Sidney J. Goldfarb, M.D., F.A.C.S.

Rajesh Sachdeo, M.D.

 Word Count: 3807 

 

Sidney J. Goldfarb, M.D., F.A.C.S.

Rajesh Sachdeo, M.D.

 

ABTRACT

 

     The current Presidential races are discussing healthcare proposals without public input from physicians. Herein, we discuss a proposal for healthcare reform that combines a private sector, non-government controlled utility company model for insurance payments, and a major change in the malpractice system which would markedly decrease money wasted on defensive medical practice. Insurance overhead, profit, and marketing account for 20-40% of healthcare premium costs. Defensive medicine costs are estimated to cost 20-25% of the total spent in healthcare. Combining the two reforms would save 40-50% of private sector health spending. Government control of healthcare, on the other hand, would cause rationing by the government.

     We discuss a new model for insurance reform, several options for a new malpractice model, why paid experts are perverting the malpractice system, the costs of defensive medicine, how to decrease the number of uninsured Americans by 50-67%, and explain how trust funds for Social Security, Medicare, and Federal pensions are empty.

     These ideas should be debated in this year of the Presidential race.

    

 

 Insurance and Malpractice Reform Together: A Way to Save 40-50% of Healthcare Costs A Not So Modest Solution

Our healthcare system in the US is in need of reform. It is too expensive and has many inequities built into it. It is a scarce resource in economic terms. It emphasizes disease management instead of prevention. People are uninsured or lose insurance coverage. Care is denied, sometimes capriciously. Access is denied and physicians are not in all patients’ healthcare plans. Patients have to switch insurance plans causing doctors and patients to start with unfamiliar situations.

The current system is controlled by the federal government and many insurance companies. We all know of the coming demographic tsunami of older citizens and the projected increase in cost for these people for health care and Social Security. The Federal government wants to control costs because it has to raise tax revenue for these purposes. The insurance companies want to control costs because of financial pressures and the drive for profits. Both the federal government and the insurance companies are trying to ration care. Rationing by the federal government helps the federal budget and rationing by the insurance industry helps the profit margin.

Proposed reform by the Democrats involves greater control by the government for the proposed benefit of insuring more people. Republicans want a free market system in which businesses lower prices by competition. Both take money away from the health care of people. The legal system also takes money out of the system by forcing doctors and hospitals to practice defensively. It is estimated that defensive medicine is responsible for 20-25% of all healthcare costs today.^1-5 There are only a few papers talking about these costs as percentages. More speak to how many physicians practice defensively and the expensive tests they use. The total costs can only be estimated.  Doctors are strongly influenced by a constant threat of lawsuits, so they order extra unnecessary tests, do surgery, and prolong the lives of terminally ill people to avoid getting sued.⁶ Insurance companies are run for profit and have overhead and marketing expenses. Publicly reported profits are 14%. Overhead and marketing expenses run 6-25%. All this can total 20-40% of premium dollars. We must add the costs of doctor’s employees who deal with billing and managed care. This can average one employee per doctor for another 5-8% of the cost of private insurance. Medicare is a low overhead and cost operation but the government is too interested in controlling its costs to be allowed to take over all of medicine. Fees have been lowered so much that many doctors now refuse to see Medicare and Medicaid patients. Some surgical fees are 60% of what they were in 1986. How does this bode for new State Children’s Health Insurance Programs (SCHIP) already on the books or proposed? Medicare should be means tested and co-pays need to be economically useful.

By combining a privately run, low-to-no profit utility company, and major malpractice reform we could save 40-50% of current healthcare expenses. The US corporations are less competitive on a global basis because of high healthcare costs. Other countries pay for healthcare with taxes. This proposal keeps taxes in the US low.

