Tax Breaks for Trial Lawyers?

Is it good public policy to modify tax laws to encourage more lawsuits against physicians?

That’s a question the American Medical Association raised this week in a letter to Treasury Secretary Timothy Geithner.  It seems that there are rumblings about the government making changes in tax regulations that would allow lawyers who work on contingency fees (which is the case with the vast majority of personal injury attorneys) to deduct their litigation expenses as they occur instead of after a case is completed.

What’s the significance here?  As Daniel Fisher explained in Forbes, oil drillers are allowed to write off expenses when they drill a well, not just when the energy emerges from the ground.  There’s a public policy benefit here, in that it’s in the public’s best interest to encourage more energy exploration.  By having the ability to deduct expenses as they go, the financial risk of oil drilling is reduced.

But is it in the public’s interest to encourage more litigation against physicians and hospitals?  That’s a dubious proposition considering that studies have shown the vast majority of medical liability suits are found to be meritless and the average cost to defend against a suit is $22,000, thus pushing a significant amount of dollars out of healthcare and into attorneys’ incomes.

I think the AMA has a good point here.  The Congressional Budget Office has already said that the government could save $54 billion over 10 years by reducing the number of medical liability cases and, with it, the need to practice defensive medicine.  That should be our public policy direction, not the encouraging of even more lawsuits.

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