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Dr. Richard Anderson, CEO of TDC, on tackling Defensive Medicine & the Medical Liability Landscape. (Full Interview)

By Richard E. Anderson MD, CEO and Chairman of The Doctors Company, the nation’s largest physician-owned medical malpractice insurer to Defensive Medicine


Healthcare Matters sits down with Richard Anderson MD, FACP, Chairman and CEO of The Doctors Company, in the episode The State of Defensive Medicine. We discuss the practice of defensive medicine and how much it costs the healthcare delivery system annually. Dr. Anderson also shares his views on alternative dispute resolution strategies, California’s MICRA tort reforms and whether it’s possible for the healthcare delivery system to completely cease the practice of defensive medicine. He also addresses the findings of the 2015 BMJ observational study: Physician spending and subsequent risk of malpractice claims, including what the study’s authors got right as well as some important points of disagreement. We have created individual videos for each of the questions we asked Dr. Anderson on The State of Defensive Medicine episode.  We want to make it easy for you to find the content you want to watch. You can find them here:
  1. Defining “Defensive Medicine” and why it’s a violation of the doctor/patient relationship.
  2. How should physicians handle patients requesting unnecessary tests?
  3. The BMJ study: Physician spending and subsequent risk of malpractice claims: observational study
  4. Alternative dispute resolution systems.
  5. MICRA’s most effective provisions.
  6. Is further tort reform necessary?
  7. The current state of the medical liability insurance landscape.
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Mike Matray: Hello, and welcome to Healthcare Matters, the internet television program that explores the intersection of Medicine and the Law. I’m your host Mike Matray and today’s guest is Dr. Richard Anderson. Dr. Anderson is chairman and chief executive officer of the Doctors Company, the nation’s largest physician-owned medical malpractice insurer. Dr. Anderson was a clinical professor of medicine at the University of California San Diego and is the past chairman of the Department of Medicine at Scripps Memorial Hospital where he served as a Senior Oncologist for 18 years. Welcome to the program Dr. Anderson.

Dr. Anderson: Thank you very much. Nice to be here.

Mike Matray: I’ve had the privilege of attending a session that you delivered at the most recent PIAA Medical Liability conference on Defensive Medicine and Healthcare Transformations in the United States. You’ve written at length over the years about the negative impact of defensive medicine. You wrote an article on 1999 titled Billions for Defense: The Pervasive Nature of Defensive Medicine. And I understand you recently wrote a similar article on the topic. I would like to start by asking for your definition of Defensive Medicine.

Dr. Anderson: My definition of defensive medicine is actually a very simple one and that is simply a test, procedure, or therapy that is ordered by the physician primarily to protect himself or herself from liability rather than because of its diagnostic or therapeutic utility.

Mike Matray: Okay. What do you consider the economic dollars and cents cost of defensive medicine in the United States and what is the cost exacted by the defensive medicine on the physician-patient relationship in particular?

Dr. Anderson: Yeah, those are actually two great questions. So let me start with the first one. The cost of defensive medicine in the United States has been variously estimated at $55 to $60 billion and as high as $300 billion, but I personally, strongly believe that even the high figures grossly underestimate the real cost. Because I would argue that virtually all medicine in the United States today is defensive or that at least defensive considerations enter into clinical decision making so that…and during this course of this discussion I’m sure that we’ll have the opportunity to expand a little bit on that point. But, generally, my feeling is that almost all clinical decision making is to some degree now contaminated by defensive medicine. The cost to the healthcare system in my judgment quite seriously is almost incalculable. And I truly believe that we will not be able to significantly bend that cluster until and unless we genuinely take measures to reduce defensive medicine in the United States.

Your second question is also a very interesting question, and I think it’s a very important one. And I think it’s not asked often enough and, again, I think it’s an important calculation in the damage of defensive medicine. To some degree, defensive medicine is really a violation of the doctor-patient relationship. I, as a physician, understand defensive medicine. I practice defensive medicine. The vast majority of physicians in the United States and indeed the vast majority of physicians around the world, interestingly enough, will tell you that they practice defensive medicine. And yet, it is to some degree a violation of the doctor-patient relationship.

