pays a portion of the winner’s legal fees. “…Florida imposed ‘loser-pays’ in 1980 for medical-malpractice cases. The number of claims dropped, but the average award rose, suggesting that more high-merit cases got their day in court while low-merit filings were deterred or settled for less.”
Additional Loser-Pays Regulation
Fairly implementing a loser-pays system, however, requires regulation. Poor plaintiffs may never bring a lawsuit if they are required to pay the defendants legal costs if they lose or (as is currently the case) poor plaintiffs would have an incentive to bring the case to court if poor plaintiffs didn’t have to pay the legal costs.
One could still make poor plaintiffs pay even if they could not afford it. The plaintiff’s lawyer could be made responsible for the opposing side’s legal fees. Thus, the lawyer would have to be very sure of the merits of their case to take it to court.
Another solution to the inability to pay the opposing sides legal fees is legal insurance. “Marie Gryphon of the Manhattan Institute…argues that loser-pays countries need legal insurance, which can be bought (for example) in England for just £100-200 ($150-300) after an alleged loss, but before a suit is filed. Lawyers can advance the premiums and add them to their bills. In other countries, such as Germany, many households carry standing legal insurance with a small monthly premium.”
Effect on National Health Spending
Although implementing a loser pays system may improve the efficiency of the tort process, it will only have a small effect of overall medical spending. Although large jury awards grab headlines, in practice reducing medical spending simply requires patients and physicians to agree to use less services.
For instance, the CBO rated a legislative proposal [the “Help Efficient, Accessible, Low Cost, Timely Healthcare (HEALTH) Act of 2003] that would impose limits on jury awards in medical malpractice cases. The CBO concluded that this proposal would reduce federal direct spending on Medicare, Medicaid, and the Federal Employees Health Benefits program by about $1.5 billion per year. Since federal spending on Medicare and Medicaid in 2004 was about $484 billion, this amounts to a 0.3% decrease in spending.
Fixing med mal would reduce spending but certainly not be a cure for larger medical spending issues.