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- ↵*Address correspondence to:
Anthony N. DeMaria, MD, MACC, Editor-in-Chief, Journal of the American College of Cardiology, 3655 Nobel Drive, Suite 400, San Diego, California 92122, USA.
Malpractice litigation and insurance have been a hot-button issue for physicians since I entered medical school. This past year the issue was exacerbated when medical malpractice insurance (MMI) costs increased dramatically, causing some physicians to participate in public demonstrations and others to discontinue services. Although several state legislatures convened to consider emergency legislation to address the crisis, and the House of Representatives passed the Health Act of 2003, this measure did not pass the Senate. Perplexed by the lack of clear action on this problem, I looked into the facts. I learned that the problems affecting MMI are multifactorial, and that the issue generates an acrimonious dialogue and is beset by a lack of adequate data.
Several in-depth studies (1,2), including an extensive report by the General Accounting Office (GAO), have analyzed the extent, causes, and potential solutions to the current MMI problems. Some facts are undeniable. A significant increase in MMI premiums has occurred since 1999 and has been accompanied by the withdrawal of a number of insurance providers from the marketplace. For example, the St. Paul Companies, which at the time were ranked as the number two MMI provider in the U.S., terminated their business in 2002 due to falling profits. The net effect has been to both increase the cost of MMI and decrease its availability. Far from being uniform, the increase in premiums has varied tremendously for individual specialties, from state to state, and even within states. Thus, the premiums for general surgeons in Dade County, Florida have increased 75% since 1999 to a total of $174,300 annually, while in Minnesota during that period they increased 2% to a total of $10,140. In fact, the premium for general surgeons in Florida outside of Dade County is $89,000 per year. In terms of specialty, the premiums for one large Texas insurer were $92,000 for Ob-Gyn, $71,000 for general surgery, and $26,000 for internal medicine. Thus, the magnitude of the MMI problem varies greatly from locale to locale, cannot be related to a single issue, and is unlikely to be solved by a single piece of national legislation.
The cause for the problems affecting MMI is more difficult to define. In addition, once having left a discussion of the dimensions of the MMI problem, hard data concerning the causes become limited. A number of important factors in causation have been identified. Thus, the higher premiums required by MMI insurers may be related to: increased financial losses due to the payment and defense of malpractice claims; decreased investment income of the insurers; underpriced insurance premiums due to mistaken projection of losses; or increased reinsurance rates to the provider. In addition, the loss of large insurers from the marketplace may have substantially blunted the competitive pressures that serve to control price increases. Unfortunately, the contribution of each of these factors to the MMI problem cannot be precisely determined at present.
Most physicians immediately think of frivolous lawsuits and exaggerated monetary awards as the major drivers of increasing premiums. In particular, egregious awards for pain and suffering have caught the attention of the medical community as a gaping flaw in the malpractice insurance system. In fact, inflation-adjusted losses through claims increased 18.7% from 1999 to 2001 after having decreased 3.7% in the previous decade. Considerable debate continues as to whether an increase in the number of claims has actually occurred, and variable results have been obtained by different agencies, depending on the analysis used. Also, the available data do not enable a determination of how much money was paid in settlements as opposed to trial verdicts, or of how much was paid for economic versus non-economic (pain and suffering) claims of patients. However, because 78% of the expenses of insurers is for the payment and defense of claims, the GAO concluded that such loses were a primary cause of rising insurance premiums. Moreover, considering that the growth of payouts has exceeded the cumulative increase in medical costs, wages, and cost of living, there is evidence that a growing component of losses is attributable to payments for pain and suffering.
The nature of the monetary awards may exert as great an influence on the MMI problem as their number. The Institute of Medicine (IOM) has estimated that <15% of the patients who sustain hospital injuries file malpractice claims. Of these, 5% to 7% result in court verdicts, 70% to 80% of which are in favor of the defendant. It has been estimated that 14% to 50% of the patients filing legal claims actually receive money. However, the occasionally huge judgments awarded to patients may have an inordinate effect on the system. They not only increase expenses to the insurer but also render estimates of future payments to be less predictable. The exorbitant awards make insurers more conservative in setting premiums and perhaps encourage patients and lawyers to have a “lottery” mentality and higher expectations of the damages to be awarded. Moreover, large malpractice awards can cause physicians to avoid high-risk patients and to practice expensive defensive medicine, which can create a barrier between doctor and patient. Although increased awards may not be the sole cause of the MMI problem, they surely are a major contributor.
