The Medicare Sustainable Growth Rate (SGR) is the method enacted in 1997 to control spending by Medicare on physician services, and ensure that the yearly increase in the expense per Medicare beneficiary does not exceed the growth in GDP. Every year, the Centers for Medicare & Medicaid Services and the Medicare Payment Advisory Commission advise Congress on the previous year's total expenditures and the needed adjustment in Medicare payments to doctors. For years, the calculation has resulted in a planned cut in payments, but Congress has repeatedly delayed the cuts. Congress and President Obama have delayed the implementation of the payment cuts several times, most recently until the end of February. On that date, it is estimated that the SGR will be a cut of at least 20% in payments. Physician groups, especially the American Medical Association, are lobbying for a permanent change to the SGR methodology, called the "doc fix" inside the Beltway, to prevent annual cuts.
I can understand the desire of the doctors' groups to rationalize the process and avoid painful SGR cuts, which could result in an actual reduction in medical services for those who most need them. But already we've seen political allies of the AMA recommend that Congress pay for the "doc fix" by crushing the constitutional rights of all Americans and instituting sweeping nationwide limits on medical malpractice and health care-related lawsuits. Numerous conservatives and Tea Party-side legal experts have condemned any such federal tort reform law as an unconstitutional infringement on states' and individual rights. That's reason alone to not pursue that option.
But there's another reason why Congress shouldn't try to pay for the "doc fix" with medmal limits: the CBO's estimates of revenues resulting from the institution of federal limits on medmal lawsuits are fatally flawed. The AMA and its allies continuously promote a CBO estimate, released during the ObamaCare debate, that medmal limits would save close to $60 billion over ten years. Here are the flaws in that estimate:
First, CBO not only has a lousy record of estimating ten-year budget deficits and projections of policy impacts, but it's missed often on just year-to-year projections. It's no wonder that House Majority Leader Eric Cantor accused the CBO of outright "budget gimmickry" in its calculations last year on the supposed "savings" that would result from enactment of the Affordable Care Act, or that Cantor and House Speaker John Boehner criticized CBO for predicting that repealing ObamaCare would cost $145 billion.
Second, CBO admitted in 2010 that it did not "consider the effect of tort reform on patient health and medical outcomes." Remarkably, the CBO determined that "many studies of malpractice costs do not examine health outcomes." In fact, implementing CBO's projection of "savings" could actually result in more deaths and injuries. CBO admitted in its estimate that limits on medmal lawsuits could "an additional 4,853 Americans killed every year by medical malpractice, or 48,250 Americans over the ten-year period CBO examines." And another 400,000 or more patients could be injured during the same 10 years. That's not a cost that CBO can estimate, but it's one we don't want to bear.
Third, the CBO can't estimate the impact that sweeping limits on medmal lawsuits would have on federal health care costs paid for by Medicare, Medicaid, and the Veterans Administration. If someone is brain-damaged, mutilated or rendered paraplegic as a result of medical negligence, but cannot obtain compensation from the culpable party through the tort system, he or she may be forced to turn to those programs for compensation. None of these increased Medicaid or VA hospital costs are considered in the CBO estimate.
Whenever there is a successful medical malpractice lawsuit involving an elderly or poor person, Medicare and Medicaid can claim either an interest in whatever the patient recovers, so the victim reimburses the government for some of the health care expenditures. Without the lawsuit, Medicare and Medicaid will lose funds that the government would otherwise be able to recoup. And none of these lost funds are considered by the CBO. In fact, Congressmen and Senators of both parties are sponsoring legislation to improve that process and return even more revenue to the Treasury, but CBO still can't count that money properly.
Fourth, CBO guesstimated that imposing federal lawsuit limits would result in a reduction in a drop in liability insurance premiums, but provided no raw data, explanations, or sources to back up its estimate. Numerous states have already imposed caps on medmal lawsuit damages, with no impact on personal health insurance premiums. In fact, a study by the Commonwealth Fund shows health insurance premiums rising rapidly in California since 2003, despite the state's very tough limits on awards in health care-related lawsuits. CBO makes the assumption that Uncle Sam can wave a wand and magically force health insurance premiums to drop. How's that one working out in California?
In conclusion: Anyone betting on federal lawsuit limits to pay for the "doc fix" is wasting their time. Not only is it unconstitutional, but it won't raise real money and solve our budget problems. Congress should reject any proposal to impose federal limits on health care-related lawsuits, and instead spend its valuable time designing a constitutional and mathematically reliable "doc fix" solution.