Other countries are used as models for our proposed reforms, such as England, Canada, Germany, South Korea, Switzerland, and the Netherlands. All these countries ration care in ways that we would find unacceptable in the US. Previous models of reform, by increased insurance company competition, never seem to lower profits. Proposed reform of healthcare in the US in 1994 would have cost 3% of Gross Domestic Product (GDP) more than the pre-existing system. Managed competition never has lowered profit margins. All current proposed models cost more to insure the 40-47 million uninsured in the US. Some of the Presidential candidate’s plans would cost $30-110 billion a year more. Our model would cost much less than is currently spent. 

Who is best able and entitled to control where and when money should be spent on health? People? Or the government? Or the insurance industry? A reasonable fee schedule and financial incentives for people to stay healthy is a better way. Every person needs to be protected by insurance and an agreed to fee schedule. Otherwise an outrageous bill can be presented and the patient will be expected to pay a huge amount.

With the Presidential election in full swing there is a concerted effort to get the government to take over. One proposal would give children insurance coverage and let the child keep it as he ages over 18 or 21. Medicare for all has been proposed, but, Internists, Psychiatrists, Orthopedists, Neurosurgeons, and other specialists already refuse to take new Medicare or Medicaid patients. Some candidates say they will mandate preventive care. Is this mandating a tax increase to pay for preventive care or will the government force people to go for exams? These proposals don’t seem like something that we would choose for ourselves or our families.

A proposal that eliminates malpractice lawsuits and insurance company profits will elicit complaints from lawyers, politicians, the insurance industry and others. But, saving 40-50% of the non- government and 20-25% of government spending should be seriously considered. Nothing else will cut the 15-16% of GDP we are currently spending on healthcare. Corporations will be more competitive. More people will be able to afford insurance if it costs 40-50% less. With this proposal and a few minor suggestions we can get 50% of the uninsured people to get affordable insurance. We will discuss this later. We will show how defensive medicine wastes huge amounts of money and why only a major change in the malpractice system will get us huge savings. Everyone has a stake in these proposed changes. Saving so much present $2 Trillion healthcare expenditures would pay for a lot of healthcare and get many people insured.

 

 

 

            There are a variety of ways that the not-for-profit health care utility could be established. For example, the utility could be established by a philanthropic individual or company, or the Federal Government could establish it and instantly privatize it.

The new company would be regulated, like all utility companies. It would sell over the internet and not need to advertise. Tax incentives would encourage everyone to sign up. A fair fee schedule would encourage physicians to sign up.

Again, this would not be government run. There are too many cost problems in the federal budget to allow the federal government to be involved.  There are looming Social Security costs (see later), for example, and military costs.

 

 

 

There is a constant fear of malpractice litigation on the part of physicians. This is especially true in high risk specialties and in high risk areas of the country. We order enough tests to avoid being sued and not to take care of the patient. The cost of malpractice insurance is up to $250,000 a year per physician. Many doctors are leaving practice early so their life savings are not put at risk by lawsuits.⁷ This is especially true of high risk specialties but is widespread. The system is driven by our litigious society but is worse in medicine. An expert witness can be paid thousands of dollars to find a small deviance from standard practice and exaggerate this into negligence and willful injury. Judges are not educated in both the law and medicine. Judges are stuck with nonsense written by paid doctors who claim to be experts. Some are outright liars.

A recent malpractice case, here in Mercer County, New Jersey, involved a psychiatrist who was sued by a patient who was diagnosed as panic disorder who had a seizure. A doubly board-certified expert witness, neurologist and psychiatrist, wrote in a 20 page expert report that the patient had a brain tumor that was malignant based on MRI exams and a pathology report. This was followed by claims that there were other problems missed. In total, 4 reports were filed and the expert made $40,000 for his reports and testimony. The final pathology report, from an Ivy League medical school, clearly stated that the final diagnosis was completely benign. The patient had scar tissue present that was probably present from birth. The facts were only discovered fully in court. It had to go to trial because our legal system can not deal with conflicting testimony from paid experts. Judges are stuck with nonsense written by paid liars who make a lot of money in what has become a new area of medicine: the paid expert.