Now, why do I say that? Physicians should be the advocate for the patient. The doctor should not be ordering tests that he or she doesn’t really believe are primarily to benefit or have the potential to benefit the patient. One of the most important factors I think to understand about defensive medicine and it’s why the question that you asked about the definition is an important one.

My definition for defensive medicine is really a straightforward one. And therefore, you cannot distort the notion of defensive medicine into being careful medicine or being thorough medicine. Careful and thorough medical practice are good. They are by definition appropriate. And by definition they are not defensive. So that all defensive medicine is wasteful and into that extent all defensive medicine is an intrusion on the best aspects of a good doctor-patient relationship.

Mike Matray: Well, the patient is generally a lay person. And discussing defensive medicine with other lay people, I often get the response that if there is a chance that I have a specific condition or ailment, I want to get tested for it. If there is any benefit, I want it. Better safe than sorry. How would respond to that patient who wants to make sure every avenue has been covered?

Dr. Anderson: That is, again, that is another very good question. It is easy to understand the sentiment that I don’t want any stone left unturned, and I wouldn’t want anything not appropriately investigated or treated if it was for me or my family or my loved ones. Very understandable sentiment. But obviously, taken to its logical extension, you can see that it actually doesn’t make any sense. Nobody wants everything done. In other words, nobody goes to the hospital and saying, “Give me your 10 best operations.”

And no one goes to info MRI and says, “I’d like to have an MRI of everything.” And so we understand that intuitively the best medicine is not everything. The best medicine has to be the medicine that is appropriate for the condition. And beyond that aside from the waste of time and resources both of which is significant because it takes a lot of the patients time and, of course, it takes a lot of society’s resources to do almost anything in medicine today so we understand the significance of that ways. But it’s well beyond that. The cost of defensive medicine is well beyond that because there are risks to any medical procedure.

We say that, for example, an imaging study whether it is a chest x-ray, or a bone scan, or a CAT scan, or an MRI, the actual risk is quite low, but it’s not zero. But even if you chose to ignore the relatively small risks of the procedure itself, the problem is when you order a test that isn’t indicated, you may get the answer to a question that you didn’t ask. For example, you order an unnecessary CAT scan of the chest or you ordered a millions of CAT scans of the chest in the hope of finding something sometime, you will end up finding hundreds if not thousands of small, questionable abnormalities that once discovered, require further investigation. And so the patient will now start down the road of having investigation of a tiny nodule of uncertain consequence whose presence was not known, which was not symptomatic, which we shouldn’t have been looking in the first place. And yet, patients will end up having biopsies, anxiety, cost, additional studies, sometimes even surgery for a nodule that, in fact, has no clinical significance whatsoever.

Mike Matray: So what you are saying is, it is actually has the opposite effect. Defensive medicine, rather than reducing risk, actually increases risk.

Dr. Anderson: Right because no matter good or how risk free or how much risk reduction we do in medicine, there is virtually nothing that we can do that has zero risks. And so the more tests we order, the more therapies we give, the more medications we take even if they are inherently good medications when prescribed or given appropriately, they all have an inherent risks. And when we’re dealing with our own health and our own future, then taking unnecessary risks is a very dangerous thing to do particularly when we’re really talking about lottery sized numbers. In other words, on any given test, the odds of a major reaction are relatively small regardless of what the test is, or even an operation, relatively small.

But we are not talking about should society order extra CAT scans for example. We are saying, would it be a problem if we ordered a million extra CAT scans this yea? Or if we ordered a 100 million extra blood studies and it turns out that only .01% of those had false positives. Well .01% times a big number is a big number. And those false positives are dangerous. Or those one in a million allergic reactions, as soon as we order a million tests, somebody is virtually sure to have an allergic reaction. Again, it’s impossible to have a risk free diagnosis and treatment in today’s world.

Mike Matray: Recently, the BMJ, the International Peer-reviewed Medical Journal, published a study of Florida physicians, where it correlated that physicians who spend more money conducting test and procedures for patients were less likely to be sued for medical negligence. Do you agree with the premises of the article and why?

