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April 13, 2005

Health Insurers’ “Shark Bite” Ad Campaign Attacking
Medical Negligence System Takes a Bite Out of the Truth

Corporations Seeking to Limit Victims’ Ability to Recover Damages
Dramatically Overstate the Costs of Medical Liability

WASHINGTON, D.C. – In a new advertising campaign, a health insurance industry group, America’s Health Insurance Plans, bemoans “lawsuit abuse” and claims the medical liability system costs each U.S. household up to $1,200 per year. But a Public Citizen examination shows this claim is a dozen times too high.

America’s Health Insurance Plans, many of whose nearly 1,300 members stand to benefit significantly from limiting patients’ legal rights, claims the medical liability system costs America’s 111.3 million households up to $134.5 billion annually, or an average of about $1,200 per household. The group claims about 80 percent of the total – $108 billion – is attributable to unnecessary tests and procedures done as “defensive” medicine aimed not at better patient care but rather at heading off lawsuits, citing a July 2002 report from the U.S. Department of Health and Human Services (HHS). “Another trial lawyer shark bite,” the group says in ads featuring an ominous open jaw of a shark.

A more realistic gauge of cost can be seen in malpractice insurance premiums and losses paid to patients. For 2003, the latest year for which information is available, insurers collected $11.2 billion in premiums, according to the National Association of Insurance Commissioners. Those premiums, which cover such things as damages paid to patients, legal defense costs, administrative expenses and profits, total $101 per household. Losses paid to patients totaled less still – $6.1 billion, or $54 per household. This is $2 billion less than the amount Americans spend on dog food each year.

By contrast, the real medical malpractice crisis today – inadequate patient safety – costs the economy large sums. A 1999 Institute of Medicine report estimates that preventable medical errors in hospitals kill between 44,000 and 98,000 Americans each year, imposing costs between $17 billion and $29 billion annually. Those figures translate to between $153 and $261 per household – far more than medical liability costs alone.

“Just as health insurers routinely try to deny medical care to patients, they are now trying to deny the truth,” said Joan Claybrook, president of Public Citizen. “It is outrageous that special interests that stand to gain enormously from taking away consumers’ legal rights are so freely trying to mislead the public.”

There is little support for the insurers’ claim that defensive medicine practices exist at a significant level, or if they do, that the costs are attributable to the legal system. There have been no peer-reviewed studies documenting defensive medicine, and non-partisan congressional investigators have rejected the defensive medicine theory.

The Congressional Budget Office (CBO), for example, reviews legislation to analyze its potential impact. Twice, in 2003 and 2004, the CBO was asked to quantify potential savings from reduced defensive medicine if Congress passed draconian legislation restricting patients’ ability to recover damages. Both times, it declined. Most estimates of the cost of defensive medicine, the CBO said in a March 2003 report, “are speculative in nature, relying, for the most part, on surveys of physicians’ responses to hypothetical clinical situations, and clinical studies of the effectiveness of certain intensive treatments.”

The Government Accountability Office (GAO), the investigative arm of Congress, has likewise rejected the defensive medicine theory. Medical provider groups admitted to GAO investigators in an August 2003 report that “factors besides defensive medicine concerns also explain differing utilization rates of diagnostic or other procedures.”

Moreover, as most medical consumers today know, the nation’s strong trend toward managed care, with its emphasis on cost control, discourages additional tests and procedures. As a result, many patients have difficulty getting even necessary tests and procedures done.

The HHS report relied upon by America’s Health Insurance Plans cites the “leading study” on defensive medicine as estimating that limiting “unreasonable” malpractice awards could reduce health care costs by 5 to 9 percent without hurting care. That 1996 study was co-authored by Mark McClellan, who is now the top Bush political appointee at the Centers for Medicare and Medicaid Services at HHS. The GAO, however, said McClellan’s study did not control for other factors, such as the extent of managed care penetration. More detailed follow-up research by the CBO in 2003 failed to find any effect of limiting damage awards on medical spending.

“When people go swimming at the beach, they always greatly exaggerate their chance of being the victim of a shark attack, because it’s such a frightful possibility,” said Frank Clemente, director of Public Citizen’s Congress Watch division. “That’s what these insurers are trying to do now with their ad campaign – scare people, based on bogus numbers. But just as virtually no one gets attacked by a shark, American households are not even close to paying $1,200 a year for medical liability. It might make for a good sound bite – or shark bite – but it’s not true.”

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