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CPR Perspective: Medical Malpractice

Looking Behind the Tort Reformers' Myths

By Douglas Kysar, September 2009

 

Background

The Issue
What are the causes and consequences of periodic medical malpractice insurance premium spikes? How should policymakers reduce the incidence and impact of such spikes?

 

Medical malpractice law holds physicians and other healthcare providers accountable for harmful conduct that falls below the standards of their profession. Victims of such wrongful behavior are able to sue in state court to recover damages (monetary compensation) for their increased medical expenses, lost income, pain and suffering, and other injuries. By affording this avenue of redress, medical malpractice law seeks not only to provide compensation to victims of medical negligence, but also to provide incentives for physicians and other healthcare providers to avoid negligent conduct in the first place. Far from being novel or radical, this approach to medical liability has been part of the common law of torts for decades, and the underlying principles of due care and professional responsibility that are the basis for collecting damages have been a foundation of tort law for centuries.

First in the 1970s and again in the mid-1980s and late 1990s, medical malpractice insurance providers raised premiums for physicians rapidly and dramatically, leading many to speculate that medical malpractice awards from the tort system were causing an “insurance crisis.” Beginning with California in 1975, several states enacted medical malpractice legislation in an effort to stem the rise in insurance premiums. Such legislation varies from state to state, but typically includes limitations or caps on the amount of noneconomic and/or punitive damages that can be recovered by victims on account of medical misconduct. As with tort reform efforts more generally (see CPR Perspective: Tort Reform), proponents have repeatedly sought to enact similar legislation at the federal level to alter state common law throughout the entire country. In the most recent versions of such bills, proponents have expanded the slate of reforms to include protective provisions for pharmaceutical and medical device manufacturers, shortening of the time period during which victims can file claims, heavy federal regulation of contracts between attorneys and their clients, and other dramatic changes to the way that states define and enforce their medical malpractice laws.

Given the number of powerful financial interests implicated by such proposals, it is not surprising that the bills have attracted enormous debate and controversy. Unfortunately, the resulting flood of rhetoric and retort has prevented citizens, journalists, and others without a horse in the race from gaining a clear understanding of the issues. As this CPR Perspective explains (and as detailed in the CPR white paper The Truth About Torts: An Insurance Crisis, Not a Lawsuit Crisis), would-be reformers of medical malpractice undoubtedly are correct that the nation periodically suffers from an insurance crisis. Similarly, although less emphasized by proponents of lawsuit reform, the nation also suffers from a crisis in medical care that includes not only a lack of access to affordable healthcare by millions of Americans, but also a high level of death and disability that is caused each year by preventable medical error. What the country does not face, however, is a lawsuit crisis.

 

 

What People are Fighting About

What's at Stake
Medical malpractice law is designed to compensate victims of negligent medical care and to provide strong incentives to improve the safety and reliability of care in the future. Critics of the civil justice system, however, believe that rising and unpredictable jury awards in medical malpractice cases have led to insurance premium volatility, defensive medicine, and doctor flight. At stake in this debate is the ability of people who have been severely injured by the medical profession’s mistakes to be “made whole” in court.

 

Like any business or profession, healthcare providers make mistakes. Unlike many other businesses and professions, the consequences of errors and poor judgment are often much higher for healthcare providers because they are in the business of saving lives. According to the National Academy of Science’s Institute of Medicine (IOM), “medical errors are the leading cause of accidental death in the United States.” IOM estimates that “[a]t least 44,000 people, and perhaps as many as 98,000 people, die in hospitals each year as a result of medical errors that could have been prevented.” Moreover, IOM cautions that these numbers are a “‘very modest estimate of the magnitude of the problem since hospital patients represent only a small proportion of the total population at risk from medical errors.” At first glance, this sobering assessment would seem to explain the assertion—repeatedly made by proponents of increased federal control over the state civil justice system—that state courts are being flooded by malpractice lawsuits. However, every serious academic study to examine the question has concluded that medical negligence is actually under-litigated; that is, only one medical malpractice suit seems to be filed for every seven to twenty-five cases of significant medical malpractice injury that actually occur.

Nor is it the case that the number or size of awards from medical malpractice lawsuits has changed dramatically over time. Nationally, the population-adjusted number of medical malpractice claims filed in states reporting to the National Center for State Courts actually dropped by 1 percent from 1992 to 2001. Similarly, according to data from the Department of Health and Human Services, payments for medical malpractice claims actually decreased by 8.9 percent last year. More detailed studies of Texas, Florida, and Illinois—states identified as particular areas of “crisis” by the American Medical Association, the American Tort Reform Association, and other proponents of medical malpractice legislation—confirm the view that lawsuit trends in medical malpractice have been remarkably stable, even during the period when malpractice insurance premiums have been seen to rise exponentially. Further demonstrating the lack of a clear relationship between malpractice lawsuits and malpractice insurance premiums, evidence also suggests that state adoption of medical malpractice reforms has done little to improve the situation in malpractice insurance markets.