Dr. Anderson: Yeah, it’s a very interesting study, and a very valuable and an important one because defensive medicine has been, I think, sadly underappreciated from the point of view of medical research and the medical research community and also terribly underappreciated from the point of view of policy makers and those who have to create health care law as well as those who have to pay for the cost of health care in the United States. So I certainly commend the authors in a very serious way for making an important contribution.

I think there are several truths that emerge from this paper and then several areas of concern as well. One of the truths is that physicians believe in defensive medicine. In other words, physicians believe when they order additional studies that…and, again, think back to what my definition of defensive medicine is. The definition of defensive medicine is a test or procedure or therapy that is ordered primarily to reduce the liability of the physician rather than to benefit the patient. So again, by definition, what we are saying is the physician believes that it will reduce its liability. So it’s not surprising…and what this study validates…the data in the study validates that notion that physicians strongly believe that defensive medicine reduces liability.

Now, the second point of the paper is that using a very sophisticated, statistical analysis, the authors found data that they believe supports the notion that defensive medicine does reduce liability. And here, I’m not so sure that that’s true. Again, if you take my definition of defensive medicine, it can’t be true. In other words, if it is the right test or therapy to order in the first place, then it wasn’t defensive. Then ordering a test that isn’t the right treatment is not going to reduce your liability. So almost by definition, what they say can’t be true but it shows how difficult it is to separate all of these factors out, and it also shows that physicians believe that more test ordering and more therapies and so forth reduce their liability profile.

The authors quite appropriately themselves make the point that they are unable to evaluate the acuity, in other words the degree of illness, of the patients from one year to the next. They are only doing a one year…year over year but only two year comparison. And so the data, I think, is challenging. They use C-section as an example of the same notion. And C-sections are a very interesting to look at in terms of defensive medicine because I think it is a universally acknowledged by both public policy makers and physicians and obstetricians that we do too many C-section in the United States. And that too many can be defined almost anyway that you like. Too many because they are too expensive, too many because a C-section that isn’t necessary and is, without question, riskier on than the average, normal, vaginal delivery.

But also we have international data. United States does about twice as many C-sections as any other first world country. If C-sections were just generically produce better outcomes, then we would have better birth outcomes than other first world countries. And the truth is we don’t. So it’s really clear beyond a shadow of a doubt that once you get beyond necessary threshold…and interestingly enough, there is some data that would suggest that roughly 15% of deliveries ought to be C-section using modern medical standards of care. United States, that number is closer to 35%. So really, very, very high.

The authors themselves make a very interesting point which is that C-section births in the United states have increased by 60% since 1996. So basically, in the course of two decades, there’s a 60% increase in the number of C-sections. Now, if you sort of think about that, it is basically, physically impossible for the characteristics of the human pelvis and the human gestation process to have changed to circumstances where 60% increases in the number of C-sections could ever have been medically mandated. And what it points out and, again, this is very fundamental to my belief and to this point that I have been preaching for many years, is that medical standards of care in the United States have been polluted by the medical legal standards of care. In fact, most standards of care that purport to be medical and should be medical, of course, are in fact medical legal standards of care. And in the United States, I think it is really easy to argue that the medical legal standards of care induces a C-section rate that’s probably 25% or 30% as opposed to what is more likely whereas medical standard of care will probably produce a C-section rate a lot closer to 15%.

Mike Matray: Okay, so you’re arguing that it is the medical-legal complex that is actually generating this defensive medicine. Now, within the medical malpractice industry and the quest for a solution in this defensive medicine problem, a lot of alternative dispute resolutions structures have been recommended. Anything from mediation and arbitration that specialized health courts which is staffed by an independent panel of medical experts. Do you agree with these alternative…actually, I’m going to start that question over if you don’t mind. In the healthcare industry’s quest to reduce the overall cost of medical liability system, experts have recommended a number of alternative dispute resolution structures. They range from mediation and arbitration that specialized health courts. How do you feel about this alternative dispute resolution ideas and do you any endorse any of them?

