As Congress wrangles over the skyrocketing cost of health care reform, the Congressional Budget Office has determined that reforming the medical malpractice insurance system, a.k.a. "med-mal reform" or tort reform, could save $54 billion over 10 years.

In a letter to Republican Sen. Orrin Hatch, CBO Director Doug Elmendorf said changes to current federal liability laws would significantly reduce costs to health care providers and thus to federal government programs like Medicare and Medicaid that reimburse them for their services. The changes CBO looked at included a cap on non-economic damages at $250,000, a cap on punitive damages at $500,000 and shortening the statute of limitations for filing lawsuits.

Elmendorf told Hatch that liability costs, including insurance premiums and settlements, currently make up 2 percent, or $35 billion, of health care providers' annual spending. By cutting those costs and thus the amount the government reimburses them for their services, the federal government would save $41 billion over 10 years.

Additionally, the CBO predicted that if health care costs for employers decrease, companies would use the savings to increase wages and drive up taxable income in the country. The additional taxes on those wages would add $13 billion to the Treasury.

In his joint address to Congress, President Obama promised to move forward on tort reform as a way to attract Republican support for his health reform package. Obama's proposal, however, was limited to instructing HHS Secretary Kathleen Sebelius to move forward on tort reform "demonstration projects in certain states." Currently, one-third of states have limits on non-economic damages, while two-thirds of states limit liability based on a provider's role in a patient's care.

But would the savings be worth the potential costs to patients? Elmendorf noted that while several studies have examined the potential cost savings from tort reform, there are far fewer studies of the actual effect on the quality of patient care if tort reform were to be widely enacted.

Some Democrats maintain that the threat of litigation is one of the few ways to hold insurers and providers accountable and that limiting liability is not the right way to balance the books in health care reform. When asked on CNN's "State of the Union" about one of the proposals scored by the CBO, Sen. Bob Casey (D-Pa.) said, "A $250,000 cap on damages, in my humble opinion, is insulting to our system of justice. That is not justice as we have come to understand it."

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