There are at least 4 alternatives to our present situation, which is getting worse with time.

 

1.      Health courts where the judges are knowledgeable about medicine.

 

2.      Expert panels of doctors and lawyers who would be able to ascertain whether malpractice had been committed or not. Another expert panel would assess payment. Health courts and the panels could be combined.

 

3.      Worker’s compensation could be a model for malpractice or an equivalent system.

 

4.      The best system would be using mandatory arbitration between doctor and patient with each interaction. Gynecologists in New Jersey are investigating the use of this now.

 

Capping payments for pain and suffering helps but doesn’t go far enough. It is a necessary part of the answer. Doctors would still be subject to millions of dollars in awards and would continue to practice defensively. Capping payments helps malpractice insurance companies the most. It is a minimal improvement if nothing else is done.

Articles appear regularly in our medical journals warning us to do some minimally useful test or operation to avoid a lawsuit. The practice of medicine is evolving in the US to encourage more and more high technology usage and less and less old fashioned medicine. This makes the problem of defensive medicine worse. In the past, defensive medicine was a simple extra consultation with another doctor.⁸ Now it is a CAT scan or MRI, or a repeat of these same tests in a 3 month period. Radiologists recommend it and patients demand it.⁵ This is a constant problem with small masses in the kidney. A consultation costs a few hundred dollars. An MRI costs many hundreds more.

More and more documentation is called for to avoid lawsuits. This is an extra administrative cost as well. More verbiage goes in the charts to protect the doctor in a legal action.

There are articles on the cost of end of life care.⁹ Futile care is both costly and may painfully prolong life, but is done to help prevent lawsuits.

The worst trend is the paid experts who stretch the truth or just lie and can’t be found out by judges who are not trained for it. This is becoming a new medical specialty. In addition to the non-existing brain tumor previously mentioned, there was a recent lawsuit filed against one of the authors (SJG). It turned out the suit was against the wrong Urologist. After much wrangling, the lawsuit was dismissed but only because a personal relationship existed with the principal of the plaintiff’s law firm.

 

 

 

Health courts are seen as an alternative to the present litigation process where expert judges and an expert physician panel would obviate the paid experts who have an obvious conflict of interest.¹⁰ Caps on non-economic damages were modeled on the California Medical Insurance Compensation Act, or MICRA, in 1975. Some states have had success with this but others have had political problems and haven’t passed such a bill. Problems with this concept are politically based as well as having resistance from administrative judges who don’t want to have separate courts. AARP and the Joint Commission have expressed positive feelings on health courts. Several states have pending legislation to pass such courts. New Jersey and Pennsylvania have bills pending.

The main emphasis of these courts should be getting paid experts out of the system. If we wind up with a hybrid system with an adversarial paid witness there will be scant improvement and defensive medicine will continue.

 

 

 

The most recent article in JAMA on defensive medicine, 6/1/2005 by Studdert, et al, from Harvard showed that of 824 physicians completing a questionnaire regarding defensive medicine in southeastern Pennsylvania, 93% practiced defensively.¹¹ Defensive medicine was categorized as “assurance behavior” which included ordering tests, extra x-ray studies, performing diagnostic procedures, and referring patients for extra consultations. The doctors were in Emergency Medicine, Orthopedics, Neurosurgery, OB/GYN, and General Surgeons. “Avoidance” of procedures and avoidance of higher risk patients was very common. 42% of the respondents reported restricting their practices in the preceding 3 years to avoid risky procedures and complicated or litigious patients. This included trauma surgery and complex medical problems. Defensive practice corresponded with a doctor’s loss of confidence and perceived malpractice burden and premiums. This limits care and quality of care for all patients.

