Commentary: A Second Opinion on the Malpractice

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Business Week

 

MARCH 3, 2003

 

LEGAL AFFAIRS

By Lorraine Woellert

 

 

 

Commentary: A Second Opinion on the Malpractice Plague

Way back in 1975, doctors marched on California's statehouse and staged a sit-in

over soaring malpractice-insurance premiums. Politicians responded with a

landmark law that capped pain-and-suffering payouts to victims at $250,000--a

measure that was copied in more than 20 states.

 

Now, premiums are spiking again, doctors across the country are walking off the

job, and President George W. Bush is calling for legislation that would impose a

California-like cap on malpractice awards nationwide. With Congress in

Republican hands, the proposal is getting serious consideration.

 

But do caps on awards really keep doctors' insurance premiums down? Both sides

in the debate--doctors and insurers fighting for caps, and trial lawyers and

patients fighting against them--are waging a war-by-anecdote. But clear away the

dubious studies, the exaggerated line charts, the hysterical press releases, and

look at the numbers, and the statistical case for caps is flimsy. Here's what we

found:

 

MYTH 1: Premiums have risen more slowly in states with caps on

pain-and-suffering awards.

The White House, pro-tort-reform business groups, and insurance companies all

note that states with caps on awards had average premium hikes of just 12% last

year, while states without caps averaged a 44% premium jump. That puts a crimp

on doctors, who have watched premiums compound for many years even as their

incomes are squeezed by managed care. But the Administration's analysis is

incomplete, omitting data from nearly a dozen states without caps, such as

Vermont and Arizona, where premiums have stayed low. If those states had been

included, the gap would have narrowed. Taken as a whole, capped states raised

premiums an average of 12.7% last year; states without them saw premiums rise

20.4%, according to data provided by Chicago newsletter Medical Liability

Monitor.

 

And if you go back a few years, the difference between states with caps and

those without narrows more. In 2001, premiums went up 5.8% in the cap states,

compared with 9.6% in jurisdictions without them. The year before, premiums

actually rose more in states with caps (3.2%) than in states without them

(2.7%)--a pattern that also held true in 1999 (2.12% vs. 0.54%). The bottom

line: Caps might moderate premium hikes, but not to the extent that tort

reformers claim.

 

MYTH 2: Runaway jury awards are forcing insurers to raise rates.

The size of damage claims paid out by physician insurers has been more or less

steady since 1991, according to the National Practitioner Data Bank, a

government service that tracks doctor errors and malpractice claims. The mean

payout was $135,941 in 2001, up 8.7% from $125,000 a year earlier. Over 10

years, malpractice payouts have grown an average of 6.2% a year.

 

Guess what? That's almost exactly the rate of medical inflation: an average of

6.7% between 1990 and 2001, according to the Journal of Health Affairs. It's

also worth noting that, nationwide, malpractice payouts by physicians and their

insurers were a mere $4.5 billion in 2001--less than 1% of the country's overall

health-care costs of $1.4 trillion. They have risen slowly, if steadily, since

1996, when the total was $3.5 billion.

 

MYTH 3: The number of mega-awards is growing.

It's the jaw-dropping award that spooks insurers. They claim malpractice payouts

of $1 million and higher are becoming all too frequent, up by 7.9% last year.

But the number of mega-claims remains small. Only 895 out of 16,676 payouts, or

about 5%, in 2001 topped $1 million, up from 506 in 1996, according to

government data.

 

Meanwhile, some states are finding that a small percentage of physicians

accounts for the majority of big malpractice verdicts--which would indicate that

the problem is a few bad doctors, not greedy tort lawyers. Officials in Nevada,

which adopted a $350,000 cap last year, discovered that only two doctors were to

blame for $14 million of the $22 million in claims awarded in one recent year.

Both are still practicing.

 

MYTH 4: Courts are clogged with an exploding number of claims.

Claims against the industry as a whole have actually been flat since 1996

(chart). In Florida, a state insurers say is in crisis, medical malpractice

claims rose just 3.7% from 1997 to 2000, according to the National Center for

State Courts, a Williamsburg (Va.) research group. A broader as yet unreleased

study of 17 states will show that filings remain stable, with an increase of

about 5% from 1997 to 2001.

 

No doubt there are frivolous lawsuits out there. But there are also plenty of

medical mistakes. A 1999 study by the federally funded Institute of Medicine

found that 44,000 people die from hospital errors each year. And doctors, many

of whom are covered by physician-owned mutual insurers, traditionally have been

loath to sanction colleagues by denying them insurance. " We're getting more

aggressive " at weeding out bad doctors, says Dr. Richard E. Anderson, chairman

of Doctors Co., a Napa (Calif.) insurer that covers 28,000 physicians in all 50

states. But Anderson and other insurers refuse to document that claim by

releasing their nonrenewal rates.

 

That makes it hard to tell if the profession is changing its culture. On this

and many other key points, proponents of caps simply aren't coming up with the

facts to make their case. Instead, they're relying on scare stories--always a

bad starting point for making serious policy decisions.

 

Woellert reports on legal affairs from Washington.

 

 

 

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