The lawsuit industry makes up about six percent of America’s GDP and costs thirty times more than what the NIH spends annually on cures for deadly diseases, said Lawrence J. McQuillan at a recent Heritage Foundation event.
McQuillan, the director of Business and Economic Studies at the Pacific Research Institute, has dedicated countless hours to the study of tort and the potential effects of tort reform on the American economy (many of his results can be found in the PRI publication “Jackpot Justice: The True Cost of America’s Tort System”).
Indirect costs of tort, McQuillan said at the panel on tort reform, cost Americans over $865 billion annually. This puts what he terms “the lawsuit industry” at the same size as the restaurant and food service industry.
McQuillan pointed out that 93 percent of physicians practice defensive medicine, conducting extra tests on patients in the hopes of preventing future lawsuits. Twenty-five percent of all procedures now performed on patients are unnecessary, and only performed in the first place to avoid potential lawsuits. According to McQuillan, defensive medicine has a true cost of about $124 billion annually, and this is a cost that regular Americans pay every year with their insurance. McQuillan estimated that 3.4 million Americans are unable to afford insurance just because of the cost of defensive medicine. Clearly, in light of the recent health care debates, this is a crucial statistic for both policymakers and voters to understand.
In addition to the medical industry, tort law also has an undeniable effect on business. Businesses suffer when tort is out of control. Tort law impacts research and development as money that could have gone to making new products goes instead to dealing with the lawsuit industry. The sales of products that do not exist because of tort are estimated to add up to $367 billion, an enormous amount of money that definitely could be “stimulating” the economy right now.
McQuillan discussed how the vaccine industry illustrates his point: there are virtually no vaccine companies headquartered in America anymore, because tort problems make their presence almost impossibly expensive. People who own vaccine companies are smart to build and manage them overseas, in places where tort is not allowed to run so freely.
Indeed, according to McQuillan, tort in the United States is 59 percent more expensive than tort in any other industrialized nation. This is a fantastically high number—one would think that liberals, so obsessed with comparing everything else about the United States to Europe, would be distressed to find this comparison so drastic.
McQuillan concluded by agreeing with the prior speaker, Bill Batchelder. To McQuillan, tort reform must be primarily a state responsibility, and as states like Texas and Mississippi have proved (by capping the awards), this responsibility is a manageable one indeed.