Dr. Anderson: Yeah, again, very interesting question. First of all, I will say, that we have the worst…it’s like what Winston Churchill said about democracy. “It’s the worst of all political systems except for all others.” And I kind of feel that is what we have now. It’s clear that our system of medical legal jurisprudence is broken. We have infinitely too many suits. More than 80% of all medical malpractices claims close with no indemnity payment whatsoever, zero indemnity payment. Meaning that for practical purposes, you can use the word frivolous, but if you don’t want to use the word frivolous then you can use the word that they were futile. In other words, the doctor and the patient went through the cost, and frustration, and angst, and anger, and emotional turmoil of three to four years of litigation and ended up zero. No money changes hands. Complete waste. So if anything that would reduce the onslaught of unnecessary litigations would be a major reform.

In terms of which reforms are most likely to be effective, it’s a hard question because the devil’s in the details. Almost all of the reforms that have been proposed and were mentioned are well intentioned. And some of them could work quite well. Mediation can work well just because it gets both sides talking. Arbitration can be designed as a compulsory program can also fast track litigation, take some of the emotion out of the process, and reduce the length of it, reduce some of the frictional cause. But again, the devil is in the details. Who’s the arbitrator going to be? Is there going to be a right of appeal? In some states, for example, that have arbitration, the physician may win in arbitration and yet if the patient decides that they don’t like the outcome, they can go to court anyway. Well, then the arbitration’s been a complete and utter waste of time. And so really the devil is in the detail.

The other alternative that you mentioned, healthcare courts is certainly an attractive alternative. And again, you’d have to design a complete system. But the notion of having real experts whose primary allegiance was to truth rather than to the side which is paying their hundreds of dollars an hour fees, and unbiased and unemotional decision making and begin to separate medical standards of care from medical legal standards of care. And take some out of the emotion of out of the medical malpractice litigations because certainly emotion, especially anger, is a core element of medical malpractice litigation.

And one other major point, if you really did have true expert medical courts, you could presumably establish pretty clear-cut precedents. And if you have clear-cut precedents, then every physician could, at least, feel that he or she understood what the rules are. Right now, the way our systems works, we can talk about the standard of care, we think we know the standards of care is. But, at the end of the day, in every single medical malpractice claim, it’s the judge or the jury that finally makes their own decision on what they think the medical standard of care is or, even worse, it’s what they think the medical care should be. I say even worse because they are applying retroactively. So yes, there is a lot that can be done to reform medical malpractice but it’s a heavy load.

Mike Matray: Okay. You live in California, a state that instituted the Medical Injury Compensation Reform Act, or MICRA, in 1975. It’s considered the gold standard of medical liability tort reforms. As a result of MICRA, California has some of the nation’s most affordable medical malpractice insurance premiums, can you walk us through MICRA and what are its most effective provisions?

Dr. Anderson: Yes, absolutely, so MICRA have four provisions. By far the most famous and the single most important, although all are important, is the $250,000 capped on non-economic damages. So I hasten to add that there is no cap in California on total damages. So all true economic damages are 100 % compensated but pain and suffering is limited to $250,000. That is a really fundamental reform and, in my mind, it actually increases the equity because what we’re saying is everyone, rich or poor, regardless will get the same pain and suffering award in a serious medical malpractice claim. We are not going to try and figure out if some person deserves more or less for the same kinds of injuries. So I actually believe it increases equity.

Be that as it may, it is the single most important reform and the reason why it’s the single most important reform is that if you don’t put in a cap on an intangible non-economic damages, pain and suffering, effectively that goes to infinity. In other words, a sympathetic enough plaintiff can easily convince a jury award that pain and suffering should be a hundred millions of dollars. Heck, it could be a billion dollars. And so those kinds of numbers are almost impossible to insure. It only takes one or $200 million non-economic damage awards a year to bankrupt smaller insurance companies and to bleed the entire system. So it puts some instability in the insurance system, in the insurance mechanism, while yet promising a 100% indemnification for actual damages.

So that’s number one. Number two is periodic payments. If an award is to be made over the lifetime of a patient, then the award…for example, an award made to cover a lifetime of care, then the award is paid out over a lifetime. So that works to make even large judgments more affordable. If you have $100 judgment but you pay it out over 30 years, the annual cost is less than a single hit of a $100 dollars. So periodic payments is important.

