Why the medical malpractice crisis persists even when malpractice insurance premiums fall.

Author:Rodwin, Marc A.
Position:Introduction through III. The AMA Regional and National Surveys, p. 163-198

CONTENTS INTRODUCTION I. THE PERPETUAL CRISIS II. MAKING SENSE OF CHANGES IN MALPRACTICE PREMIUMS III. THE AMA REGIONAL AND NATIONAL SURVEYS A. Adjusting for Inflation B. Key AMA Survey Findings C. A Crisis Within Selected Practice Specialties? D. A Crisis Among Physicians Paying Higher Than Mean Premiums? E. A Crisis Within Specific Regions? F. Can AMA Data Be Interpreted to Suggest a Crisis Exists? IV. DO SOME STATES HAVE A PREMIUM CRISIS? A. Massachusetts as a Test Case B. The Massachusetts Study Data C. How Insurers Set Premiums D. Grouping Physicians into Five Practice Tiers E. 30-Year Manual Rate Trends for the Five Practice Tiers F. Distribution of Physicians by Dollar Amount of Insurance Manual Rates 1990 to 2005 . G. Adjusting Mean Manual Rates for the Number of Physicians in Each Rate Group H. Relation of Reported Premiums to Premiums of Other Policies I. How Manual Rate Discounts and Surcharges Affect the Premiums Physicians Pay J. Obstetrics and Other Tier 1 Practice Specialties K. An Unrecognized Factor Leading to Selective Increases in Premiums L. Changes in Policies Purchased M. Comparison of ProMutual Group Premiums to Premiums of Other Insurers N. What Causes Premiums to Rise or Fall? V. WHY THE CRISIS PERSISTS A. Physicians Mistakenly Perceive a Crisis B. Key Actors Have an Interest in Maintaining the Perception of a Crisis INTRODUCTION

Speaking to a U.S. Congressional committee in February 2003, American Medical Association (AMA) president-elect Donald Palmisano described a medical liability "crisis" bearing down on physicians. (1) Medical malpractice insurance premiums are at "unprecedented levels," he said. (2) Health centers are closing. (3) Patients are leaving their state to find care. (4) Emergency departments are losing staff. (5) Physicians can no longer afford--or even find--liability insurance necessary to practice. (6) This is occurring, Palmisano said, because "premiums are spiking across all specialties." (7)

The concern over premium prices continues today, with physicians and politicians alike crying foul over what they perceive to be the escalating and debilitating cost of medical malpractice insurance. This perception has helped generate the impetus for dozens of federal and state legislative proposals aiming to curb what many sense are out-of-control costs. In the 108th and 109th U.S. Congresses alone, twenty-six bills were introduced to address this "rise in malpractice premiums." (8) These bills sought to change the rules of tort liability for medicine, to provide tax credits for premiums as relief, and to establish a commission to investigate the reasons that caused the rise in premiums, among other actions. (9) Palmisano and the AMA joined with other groups to advocate for such legislation. In fact, the AMA website even includes a map indicating states in crisis, testimonials, and articles. (10)

Many of these bills, however, use caps to limit patient recovery and physician liability. (11) Rather than focusing on the prevalence of malpractice itself, much of this legislation challenges a patient's right to recover and leaves many of these patients vulnerable, especially those without income, such as the retired, homemakers, and children. Even if malpractice premiums are indeed high, other less damaging and more effective options exist with which to counteract high premiums. They include reducing the incidence of medical injury or finding other ways to pay for insurance or compensate injured patients.

"Malpractice lawsuits are the compensation tool that we have," wrote Tom Baker in his 2005 book, The Medical Malpractice Myth. (12) "It would be a terrible mistake to make that tool harder to use without giving people something better in its place." (13) Not only would this legislation make lawsuits more difficult for plaintiffs, but the bills do not address the real source of the problems that they intend to solve. Premiums are not rising as claimed and even if they were, other factors are contributing to the plight of physicians. As Baker aptly titled his book, the medical malpractice "crisis" is more myth than fact. (14)

Part I of this Article examines how this myth began and the proposed legislative remedies that it spawned. Part II shows that junk data has been used to support legislation while introducing more reliable data bearing on these issues. Part III describes other factors that are rarely mentioned, but that have important effects on the cost of medical practice and physician income. If doctors are truly closing up shop, then malpractice insurance premiums are not the cause. Part IV then examines one AMA-declared "crisis state" to see if there are indeed crises in some selected states, even if there is no crisis nationally. As this Part shows, there are none; rather, the study of individual states reveals that premiums rise and fall cyclically, that recent premium increases reflect these cycles, and that rates will probably fall as they have in the past whenever there has been an increase in rates. This Article concludes by offering insight into why physicians continue to perceive a crisis despite the data presented and what the future may hold for reform.


