The direct costs of include payments made on claims (from which plaintiff's attorney fees and costs are taken), legal costs of defending claims and costs of underwriting and administering liability insurance. A recent estimate of malpractice litigation suggests that claims amounted to $4.4 billion in 2001, legal defense costs amounted to $1.4 billion and insurance administration amounted to $700 million. Thus, total direct costs were probably about $6.5 billion in 2001, or 0.46% of total health care spending. No hard cost figures are available.
Indirect costs arise when the liability system causes physicians to supply more health care services than they would in the absence of a liability threat. Services that are provided primarily or solely for the purposes of protecting physicians against malpractice liability, rather than the medical benefit of the patient, are referred to as defensive medicine. True defensive-medicine costs are properly counted as indirect costs of the malpractice system, but the costs of additional appropriate (i.e., medically indicated) services should not be included in that estimate. There are no reliable estimates of the national costs of defensive medicine.
Because the cost of medical care for injured patients is a large component of malpractice awards, we should expect awards to rise along with increases in health care spending. Indeed, both average paid claims and per-capita health spending grew 52 percent in real terms from 1991 and 2003.
Malpractice awards also include other components, however, such as non-economic damages, so we should not expect them to precisely track health care spending.
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