Collateral source is number three and also very important. And collateral source is confusing sometimes but really my explanation of it, I think, is very straightforward. Collateral source says that there really shouldn’t be double dipping. If for example, you already have health insurance and the cost of healthcare has been already paid for. Then you shouldn’t collect for it twice. So collateral source means no double dipping.

And the other is a limit on attorney contingency fees. Right now around the country, the average attorney contingency fee on professional liability cases is somewhere between 30% and 40% and as high as 50%. But those are huge fees going to an attorney. What California does in MICRA is it says if you, as a claimant’s attorney win a million dollar claim, your fee is limited to $221,000 plus all your expenses, $221,000 dollars plus all your expenses. Two hundred twenty-one thousand dollars plus all your expenses for a million dollar claim is a nice day at the office. And what it does is it keeps the money in the healthcare system. And more importantly, it keeps the money in the pockets of the person for whom these indemnities are designed in the first place. In other words, instead of putting 30 or 40 or 50% of the indemnity into the pocket of the claimant’s attorney, we’re saying that no more than 22% on a million dollar claim can go to the claimant’s attorney. So where does that money go? It goes to the actual injured party. So those are the four cardinal tenets of MICRA.

Mike Matray: Would you support a federal level legislation similar to MICRA and if so, what is the likelihood of getting such a federal act to pass congressional scrutiny?

Dr. Anderson: Well, the answer, I would say 100% to your first question. I support it 100% and the likelihood zero. We really should have a federal standard. Again, we get into state’s rights issues, and we have all sorts of other related issues, medical licenses are state-based, medical litigation is state-based. The only time we have a federal medical malpractice litigations are if the federal government itself or a healthcare provider employed by the federal government is a defendant. So it is not generally a federal issue. At the same time, standards of care, in reality, are national.

Mike Matray: Okay.

Dr. Anderson: And that’s number one. Number two is in this era where we have large medical group that practice all across the country or alternatively, we have patients who are entirely mobile. The notion that you grow up in California and that all your medical care is going to be in California is completely untrue even if you still live in California because you could be traveling anywhere in the country at any given time. So it makes a whole lot of sense to have federal form of litigation and certainly federal version of MICRA would be a very welcome reform to the entire system.

Mike Matray: Okay. Medical malpractice claims frequency is at an all-time low and medical malpractice insurance industry has been experiencing its longest soft market in history. Are further tort reforms necessary if claims frequency is at an all-time low and the cost of medical malpractice insurance is stagnant? And if so why?

Dr. Anderson: Yes, very interesting. There are a couple of things to say about that. First of all, everything you said is true. In other words, the frequency is down around the country by almost half since 2004. We have half the number claims over the last decade than we did in probably prior decades. That is great. There is nothing about that that isn’t great. It’s really good news. But then the question is okay, it’s half. Half of what? Well, it turns out that it’s half of a crazily big number. So half of a crazily big number is still way too high. To give you an idea of what way too high is, using contemporary frequencies, the average neurosurgeon or other high risks specialists will still spend about a quarter, 25%, of his or her career in court defending an open malpractice claim, a quarter of a career. So the fact that it’s down is great, but it is still way, way, way too high.

Mike Matray: Okay. As a follow-up to that question, do you see a scenario when the future of a claim’s frequency and medical malpractice insurance rates go up or have the already instituted tort reforms effectively turned this lower, albeit lower of a crazily big number, in a soft market the new normal?

Dr. Anderson: Yeah, that’s a great question. I would say both things are probably true. In other words, I think we have to say that right now this is the new normal, but I do emphasize right now. And what I mean…I’m using the term, as you suggested, there is no reversion to the mean here. In other words, I don’t see any reasons to believe that there is any force which automatically drives backwards to the higher levels of frequency that were more common a decade ago.

But on the other hand, as I look ahead, there are two competing scenarios one is that continued application of really system integration, patient safety principles, physician risk aversion, better informed patients, more highly evolved surgical techniques, more refined medications, and so on and so forth, better imaging studies, that it’s possible that we’ll continue as we have been over the last decade, to improve medical outcomes and that the frequency of medical malpractice litigation will continue to come down. Certainly that would be a very, very happy outcome.

