February 22, 2005
Behind Those Medical Malpractice Rates
By JOSEPH B. TREASTER and JOEL BRINKLEY
Speaking before hundreds of
doctors and medical workers in a St. Louis suburb last month,
President Bush called attention to a neurosurgeon on stage
with him in the small auditorium. The doctor, the president
said, was paying $265,000 a year in premiums for insurance
against malpractice claims.
Such high prices, "don't
start in an examining room or an operating room," the
president declared. "They start in a courtroom."
Indeed, at many recent appearances,
Mr. Bush has complained about the "skyrocketing"
costs of "junk lawsuits" against doctors and hospitals.
But for all the worry over
higher medical expenses, legal costs do not seem to be at
the root of the recent increase in malpractice insurance
premiums. Government and industry data show only a modest
rise in malpractice claims over the last decade. And last
year, the trend in payments for malpractice claims against
doctors and other medical professionals turned sharply downward,
falling 8.9 percent, to a nationwide total of $4.6 billion,
according to data compiled by the Health and Human Services
Department.
"There is an underlying
cost push," said J. Robert Hunter, the director of
insurance for the Consumer Federation of America, who is
a former insurance regulator in Texas. "But there has
not been an explosion of big jury verdicts or settlements.
It's a constant drip, drip every year."
Lawsuits against doctors are
just one of several factors that have driven up the cost
of malpractice insurance, specialists say. Lately, the more
important factors appear to be the declining investment
earnings of insurance companies and the changing nature
of competition in the industry.
The recent spike in premiums
- which is now showing signs of steadying - says more about
the insurance business than it does about the judicial system.
"You get these jolts in
insurance prices periodically, and they attract a lot of
attention," said Frank A. Sloan, a Duke University
economist who has been following medical malpractice trends
for nearly 20 years. "They're a result of a confluence
of many things."
Data compiled by both the federal
government and by insurance organizations show costs for
the insurance companies climbing steadily over the last
decade at an average annual rate of about 3 percent, after
adjusting for inflation. Over most of that period, premiums
for doctors rose modestly and sometimes even dropped as
the insurance companies battled for market share in a scramble
to collect more money to invest in strong bond and stock
markets. But when the markets turned sour and the reserves
of insurers shriveled, companies began to double and triple
the costs for doctors.
"The insurers were catching
up, getting to where they should have been," said Larry
Smarr, the president of the Physician Insurers Association
of America, a trade group of companies that provide more
than 60 percent of the nation's medical malpractice insurance.
While acknowledging the impact
of industry forces and practices on prices, Mr. Smarr and
many others in the insurance industry still regard lawsuits
as their biggest problem. Claims of medical malpractice
are typically complex and are rarely paid without a lawsuit
or the threat of a lawsuit. If the insurance companies could
find a way to limit payments for lawsuits, they say, they
could significantly reduce their costs.
President Bush, supported by
the insurance industry and the American Medical Association,
is proposing a remedy: a national limit on what juries can
award in medical malpractice cases. Such a limit, or cap,
has often been cited by the president as an important part
of what has been called tort reform - limiting what Mr.
Bush calls costly and frivolous lawsuits.
The Bush administration is
pushing for a $250,000 limit on jury awards to victims of
medical mistakes and their families for pain and suffering.
No limit would be placed on the more quantifiable payments
for economic losses, including medical expenses and lost
wages.
Introduction of legislation
calling for such national medical malpractice limits - traditionally
left to individual states - is at least a month away. Still,
the administration has been bolstered by stronger Republican
majorities in the House and Senate and by last week's signing
into law of a measure that would move many class-action
lawsuits to federal court, sharply limiting their potential
spread.
Senate Majority Leader Bill
Frist of Tennessee, who is a doctor, calls malpractice award
limits "a majority priority." The House has passed
similar proposals seven times in the last 10 years, most
recently in 2003.
While this Congress might be
the best opportunity yet for supporters of jury award limits,
there will certainly be a fierce battle from Democrats,
consumer groups and plaintiffs' lawyers.
Consumer advocates say such
limits would mean that some of the most seriously hurt patients
would not receive fair compensation. Also, they say, in
the death of an infant, an elderly person or a homemaker,
there would be little compensation because of the prevailing
view that there could be no economic loss because no income
was being earned.
Trial lawyers and consumer
groups have been parading heart-wrenching victims of doctors'
mistakes to make their argument. Among them, the American
Trial Lawyers Association says, is Alice Lloyd of North
Carolina. Doctors failed to treat her blood infection for
so long that finally they had to amputate both legs above
her knees, her left arm and all the fingers from her right
hand. She still has her right thumb.
