The Medical Malpractice “Crisis:” Separating Myth From Reality I

I. The real cause of increased insurance rates is the insurance “cycle” and insurance mismanagement, not high payments to malpractice victims.

• “For all the worry over higher medical expenses, legal costs do not seem to be at the root of the recent increase malpractice insurance premiums. Government and industry data show only a modest rise in malpractice claims over the last decade. When the [bond and stock] markets turned sour and the reserves of insurers shriveled, companies began to double and triple the costs for doctors.” New York Times, February 22, 2005.

• Medical Malpractice Insurance. Stable Losses/Unstable Rates in Pennsylvania, Americans for Insurance Reform (AIR) released a study on the malpractice “crisis” on January 16, 2003. AIR is a coalition of nearly 100 consumer groups around the country.  Their comprehensive study reached two primary conclusions.

“Over the last 30 years, the amount that medical malpractice insurers have paid out in Pennsylvania, including all jury awards and settlements, directly tracks the rates of medical inflation. Not only has there been no “explosion” in medical malpractice payouts at any time during the last 30 years, but payment, (in constant dollars) has been extremely stable and virtually flat since the mid 1980s.”

“Medical malpractices premiums charged by insurance companies over the last 30 years in Pennsylvania have not corresponded to increases or decreases in payouts. Rather, premiums rise and fall in concert with the estate of the  conomy - insurance premiums increase or decrease in direct relationships to the strength or weakness of the economy, reflecting the gains or losses experienced by the insurance industry’s market investment and their perception of how much they can earn on their investment “float”… that doctors’ premium provide them.”

• “The medical malpractice insurance crisis in Pennsylvania is not caused by the legal system, but is linked to cyclical economics. In fact, the real crisis in that state is the quality of medical care being given: 4.7% of the doctors are responsible for 51.4% of all malpractice payments.” January 2003 study by Washington, DC-based consumer group, Public Citizen.

 
“People need to understand that insurers are hiking malpractice rates for doctors because they have lost money on their investments,” said Public Citizen President Joan Claybrook. “Doctors who stage walk-outs are falsely demonizing American’s legal system. Capping damages, which doctors are calling for, will only hurt those who have suffered the most. As the Council of Economic Advisors have said, “the tort system promotes patient safety.”

• Legendary consumer advocate Ralph Nader issued this statement on the malpractice crisis January 6, 2003.

“[1] Insurance companies are scaring many doctors with specters of litigation volume that simply do not exist.

Malpractice cases filed and actual payments in constant dollars have been level for many years.

If physicians would total the entire amount of premiums they paid last year and divide it evenly by all physicians practicing in the United States, the average premium is less than $ 10,000.00 per doctor per year.

So why are some doctors paying $50,000.00 or $100,000.00 per year to their malpractice insurers? Because the companies...[are] not surcharging the few bad physicians. The good specialists pay as much as incompetent ones with a large number of payouts.

When obstetricians are gouged, they scream loudly, threaten not to deliver babies or actually go on strike. This makes perfect visuals for televisions. Meanwhile, the insurance companies are laughing all the way to the bank.

There are no visuals for the slowly dying and other human casualties who receive neither justice nor compassion nor compensation.”

• This is a statement by J. Robert Hunter which appeared in an article in the National Underwriter magazine dated October 7, 2002, “I am a former federal insurance administrator who advised President Gerald Ford on the situation pertaining to the medical malpractice coverage crises of the mid-1970s. At that time, at his request, I provided him with an analysis showing that the problem was not an explosion in lawsuits as some had suggested, but the economic cycle of the insurance companies.”

“The cause of the current crisis is the same as the crisis in the 1970s and 1980s - fallout from the economic cycle and the business practices of the insurance industry, not loss trends. Medical malpractice claims show no explosion. Instead, there is an explosion in premiums charged by mismanaged insurers.”

•  “Industry analysts say insurers’ investment loses, not just jury awards, are behind the crisis. In bull markets, insurers count on investment income to offset underwriting loses; that ended when the 1990s stock bubble burst.” Time, June 9, 2003.

• Center for Justice and Democracy - September 25, 2002. Study entitled, “Understanding Today's Medical Practice Insurance ‘Crisis.’”

“Today's insurance crisis for doctors is only a small part of a much larger insurance problem that is affecting all kinds of policy holders, however, the AMA and the associated medical lobbies are not pushing for insurance reform. They are primarily lobbying organized medicine's long-stand priority law suit restrictions even though such limits will not solve the current insurance crisis.”

During years of high interest rates and/or excellent insurance profits, insurance companies engage in fierce competition for premium dollars to invest for maximum return. They may engage in severe under pricing and insure very poor risks just to get premium dollars to invest. When investment income decreases because interest rates drop, the stock market plummets or accumulative price cuts make profits unbearably low, the industry responds by sharply increasing premiums and reducing coverage."

• Wall Street Journal, June 24, 2002. “A decade of short-cited price-slashing led to industry losses of nearly $3 billion last year.”

• “Insurance companies are boosting rates partly to make up for price wars in the 1990s, when competition kept premiums low, and to counter recent declines in their investment incomes.” USA Today, March 4, 2003.

• According to Duke University economist, Frank A. Sloan, if lawmakers want to reduce premiums, they should focus on insurance reforms. Sloan says that medical malpractice insurance “is the most cyclical health policy there is. There are periods of time when premiums stop going up and no one is interested, then again we get a crisis and everyone says that juries are terrible.” As quoted in the New York Times, January 17, 2003.