The failure of tort restrictions to stop the rise in premium rates is unsurprising in light of the fact that insurance companies do not base premium rates solely—or even primarily—on claim payouts. Because lag time inevitably exists between an insurance company’s receipt of premiums and its obligation to pay claims, the company invests paid-in premiums in bonds and other financial instruments. Contrary to popular perceptions, it is the return from these investments, rather than present or past premium receipts, that generates the bulk of the company’s profits. Consequently, even when malpractice claim payouts remain stable, the company can incur significant losses if its earlier premium pricing practices were premised on unduly optimistic projections of either its future investment returns or its future payment obligations. The presence of market competitors that are subject to these same financial and behavioral incentives can amplify significantly the pressure to engage in short-sighted pricing practices. Ultimately, this collective behavior of the industry can create a boom-and-bust pattern—known as the underwriting cycle in the trade—that companies are largely powerless to escape.

Rather than lawsuit reform, then, what has been shown to be effective at controlling premium spikes is meaningful insurance market reform. For instance, unlike state insurance regulators who conventionally lack the power or the resources necessary to effectively oversee the business practices of liability insurers, regulators in the state of California benefit from reforms that have empowered them to bring much-needed stability to premium rate-setting practices (see CPR white paper The Truth About Torts: An Insurance Crisis, Not a Lawsuit Crisis). Such reforms have not been proposed at the federal level, where proponents of malpractice legislation continue to insist that their bills will control insurance premium spikes in a way that state level counterpart bills have failed to accomplish. To public health advocates, such continuing debates about medical malpractice reform can appear especially exasperating, given that medical malpractice costs contribute at most two percent to the country’s overall healthcare budget. Thus, even if proponents of malpractice reform legislation were correct in their various attempts to connect insurance dynamics to lawsuit trends, they would at most be addressing only a tiny contributor to the healthcare access problems that confront the country.

 

 

A Progressive Perspective

 

The United States is unquestionably suffering from a healthcare crisis—one symptom of which is an unnecessarily high number of injuries caused by doctors and other healthcare providers. The country also suffers from a malpractice insurance crisis. However, contrary to the arguments of those who would radically restrict common law remedies, there is no medical malpractice lawsuit crisis. Insurance companies, managed-care organizations, doctors’ associations, and other interest groups have heavily invested in media campaigns to convince policymakers and the public that recent increases in malpractice insurance premiums have been caused by a civil justice system that too easily tolerates meritless malpractice claims. An impressive number of empirical studies, however, conclude that the tort system in general—and malpractice liability in particular—have been quite stable for the past two decades. Furthermore, careful inquiries into insurance industry dynamics have identified insurers’ business practices, rather than malpractice payouts, as the primary source of premium volatility.

At the same time that they have attempted to shift the blame for increased malpractice premiums onto the civil justice system, advocates of malpractice liability “reforms” have also attempted to shift the blame for the alarming lack of access to affordable, quality healthcare in the United States onto malpractice victims and their attorneys. More specifically, they claim that rampant lawsuit abuse is driving physicians to practice so-called “defensive medicine” and even to leave the medical field entirely—behaviors which are said to increase healthcare costs and diminish healthcare availability. However, given the overwhelming evidence of stability in the civil justice system, it would be surprising if either the defensive-medicine claim or the physician-flight claim withstood empirical scrutiny. The primary support for the claim that fear of lawsuits is driving doctors to order unnecessary tests and procedures turns out to be a single study that two non-partisan congressional research agencies have dismissed as unreliable. Better designed follow-up studies have found little or no evidence that fear of liability results in unnecessary medical expenditures. Similarly, with regard to the claim that the threat of malpractice awards has caused physician flight, a recent Government Accountability Office report found that the physician supply in this country has in fact been increasing faster than the population for the past decade.

In short, the “lawsuit” crisis is largely the perceptual creation of a well-coordinated public relations effort aimed at imposing radical restrictions on common law liability. The best available empirical evidence suggests that the civil justice system is not inundated with baseless claims, that insurance companies’ losses in malpractice lawsuits are not driving premium hikes, that doctors are not disappearing, and that there is no surge in “defensive medicine” contributing to increased healthcare costs. Thus, judicially or legislatively imposed restrictions on medical malpractice liability would serve to limit the liability of negligent healthcare providers and their insurance companies without providing significant offsetting benefits in the quantity or quality of medical care. Worse still, such restrictions would deprive innocent victims of their right to redress for wrongful injury, and would greatly reduce the capacity of the civil justice system to hold negligent professionals accountable for their wrongful conduct.
 
Bibliography
  • Douglas A. Kysar, Thomas O. McGarity & Karen Sokol, Medical Malpractice Myths and Realities: Why an Insurance Crisis Is Not a Lawsuit Crisis, 39 Loy. L.A. L. Rev. 785 (2006)
  • Tom Baker, The Medical Malpractice Myth (2005)

 

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