New research shows that capping liability costs in medical malpractice cases may not spur medtech innovation across the board.
High litigation costs dampen medtech innovation, and caps on monetary damages encourage it. That's what the industry has been saying for decades, but it may not be entirely true.
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U.S. and Canadian researchers have found that in states that have passed so-called tort reform laws, there's a 14% reduction in medical device patents. This was particularly true for devices used in specialties with a high frequency of malpractice claims, such as such as surgery and orthopedics.
Harvard University business professor Hong Luo and Alberto Galasso, an associate professor at the University of Toronto, studied the effects of tort reform on medtech developments. In a working paper titled "Tort Reform and Innovation," the researchers take on common arguments about the effects of medical malpractice litigation and reform on medtech.
"Our mathematical model tries to look at how these things interact with each other, but the main message is really that this typical view is a bit too strong," Galasso said in an interview. "There can be other effects there, so eventually, one has to look at the data."
About half the states in the U.S. have passed some level of tort reform since the 1970s, and many intervening academic papers have shown that tort reforms tend to reduce physicians' tendencies to practice "defensive medicine," such as performing excessive tests and procedures because of concerns about malpractice liability. Legal scholars, courts and members of Congress have also warned about the possible chilling effect of high damage awards on medtech innovation.
But these researchers found little empirical evidence to support either side. So they combined standard measures of innovation based on U.S. patent data and data on state tort reforms from 1985 to 2005, provided by the American Tort Reform Association.
They found that in states where laws capped or limited non-economic damages, such as awards for pain and suffering, doctors were more likely to adopt riskier technologies. They also found that tort reforms made it less likely that physicians would defensively adopt low-risk technologies in order to avoid malpractice liability.
"If we capture the very valuable new technologies, tort reform has no effect. The likelihood of developing this new technology doesn't really seem to change whether or not you have some tort reform," Galasso said. "It's more the lower-value technology for which you see some sort of response, and you see a decline in the propensity to develop these."
Whether companies produce innovative, new devices depends on the characteristics of both the devices and the medical fields, they added.
"If it is really promising in terms of helping you manage safety, then (physicians) tend to use it," Luo said in an interview. "Innovators tend to innovate along this dimension and push them downstream."
Since the 1970s, more than half of the states in the U.S. have implemented some form of tort reform. A large number of academic studies have investigated the relationship between the tort system, treatment intensity, and medical expenditures. Many of these papers show that tort reforms may mitigate defensive medicine concerns by reducing treatment intensities (e.g., Kessler and McClellan 1996, Kessler 2011, Avraham and Schanzenbach 2015).
The researchers believe their study has yielded the first empirical evidence of the effects of tort reform on medtech innovation.
"There is a lot more that we should do," Hong said.
"We need more research on this to really understand how and in what way liability affects technology," added Galasso.
Nancy Crotti is a contributor to Qmed.
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