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Study Finds $2.6 Trillion in Healthcare Savings with New Medical Liability System

"BioScience estimates doctors would reduce the practice of defensive medicine by 30 to 70 percent under a Patients' Compensation System as proposed by Patients for Fair Compensation."

Medicaid, Medicare Expenses Would Decrease $1 Trillion

ATLANTA (July 19, 2012) - Replacing the American medical liability system with a no-fault, Patients' Compensation System would create at least $2.6 trillion in savings over 10 years, according to a new study released today by the German economics firm BioScience Valuation.

The actuarial study, commissioned for Patients for Fair Compensation, found that doctors would scale back the practice of defensive medicine if the medical tort system were replaced with one that is legally patterned after workers' compensation.

BioScience Valuation, a company that specializes in healthcare economics and financing, estimates that defensive medicine costs in the United States run about $270 to $650 billion annually. Defensive medicine occurs when physicians order more tests and procedures than are medically necessary to keep from being sued.

BioScience estimates doctors would reduce the practice of defensive medicine by 30 to 70 percent under a Patients' Compensation System as proposed by Patients for Fair Compensation.

"We believe every state should embrace this model to bring enormous healthcare savings to consumers," said Richard L. Jackson, chairman of Patients for Fair Compensation. "There is no single effort that could reduce the cost of healthcare as quickly as eliminating the practice of defensive medicine."

Under a Patients' Compensation System, similar to one found in Sweden, a patient who was medically harmed could file a claim for review by a panel of experts. If that panel deemed the injury was "avoidable," the claim would be forwarded to a Compensation Board to award compensation.

This would create a predictable model where patients are assured their cases would be heard. Injured patients would have access to justice. And unlike the current tort system, low-value claims would be heard. The system would provide more injured patients compensation. They would receive predictable settlements in much faster time. Doctors would know they wouldn't be hauled into court for frivolous reasons.

Among highlights of the BioScience Valuation report:

  • The Patients' Compensation System would bring a savings to taxpayers of about 12 percent of the Medicare budget or about $7 billion in the first year and an estimated $80 billion annually after the first five years. Savings for Medicare over 10 years would be an estimated $700 billion.
  • All healthcare payors would see a savings of $156 billion to $363 billion annually from 2015 and beyond.
  • Medicaid would save an estimated $48 billion to $113 billion annually beginning in 2015. The projected 10-year savings total would be similar to Medicare.
  • Under a PCS, 34,000 patients a year would be compensated for their injuries - 77 percent more than currently receive compensation.
  • The average payment could increase 100 percent to $640,000 per patient harmed by a physician, without increasing malpractice costs currently incurred by doctors and hospitals.

"A change in our medical liability system of this magnitude would not only create a significant savings in healthcare but would be helpful to those truly harmed," said Jackson. "It really is the path toward bringing fiscal sanity to spiraling healthcare costs in America while promoting a system that provides real access to justice and improves patient safety."

For more information about the report from BioScience Valuation, click here.