The alternative hypothesis though is not as cheery. The alternative hypothesis says that the consolidation of healthcare that is occurring in American medicine at absolutely unprecedented rate, creates so much dislocation, discoordination, interferes in such a profound way with the doctor-patient relationship that we have to expect that, at least in some interim period of time until the new health care system has sort of fully emerged, that we will see an increase in litigation because of botched handoffs, ruptured doctor-patient relationships, confusion with inadequate electronic medical records and other kinds of things that…the change in medicine is as promised, but it’s incredibly disruptive. And it’s hard to imagine that in an environment with this much change, this much disruption that there won’t be the opportunity, unfortunately, for more litigation.

Mike Matray: How has the medical liability of landscape and the practice of defensive medicine changed in the last 15 plus year since your article, Billions for Defense: The Pervasive Nature of Defensive Medicine was published?

Dr. Anderson: Well, in my mind it hasn’t change one bit. And the reason I say that is that I believe that defensive medicine…and I believe that virtually every physician in the United States will tell you the same thing. It’s one of the ironies about defensive medicine. The people who practice medicine tell you they practice defensive medicine. They don’t hide it. They don’t say, “No not me.” They don’t say, “Defensive medicine? What are you talking about?” No, all of us to a man or a woman say that defensive medicine is pervasive. And yet, society chooses to continue to debate whether or not it exists. It’s really a very strange notion.

So I wouldn’t change anything that I said 15 years ago, and I do believe that even today’ tort reforms don’t affect defensive medicine much and the reason I believe that is that physicians’ aversion to the current medical system is so strong that even if you say, “Well, claims are only half as frequent as they were a decade ago, so why are you still practicing defensive medicine?” It’s because half as frequent is still way too high. And doctors don’t perceive…put it another way, the risk is way above threshold for the way most physicians practice.

Best example that I can give is in that British medical journal article that you referred to earlier. They make the point, a very interesting one, about how high the incidence of defensive medicine is in a number of first world countries. Countries that we wouldn’t necessarily…we think of England as having a very low rate of litigation. A country like Italy, we hardly think of the medical legal system. Austria, we hardly think of the medical legal system. And yet, to cite three examples from their paper, doctors in those countries will tell you about 95% of the doctors in those countries will tell you that they practice defensive medicine.

So what is my point? Well, the frequency of litigation in those countries is only about half of what it is in the United States today. So if they’re practicing 95% defensive medicine with half of today’s frequency, we are going to have to get claims down way, way further before physicians will back away from the notion of the need to practice defensive medicine.

Mike Matray: Okay, that opens it up to the big question is how do we change this? If so how do you recommend the physicians and the medical liability community get involved in order to change this defensive medicine culture.

Dr. Anderson: Yeah, I think that there are a number of things. There are some…especially society initiatives that are based on thoughtful ordering of studies and all of that is commendable. To sort of develop that medical consensus on what studies are necessary under what circumstances and to really disseminate the view that shepherding resources is an important part of physician professionalism, and that we have to be thoughtful about the way we do these studies. And certainly there are more academic studies being done that are evaluating the utility of things that we used to do routinely believing that they were effective and finding out that, in fact, they are not as effective as we thought. So I think that there is a new emphasis on professional education and all of those kinds of thing can help.

But the truth is I don’t believe that this change can really be effectuated from within medicine itself. It’s going to take cultural change. It’s going to take a change where the first American reflex whenever any of us experience adversity whether it’s medical, whether it’s a slip and fall in the street, whether it’s a bump in the supermarket, whose fault is it and who can I sue? And until we change the mindset that I’m leaving money on the table if I don’t sue somebody, then I don’t see a really profound shift. In other words, as important as I believe solving the problem of defensive medicine is, and I do believe it’s fundamental, I don’t have a magic bullet solution to it. I wish I did.

Mike Matray: Well, Dr. Anderson it was an absolutely fascinating discussion and thank you for coming on Healthcare Matters, and I hope to talk to you again in the future.

Dr. Anderson: Well, thank you very much. It was a great pleasure. Thank you.