Background Brief
Medical Malpractice Policy
The rising cost of medical malpractice insurance and the impact of malpractice lawsuits on the health care system have emerged as prominent issues on the national health policy agenda. While this has been an area of heated debate, there is limited data, uneven research, and considerable disagreement on the actual drivers of the insurance premium increases. Even less is known about impact of litigation on quality of care and health care costs. At the heart of the issue is how to make liability coverage more affordable for health care providers while assuring that we have a just system for compensating patients who have been injured as a result of medical malpractice or negligence.
Since malpractice law has traditionally been under the purview of state governments, nearly every state has some type of policy in place that addresses medical liability. This issue, however, has moved to the center of the federal policy arena and President Bush has made enacting federal legislation to limit the monetary awards from malpractice lawsuits a priority for his second term. The Administration and supporters of such legislation posit that one of the main drivers of rising malpractice premiums is the size of the monetary awards from these cases for non-economic damages (often called “pain and suffering). They argue that imposing caps on these awards would lower malpractice premiums, reduce overall health care costs, deter “defensive medicine” practices by physicians, and lower the incentives for frivolous or unjustified lawsuits. Opponents argue that caps on damages from malpractice cases would not substantially lower premiums or health care spending and would compromise the justice system’s ability to adequately compensate patients who have been harmed by medical malpractice.
Background
Physicians generally must retain medical malpractice insurance to help protect themselves and their patients in the event of medical negligence and unintentional injury. In recent years, the premiums that some physicians, particularly certain specialists, pay for this insurance have risen sharply. While estimates vary, according to the Congressional Budget Office (CBO), medical liability insurance premiums for all physicians nationwide increased an average of 15 percent between 2000 and 2002, with higher increases for some specialties such as obstetrics and gynecology (22 percent growth) and general surgery and internists (both 33 percent rise). [1] There is also great geographic variation in the premium growth rate, with some states, and even some counties experiencing significantly greater increases than others. For example, the GAO found that the largest professional liability insurer in Florida raised annual premiums for general surgeons in Dade County by 75 percent between 1999 and 2002 (to $174,300), while the largest such insurer in Minnesota raised premiums for the same specialty during the same period by 2 percent (to $10,140).
Analysts have hypothesized about a number of potential reasons for why premiums have increased in recent years. Some speculate that the recent surge in premiums may be part of a repeating cycle that the insurance industry experiences. Similar increases occurred in the second half of the 1970s and again in the mid-1980s raising questions as to whether the current situation even constitutes a “crisis.” There are also fewer insurers in the market now, as a number of insurers have withdrawn from the market in recent years, thereby limiting competition on premiums as well as the number insurers available to physicians. [2] Some research suggests that rate increases have been used to help offset losses in investment income. [3] [4] Aside from premiums, the main factor affecting the revenues of liability insurers is income from the investment of their reserves. Finally, a number of aspects related to lawsuits, including growth in the size of payouts to patients, the rising cost of health care for injured parties, and increased premiums for reinsurance are other factors that have been mentioned as contributing to premium hikes. [5]
Underlying the issue of premium costs is the impact of the medical liability system on a broad range of issues at the heart of health policy today including health care quality, health care costs, and access to care. The CBO estimates that malpractice costs account for less than 2 percent of national health spending and that even significant reductions in these costs would only modestly affect the growth in overall health spending. Concerns have also been raised over the practice of defensive medicine, which increases costs and jeopardizes quality. However, the CBO found little research to support the argument that changes in liability laws would substantially reduce use of unnecessary services and estimated that savings would be “very small.” [6]
One of the often-cited concerns is the potential impact of malpractice premium expense on access to and availability of health services. Anecdotal reports of physicians pulling out of clinical practice, halting certain higher-risk services (such as labor and delivery), or moving to other regions in the country with lower premiums have been broadly reported in the media. Similarly, cases of patients not being able to find services, particularly maternity care, have also been reported. However, there is no solid research on whether the cost of malpractice insurance is the primary factor in these cases and if this is a systemic barrier to care or whether these are anecdotal situations that have generated media attention.
Overlaying the whole issue of malpractice costs and litigation is the issue of how to promote patient safety and deter future medical errors. [7] There is a large and growing body of research that shows that many injuries and deaths are attributable to avoidable medical errors. However, it is not clear how tort reforms alone would address this major problem. Some researchers and policymakers have suggested that the current system places too much emphasis on punishing providers, and are trying to identify strategies that still provide just compensation to patients who have been harmed, but also promote greater education from medical errors and thus deterrence of future mistakes. [8]
Medical malpractice cases fall under the rubric of “tort” law, the branch of law that addresses injury to people or property. Cases of medical malpractice result from “negligence,” a type of tort that refers to injuries caused by the failure of people to exercise care in their conducts towards others. Reforms to medical malpractice litigation would affect a broad range of providers, including primary care and specialty physicians, nurses, and hospitals.
