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To Fix U.S. Budget, Reform Medical Malpractice Law

Author: Peter R. Orszag, Adjunct Senior Fellow
February 28, 2013
Bloomberg.com

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The sequestration that is about to take effect imposes too much austerity too soon, does so in a nonsensical way, and yet does little to improve the long-term U.S. fiscal picture.

Far more beneficial would be to make sure that the deceleration in health costs we have been enjoying continues. This is why medical-malpractice reform, although far from a panacea, is worth trying.

Most of the costs in the U.S. health-care system are incurred in a small number of expensive cases. The top 25 percent of Medicare beneficiaries ranked by cost, for example, account for 85 percent of total spending. And the expenses in those cases are driven significantly by the recommendations that doctors make to pursue one treatment path and not another.

In making these choices, doctors are influenced by various things, including medical-school training, traditions among their peers, financial incentives (which are distorted by fee- for-service payments) and, yes, the medical-malpractice system. Improving the criteria for what constitutes appropriate care could significantly change doctors' behavior and also save money, recent research by Michael Frakes of Cornell Law School suggests.

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