65 doctors were excluded from the study because they had ceased practice or moved out of state. In our practice area in New Jersey, I personally know 24 physicians who have retired from clinical practice early or limited their practice.  I also know a dozen physicians who are actively looking for non-clinical jobs or can’t wait to retire. This was particularly true of older and the most experienced physicians. These physicians don’t want a lifetime of earnings at risk of a lawsuit. The excluded physicians in the Studdert study therefore, may also be legal casualties and should be included in the effect litigation has on defensive medicine. The Patients and Physicians Alliance chronicle hundreds of Pennsylvania physician’s who have moved out of state or retired due to their litigious environment.

A small, non-scientific, survey done in our practice area shows many doctors corroborate these results. Emergency physicians feel 30% of x-ray studies are unnecessary and being done only for defensive purposes. These are the very expensive CAT scans and MRI studies. Orthopedists used the same 30% figure for defensively done x-rays. Campbell et al. asked physicians about ordering an unnecessary MRI in a hypothetical question about a patient who requests it. This was done in a leading question about the “just distribution of finite resources”. 36% of the responders admitted they would order an MRI reluctantly or willingly if asked by a patient, even if the doctor felt the MRI was not medically necessary. The real percentage would be higher without the leading prologue to the question, or if the question was connected to defensive practice.⁵ Urology has many examples of defensive practices including many x-rays for small renal lesions, many work-ups for minor amounts of hematuria, and chasing PSA values in older patients. There is also the morbidity of these unnecessary x-rays and procedures. Extra procedures lead to extra complications.

Defensive medicine is becoming the accepted standard, legally if not medically.  Professional organizations can develop better guidelines to help reduce the waste.

Studdert concludes that defensive medicine is a social cost of the instability in the malpractice system.

There are, of course, positive aspects to defensive medicine. Doctors have more detailed notes, more detailed explanations to patients, increased use of screening, develop audit criteria, and seek out modalities for increased patient satisfaction.¹²

Much money is wasted on useless activities, however.^13-20

Tancredi, in Science, 5/26/1978, also describe the financial benefits to the hospitals and physicians.²¹ This is a pathological feedback loop. A worsening trend is also physician’s playing within existing insurance rules to maximize insurance reimbursements. Doctors also are doing procedures that are not covered by insurance, being considered cosmetic. Payments are then much higher.

We need to include this in any healthcare reform because of the high degree of savings possible. It might be 20-25% of all the money spent on healthcare.

It is interesting that not one of the Presidential candidates who have spoken up about healthcare reform mentions tort reform and anticipated savings from that. The Mayo Clinic weighed in on this, as was reported in the NY Times 9/15/2007. The Mayo Clinic discusses insurance company reform but doesn’t discuss the costs of defensive medicine.

Peter Orszag, the Office of Management and Budget Director for the US Congress, discusses vast differences in per capita Medicare costs.²² The costs vary from $5000 per person in rural areas to $11,600 per person in urban areas. While some of this is based on the number of doctors per capita, these are the higher malpractice areas of the country. Some of the difference in cost is due to defensive medicine. They also discuss the federal government’s problems of not cutting costs by lowering doctors’ fees 5% a year. They would like to slow spending for healthcare in doctors’ fees, prescription costs of Medicare part D, and proposed expansion of SCHIP. They discuss proposed initiatives to implement pay for performance. Further study needs to be done to help measure defensive medicine’s costs.  

 

 

 

We can save 40-50% of current medical expenditures with a private sector, non-government run, utility model for insurance combined with an overhaul of medical torts. Our corporations are paying for these costs. The US is less competitive on a global level. Why do we pay 15-16% of GDP for health when it could be 8%, more in line with other western countries?

The impetus for this must come from the CEO’s of America. The politicians are mired in the current system along with entrenched players such as the trial lawyers.

Also, people need to own their own health insurance policy. This would be carried along for life and would not be tied to employment. This obviates the problems of preexisting conditions and allows savings accounts and financial incentives to take full effect.