Factors other than the losses incurred contribute to the increase in insurance premiums currently being experienced. The return on investments that insurers had experienced earlier has clearly diminished in the past several years. However, insurers pursue conservative investments—primarily in bonds—and have had diminishing returns rather than losses. In addition, they have used yields on investments only to offset premiums rather than pay losses. It also appears clear that insurers have underestimated the magnitude of payouts they would incur when setting premiums, and they are now trying to catch up. This demonstrates the difficulty in projecting payments that will occur six to eight years in the future. Finally, the reinsurance costs of insurers themselves have increased. Obviously, measures that address some of the difficulties inherent in the MMI business, such as patient compensation funds, would be of value in avoiding insurance problems in the future.
The MMI problem is, of course, viewed differently through the eyes of trial lawyers, who emphasize the need to compensate patients who have received medical injuries. They cite the report of the IOM (3)indicating that 44,000 to 98,000 hospitalized patients die annually from preventable medical errors at a cost to society of $17 to $29 billion. They point out that about 5% of physicians account for over 50% of malpractice payouts and that only 13% of the physicians assessed five payouts have ever been disciplined. The lawyers argue that the 3.2% of the average physician's revenue spent on malpractice insurance costs begets both a potent incentive against medical negligence and a fitting compensation for injuries sustained by patients. Regardless of the accuracy or purpose of such statements, it is clear that any comprehensive program of MMI reform must include efforts to improve patient safety and minimize medical injuries.
Given the many factors operative in the MMI crisis, it is not surprising that a number of solutions have been proposed. The solutions put forth have addressed all aspects of the problem, including tort reform, insurance reform, and enhanced patient safety. First and foremost from the standpoint of physicians and insurers is tort reform. Among the tort reforms that have been proposed or implemented in some states are: caps on non-economic damages (pain and suffering, loss of spouse, and so forth); limiting the attorney contingency fee; binding arbitration; a no-fault system; and several modifications involving the source and method of claims payment. Trial lawyers have cautioned that such tort reform could have adverse results, including: making legal representation more difficult to obtain; making insurers less apt to settle; creating an uneven playing field for defense and plaintiff attorneys; and still fail to discourage physicians from practicing defensive medicine. Proposed reforms of the insurance industry include statewide joint underwriting associations and limits on the ability of insurers to cancel policies. Approaches to the improvement of patient safety include disciplining negligent physicians, recertification of physicians, and enhanced hospital use of computers. Clearly, substantial opportunity exists for benefit in addressing all these areas.
The goals of an MMI system are relatively simple and straightforward. Physicians should have access to affordable malpractice coverage, patients should receive fair compensation for medical injury, and society should have a system that achieves these goals efficiently and economically. Currently, our MMI system fails to meet these objectives. In the absence of adequate data, it is impossible to be certain of the exact causes. Under these circumstances, it is perhaps understandable that discussions among the stakeholders are so hostile, polarized, and acrimonious. Clearly, the best solution to the malpractice insurance crisis is a comprehensive program that addresses tort reform, modification of the insurance industry, and proactive enhancement of patient safety. Efforts in all three areas should begin immediately. Just as it would be foolish for the medical community to deny that avoidable medical injury contributes to the problem, it seems to me it would be equally untenable for the legal community to deny that flaws exist in the current tort system. Just as we should begin to implement enhanced measures for patient safety immediately, so should we now implement tort reform, especially in regard to non-economic damages. It appears clear that the solution to the cyclic crisis in MMI will require that more data be acquired; that issues regarding tort reform, insurance policy, and patient safety be addressed; and that all involved parties participate in the process.
↵1 Editor-in-Chief, Journal of the American College of Cardiology
- American College of Cardiology Foundation
- ↵Report to Congressional Requesters: Medical malpractice insurance; multiple factors have contributed to increased premium rates. United States General Accounting Office (GAO-03-702), June 2003
- Marchev M. The medical malpractice insurance crisis: opportunity for state action. National Academy for State Health Policy, July 2002
- ↵Institute of Medicine. To err is human: Building a safer health care system. Washington, DC: National Academy Press, 1999