The issue of medical liability has traditionally been regulated at the state level, and many states have taken measures to reduce the incentives for filing malpractice lawsuits. By reducing the number of lawsuits, insurance companies would incur lower costs, and the expectation has been that that premiums would fall as a result. Over the past several decades, states have adopted a variety of administrative and legislative actions to that end, such as [9]:
• Ending lawsuits in which one defendant can be responsible for paying all of the damages if other defendants lack the resources to pay (joint and several liability);
• Reducing damage awards by the amount available to an injured party from “collateral sources” (such as workers compensation and health insurance);
• Limiting contingency fees (the share of any award that a lawyer can claim to cover fees and expenses);
• Limiting the length of time after an injury that a lawsuit may be brought to trial (“statute of limitations”);
• Permitting the award of future damages (e.g., future lost wages, health care costs, etc.) to be paid in installments instead of one lump sum; and
• Capping damages awarded in malpractice lawsuits.
While states continue to consider legislation in several of these areas in response to the recent increase in premiums, the area of liability reform has recently shifted squarely into the federal policy arena, with the Congress and the Bush Administration making this issue a policy priority. Federal proposals include a mixture of the above options, but it is the proposal to cap non-economic damages on a national level that has generated the most attention and controversy. Legislation introduced in the House of Representatives (HR 534) and in the Senate (S 354) would cap non-economic damages (pain and suffering) at $250,000 and punitive damages at the greater of $250,000 or two times economic damages. Research evaluating the impact of these caps on premium costs is mixed. While some studies have suggested that states that limit caps on damages have experienced lower premiums, several states with caps are still experiencing “crisis levels” of premium increases. The federal proposals include several other provisions, including statutes on limitations, caps on attorney fees, and periodic payments for damages exceeding $50,000. [10]
Proponents of the federal legislation, including major physician organizations, malpractice insurance companies, and the President and many Republican leaders, believe that expenses associated with malpractice cases, particularly frivolous lawsuits and excessive awards, have increased insurers’ expenses. They suggest that in response, insurers have raised premiums, which has contributed to the rapid growth in health care costs. Opponents of federal caps on damages, including trial lawyers, patient advocate groups, and many Democrats believe that lawsuits have minimal or no bearing on the rise in premiums and that several other factors are to blame for the rise. These groups also argue that caps on damages might preclude just compensation to patients injured by medical malpractice. And finally, another issue of contention is the shift of jurisdiction of malpractice from the states to the federal government.
In addition to the highly partisan and polarized nature of the debate, the issue of medical malpractice is further challenged by the fact that the data available to assess the scope of the problem and the impact of the policies is often lacking or incomplete. For example, malpractice cases that do not result in a jury award (because they are settled out of court or dismissed) are often not included in the databases that are used in research. There are also very few data sources available to inform this policy discussion. This leaves many feeling skeptical about the ability of policymakers to thoroughly evaluate the proposals on the table and could increase the propensity for interest groups to influence debate on these complicated issues.
• What are the strengths and limitations of the current research on this issue?
• What could be some of the unintended consequences of caps on lawsuit awards?
• What are some of the other factors that could be affecting malpractice premiums?
• How might you design a study to examine the impact of rising premiums on access to care and health care spending?
• What lessons from the states can be used to inform the debate at the federal level?
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[1] Beider, P. and S. Hagen. January 2004. Limiting Tort Liability for Medical Malpractice. Congressional Budget Office Economic & Budget Issue Brief.
[2] Schactman, D., M. Doonan, et al. March 2003. Medical Malpractice in Crisis. Council on Health Care Economics and Policy.
[3] Rosman, B. March 2003. Medical Malpractice in Crisis: Health Care Policy Options. Council on Health Care & Economics and Policy.
[4] Hillman, R. June 2003. Medical Malpractice Insurance: Multiple Factors Have Contributed to Increased Premium Rates. U.S. General Accounting Office, Report to Congressional Requesters.
[5] Rosman, B. March 2003. Medical Malpractice in Crisis: Health Care Policy Options. Council on Health Care & Economics and Policy.
[6] Beider, P. and S. Hagen. January 2004. Limiting Tort Liability for Medical Malpractice. Congressional Budget Office Economic & Budget Issue Brief.
[7] Institute of Medicine, To Err is Human: Building A Safer Health System.
[8] Thorpe, K. 2004. The Medical Malpractice "Crisis": Recent Trends and the Impact of State Tort Reform. Health Affairs 2004 (Supplemental Web Exclusives ):W4-20–W4-30.
[9] National Conference of State Legislatures (NCSL), Medical Malpractice Tort Reform.
[10] Ibid.
Acknowledgements:
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