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Malpractice Insurance, Defensive Medicine Apparently Not That Big a Deal

Philip Betbeze, for HealthLeaders Media, September 10, 2010

In fact, with the trend toward hospitals employing more of their physicians, malpractice insurance is often included in the price of doing business—the hospital effectively "pays" it for them through a captive plan.

Still, that didn't stop the American Medical Association from sending a pointed letter to Treasury Secretary Tim Geithner a week ago protesting a proposed change in federal tax policy that will allow a "special tax deduction for trial attorneys who enter into gross fee contingency contracts with their clients."

The AMA says allowing the deduction will reverse decades of precedent maintaining that court and other litigation expenses incurred by trial attorneys are not deductible as business expenses. Currently, attorneys are only able to deduct loans to clients on contingency cases after the case is lost.

The new rule would allow them to deduct the costs whether the case has been resolved or not. Democrats are heavily backed by trial attorneys, so I wouldn't be surprised if the AMA's letter is ignored. Besides, the administration doesn't have to ask Congress to do it.

Maybe the change would wreak havoc on the healthcare industry. It would be marginally cheaper, for example, for attorneys to file lawsuits—both of the frivolous and merited variety. But the bigger issue for policymakers and healthcare consumers, which is to say, everyone, is whether the double-bogeys of frivolous lawsuits and medical malpractice premiums get too much ink for the impact they have on the cost of healthcare in this country.

Understand, I'm not saying it's a good idea, just that I don't think it's going to move the needle much on healthcare lawsuits.

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