    The conventional wisdom today suggests that malpractice premiums are crushing practices and that the appropriate response is to restrict compensation for injured patients. For example, in 2006, U.S. Senate leaders introduced the Medical Care Access Protection Act and the Healthy Babies Access to Care Act in order to reduce the cost of liability insurance. (15) The sponsors of the measure intended to drive down the cost of premiums by capping malpractice compensation under the assumption that insurance rates are increasing. (16) To do so, the bills prohibited punitive damage awards that in excess of two and a half times the economic loss or $250,000, whichever is greater. (17)

    To justify such bills, legislators and physicians across the country depict a devastating scenario: "For years, the price of medical malpractice insurance has soared to record breaking levels," said Representative Juan Hinojosa (Texas) in May 2005. (18) "Medical school students are no longer interested in specialties and sub-specialties because of the yearly price they must pay to simply practice their craft." (19) In Illinois, according to the AMA, "it is a simple fact that the state's out of control legal system has driven insurance premiums sky-high and forced high-risk specialists, including neurosurgeons and obstetrician-gynecologists, to restrict services, retire early and leave the state.... Anyone driving through the state could lose their life because of this crisis." (20) New York State Senator John Flanagan, who sponsored legislation in 2008 that would decrease the amount of liability insurance needed by physicians to practice, stated that "Malpractice insurance rates are pushing doctors out of our state." (21)

    In January 2003, U.S. Representative Peter DeFazio proposed a federal commission to examine the causes of "skyrocketing malpractice insurance premiums." (22) DeFazio's home state of Oregon is one of twenty in a medical liability crisis, according to the AMA. (23) Such states, said the AMA, reflect a national trend in which patients are losing access to care due to physicians retiring early, relocating to other states, and restricting services, such as no longer delivering babies or performing high-risk surgeries. (24)

    As it is often argued, all this is occurring because malpractice insurance premiums are spiking, as they did in the 1970s. During that time, a flood of state legislation attempted to stem the costs of insurance through reforms of malpractice liability law. That legislation is now considered largely ineffective, but at the time, it quelled most concerns about increasing rates. (25)

    Compare the claims of forty years ago to those made in recent years. The similarities are striking. A group of Long Island physicians threatened "to treat only emergency patients" unless they received "reasonably priced" malpractice coverage. (26) Anesthesiologists in California and Ohio declared the same. (27) New York physicians claimed that high premiums were either forcing them to leave the state or retire early. (28) Doctors were not only moving from "heavily populated cities such as New York and Los Angeles to rural areas," but also leaving the country to practice abroad. (29) They were fleeing "to other states where there are fewer malpractice suits, smaller judgments and thus more reasonable insurance rates." (30)

    The same panic existed then as it does now. But despite the ineffective legislation, the increase in rates abated as they are likely to again. Some physicians actually acknowledge this, noting that premiums have not increased without pause. (31) They point to three periods of particularly high premiums--1970 to 1975; 1980 to 1990; and 1996 to the present--yet many physicians now claim that premiums are now at a breaking point. (32) Some data, as will later be explained, actually suggest that once adjusted for inflation, medical malpractice premiums actually decreased between 1986 and 2000. (33)

    When Palmisano addressed the U.S. House of Representatives in 2003, he did so in support of the Help Efficient Accessible Low-Cost Timely Healthcare (HEALTH) Act. (34) This bill, like many before and after it, suggested reforms to make malpractice insurance more affordable for physicians. (35) "Our healthcare system is facing a crisis," Palmisano said, "when community health centers have to reduce their services or close their doors because of liability insurance concerns." (36) Yet, those concerns are not well founded. So why do they exist?

    Those who in recent years claimed that there is an ongoing crisis base that claim on anecdotes, unsupported assertions, and flawed data. (37) Palmisano and others flouting evidence of rising premium costs, cite the Medical Liability Monitor...

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