As the two sides dig in for
a fight in Congress, 27 states have already adopted award
limits, with caps ranging from $250,000 to $1 million. In
some states, insurers have agreed to reduce, at least temporarily,
premiums in exchange for limits on awards.
Insurers say that caps not
only promise lower costs, but greater predictability on
potential payouts. "It takes an unknown entity, which
is the pain and suffering component, and makes it quantifiable
and estimate-able," said Mr. Smarr of the Physician
Insurers Association of America.
Insurers acknowledge that they
consider several factors besides claims costs in setting
prices for doctors. In the 1990's, even as their costs were
rising, malpractice insurers held firm on prices, even lowering
them in some years to hold or win a share of the market.
"You always try to say
you're not chasing market share," said Donald J. Zuk,
the chief executive of Scipie, a medical malpractice insurer
that does business in about 30 states. "On the other
hand, you have to have a certain market share, you have
to show a certain amount of growth, or you don't survive."
But by the late 1990's, some
insurers discovered that they had dropped prices well below
the cost of paying claims. Several went out of business.
One of the biggest insurers, the St. Paul Companies, now
Travelers St. Paul Companies, stopped offering medical malpractice
coverage.
The surviving companies "had
to raise prices or go out of business," Mr. Smarr said.
In 2000, about the same time
that under-pricing and other market conditions began to
push up prices in medical malpractice, the much larger world
of commercial insurance was also going through a cycle of
higher prices. The Sept. 11 terrorist attacks cost insurers
$40 billion and accelerated the upward pressure of the latest
premium cycle.
Martin D. Weiss, the chairman
of Weiss Ratings Inc., an independent financial rating agency,
said the cyclical nature of the insurance business and a
drop in insurers' investment earnings when markets fell
had been among the strongest forces behind the rise in medical
malpractice premiums.
Over the last year, insurance
analysts say, prices for most lines of commercial insurance
appear to have peaked and have begun to decline. While prices
for medical malpractice coverage are not yet falling, they
rose less steeply in 2004.
Costs for most doctors last
year rose between 6.9 percent and 24.9 percent compared
with increases of between 10 percent and 49 percent in 2003,
according to The Medical Liability Monitor, a newsletter
published in Chicago.
The most expensive place in
the country is South Florida, where some obstetricians and
general surgeons paid nearly $280,000 for coverage last
year, according to The Monitor. Obstetricians in Illinois
paid as much as $230,428, The Monitor said, while in Nebraska,
the least expensive place in the country for malpractice
insurance, obstetricians paid $16,194. Florida adopted a
cap on awards of $500,000 to $1 million in 2003. Illinois
has no cap and Nebraska has a cap of $500,000.
The recent jump in premiums
shows little correlation to the rise in claims. According
to the National Practitioner Data Bank of the Health and
Human Services Department, the total paid out by insurance
companies for claims against doctors and other medical professionals
rose 3.1 percent annually, on average, between 1993 and
2003 and then declined last year.
The average payment in 2003
for malpractice, the data bank said, was $268,605, up from
$197, 753 in 1993, after adjusting for inflation. In 2004,
the average payment fell to $262,486 and the number of payments
made for medical malpractice cases dropped to 17,696 from
18,996 the year before.
What may muddy the public picture
is that while claims are rising at a measured pace, there
have been more headline-grabbing big awards. Data compiled
by the Physician Insurers Association of America show a
distinct rise in payments of more than $1 million to victims
of medical mistakes. In 1993, the organization said, 2.9
percent of the payments made by its companies exceeded $1
million. A decade later, 8.5 percent of the payments were
for more than $1 million.
Many insurers regard the $250,000
limit in California as a model for Mr. Bush. They see it
as largely responsible for California's shift from being
one of the most expensive places for medical malpractice
insurance to one of the least expensive. Consumer advocates,
however, say the main reason costs for doctors have fallen
in California has been a 1988 law that prohibits insurers
from raising rates more than 15 percent a year without a
public hearing.
And some researchers are skeptical
that caps ultimately reduce costs for doctors. Mr. Weiss
of Weiss Ratings and researchers at Dartmouth College, who
separately studied data on premiums and payouts for medical
mistakes in the 1990's and early 2000's, said they were
unable to find a meaningful link between claims payments
by insurers and the prices they charged doctors.
"We didn't see it,"
said Amitabh Chandra, an assistant professor of economics
at Dartmouth. "Surprisingly, there appears to be a
fairly weak relationship."
Copyright 2005 The New York
Times Company