Alternatively, coverage under COBRA (Consolidated Omnibus Budget Reconciliation Act 1985) could be extended forever at the previous employed group rates. Of the 45 million uninsured, perhaps 10 million have lost heir insurance in this way. The cost of COBRA is up to $1600 a month and currently ends after only 18 months and the ex-employee ends up without any insurance. This should be the first bill passed for health care reform as it would amend the ERISA law for employee related benefits. Can’t the politicians get this simplest of ideas passed? This should be the leverage to then get rid of our messy litigation system. Small business is still the majority of the employed in the US and they need the same tax benefits as large companies. We are all in this together.

 

 

 

The main impetus to wanting a health care overhaul seems to be getting universal coverage. Some of the proposed plans want to extend Medicare to more Americans. But, headlines blare: 9.9% Medicare cuts! 5% cuts yearly for the foreseeable future! Many doctors already find the current reimbursements from Medicare, Medicaid and private insurance inadequate and are dropping out. Who will take the children insured under an SCHIP program if they don’t provide adequate reimbursement? Who will be left to care for Medicare patients?

As just mentioned, giving back COBRA would reinsure 5-10 million people. The former employee would pay for this insurance coverage at the old group rates.

The Heritage Foundation recently found that many of the uninsured earn over $75,000 a year or are under 30 years old. Some qualify for Medicaid but haven’t even applied. Very reasonable tax incentives, health savings provisions, and saving 40-50% on insurance by following our proposed model would get another 20 million people insured.

The uninsured now would total only 10-15 million and they would be covered much more easily than any other model currently proposed.

 

 

 

This is a direct tie in to healthcare reform.

Deficit spending in the Federal budget takes the excess Social Security (SS) payments and applies them to the budget yearly deficit. This money should have accumulated over the years and should total $2 trillion this year. It should be adding $200 billion a year currently. This yearly excess will be down to zero by the year 2017. The SS trust fund trustees, and certain politicians, feel that the $2 trillion is still there and will be “spent down” from 2017 to the year 2041 at which point all agree that the SS system will be broke. Only enough will be there to pay 2/3 of expected benefits. This is echoed by the White House web site. If there is no money there today, then the system will be broke in 2017 and not 2041. There is no money or real assets there as of today.

The entire trust fund is currently invested in “SPECIAL” treasury bonds.

This is information available in the official Federal government SS Trust Fund site. Anyone can go to the site and look this up.

These are “NON-MARKETABLE” securities as admitted to by the trust fund itself.

The Bureau of the debt also employs many people keeping track of what should be in the trust fund but isn’t there. A good computer should do this simple job and replace most of the bureau and save a lot of wasted money.

SS is called the third rail of American politics. But, the true third rail won’t be trying to fix the system, as President Bush did in 2005, but having the American people discover that all the money has been spent over the years.

To keep up, money will be printed causing inflation, taxes will be raised, or benefits will be cut.

    

 

All of these programs have future projected outlays of money that need to be paid out of the federal budget. I am concerned that if we have a takeover of the health system, the budget will be balanced by ratcheting down the Medicare spending. This is already going on!

Also, there is no money put aside for future spending on Medicare or future federal pension obligations:

 

 

 

 

The link to the Social Security Trust Fund site is: http://www.socialsecurity.gov/OACT/ProgData/investheld.html.

 

 

Our current healthcare system needs reform. The combination of insurance company reform and malpractice reform would yield a 40-50% savings. A non-profit, non-government utility company would be best. Malpractice reform with mandatory arbitration, and panels of doctors in the employ of the arbitrator, would save us from the 20-25% spent on defensive medicine.

The federal government is proposing major cuts in Medicare funding and has no future reserves for health, pension, or Social Security payments as of today. Excess Social Security and Medicare taxes go to the general budget on an ongoing basis. The Federal government is not in any fiscal position to take on more health responsibilities. SCHIP programs may find few physicians willing to participate.

We hope these ideas reach the presidential candidates, the press, the public and fellow physicians.

 

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