15 July 2009

Tort Suits Not What's Wrong With NYC

Forbes, the magazine of big business, has recently released an article arguing that New York City is unfairly subject to too many lawsuits. Most of the points that it makes are convincingly rebutted here. I'll add just a couple of points.

About a quarter of those payouts are in medical malpractice suits from the city's public hospital system. Some of this is an accounting issue.

Rather than securing and paying for medical malpractice insurance, the city's hospital system "self-insures." Thus, while medical malpractice insurance premiums don't show up on the books in other jurisdictions at "lawsuit" related costs, they do in New York City.

In most localities public hospitals would be the responsibility of a special purpose entity which is off the books of local governments (like Denver Health") or a county responsibility, K-12 education is organized in administratively separate school districts, and universities are independent entities or are a part of state government. While the article doesn't make the fact enitrely clear, the hospitals of New York City are organized as a separate non-profit corporation, just as they are in Denver. This means, as the article notes, that malpractice payouts come out of the hospital system's own budget, so the concern that taxpayers on the hook for lawsuits against the City' public hospitals isn't accurate. Even in states that have claims courts that cover municipalities, a public hospital system set up as a non-profit corporation probably wouldn't qualify to be heard there.

If the amount of the lawsuit payouts from the hospital system are accurate, they are about 3% of the system's operating revenues (confirmed here). While this is nothing to sniff at, it is almost identical to what hospitals in Pennsylvania pay, for example. At 2005 study commissioned by the New York hospitals claims that nationally, hospitals spend an average of 0.9% of operating expenses on medical malpractice related expenses. Malpractice expenses have remained relatively constant over the years as a percentage of operating revenues and are not an important factor driving the cost of hospital care in New York City or elsewhere. New York City's hospital system has responded to the number of medical malpractice claims it has to pay in part by implementing a "risk management system" which has reduced the amount of medical malpractice that happens.

Study after study has shown that bad debt, which flows from lack of health insurance, is a much more serious problem for hospitals and is driving up the cost of health care. A 2008 study found that 10% of health insurance premiums are attributable to costs shifted to customers with health insurance from customers who are unable to pay for care.

Of course, New York City, with integrated city and county government, its own K-12 education system, and its own university system that are part of the overall entity, is unusual in that regard, and not comparable to typical municipal governments, despite the comparison made to Los Angeles, Chicago, Houston, Phoenix and Philadelphia in the lede. When a government has all sorts of functions not carried out by the entities it is compared to, it is an apples and oranges comparison. Indeed, John P. Avlon's failure to recognize this distinction that goes to the core of his argument makes clear that his rant against New York City litigation is either fatally incompetent or dishonest.

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