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The cost of doing business

External pressures, like ‘defensive medicine’, need to be counted when it comes to healthcare costs

The statistics tell you that the rising cost of healthcare is due to a number of factors including the cost of drugs and devices and the cost of labour inputs to provide healthcare services. And the statistics are correct. The cost of treatment, and the labour required to deliver it, represents a staggering proportion of healthcare costs. However, there are 'externalities' that are not broadly accounted for in the calculation: litigation costs. The statistics will also show an increase in the sheer volume of online health information. Ten years ago, let alone longer, it was difficult to find health-related content on the web. Not so today.

And so, over the last number of years, we have viewed the empowerment, engagement and education of patients as a positive component of healthcare. And it is. But this 'informed class' of consumers, coupled with the rise in litigation costs is not a coincidence. The increased availability of, and access to, health-related information has also brought with it an increased level of litigation that contributes to the rising costs of health systems throughout the world. It is not uncommon to see law firms aggressively advertising to “call us for a free consultation” in the hopes of reaching an unsatisfied patient. Or to have patients seek alternate opinions on diagnoses and treatment interventions.

With this said, the rise of 'defensive medicine' has reached alarming levels as clinicians look to the provision of healthcare services less as a means to provide better care and more as a means to ensure that potential future malpractice lawsuits leave no opportunity for 'negligence' awards by judges and juries. To suggest that the increased availability of information is solely responsible for this would be misleading but it is a component. Others have pointed to various factors that also contribute to the rise in medical liability litigation and still others have examined the current state of defensive medicine via clinicians' self-reported behaviour in the course of treatment interventions in a variety of therapeutic areas. Sethi et al report that almost 25 per cent of tests ordered by orthopaedic surgeons are done on a 'defensive' basis and that this may account for $2bn dollars in unnecessary expenditure. 

While we know that informational asymmetry contributes to the failure of the healthcare market, it is widely assumed that the narrowing of the information gap has no downside. Do the benefits of more informed 'consumers' outweigh the costs? Of course, they do. But the downside is real. More (unnecessary) tests, second (and third) opinions, full-to-the-brim waiting rooms and inexorably long waiting lists.

Litigation as a driver of rising costs to health systems around the world is not simply the domain of the G7 nations. Emerging markets are grappling with this as well—albeit in a different way. In Brazil the collection and pooling of revenue for healthcare along with the purchasing of healthcare services is divided between state and municipal levels of government which make things very complicated given that the services and treatment interventions offered vary greatly between different jurisdictions. This has given rise to a phenomenon where patients actually sue the government to make certain drugs available on formulary. Litigation against the government is actually encouraged by patient advocacy groups, doctors and pharmacists until the government's hand is forced to provide the treatment to the patient (which must occur within 72 hours of the court's decision). From the government's perspective, the impetus to act and provide treatment(s) becomes obvious when the number of lawsuits, and their value, exceed the cost of making the treatment available to patients.

Almost 25 per cent of tests ordered by orthopaedic surgeons are done on a 'defensive' basis

On the one hand, as with defensive medicine, we have the unnecessary, and largely excessive, provision of healthcare services being provided as a driver of litigation costs (US) where physicians fear the potential of being sued. And on the other hand we have the absence of the provision of healthcare treatments being provided as a driver of litigation costs (Brazil) where patients are forced to sue the government to make treatment available. Ironic isn't it? 

Suffice to say that remedies do exist within health policy, such as medical malpractice insurance reform, but until the time these remedies are implemented, these externalities need to be accounted for in the overall costs of running health systems as part of the 'cost of doing business'.

Article by
Rohit Khanna

president and managing director, Catalytic Health. He can be reached at

20th December 2013

From: Sales, Healthcare



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