The Medical Malpractice Crisis

The Medical Malpractice Crisis

By Kelly M. Pyrek

The severity of the national medical malpractice crisis depends on the camp in which you reside: surgeon, trial attorney, insurance company or patient. The growing complexity of medicine exacerbates the issue, as the abundance of new diagnostic capability, therapeutic treatment, potent pharmaceuticals and higher standards of care increase new risks of injury. In fact, medical malpractice is reportedly the eighth leading cause of death in America. Ultimately, it could take the U.S. Congress to resolve professional liability issues purportedly causing hospitals to close wards and curtail trauma services, and encouraging physicians and surgeons to locate to other regions or states. HR 4600, the "Help Efficient, Accessible, Low-cost, Timely Healthcare Act of 2002," was introduced April 25, 2002 by Rep. James Greenwood (R-Penn.) and passed the House on Sept. 26, 2002. As of press time, SB 2793, introduced by Sen. John E. Ensign (R-Nev.) on July 25, 2002, still was circulating in the Senate.

HR 4600 asserts, "Congress finds that our current civil justice system is adversely affecting patient access to healthcare services, better patient care and cost-efficient healthcare, in that the healthcare liability system is a costly and ineffective mechanism for resolving claims of healthcare liability and compensating injured patients, and is a deterrent to the sharing of information among healthcare professionals which impedes efforts to improve patient safety and quality of care."

"It's understandable that Congress and state legislatures take on the malpractice issue only in periods of crisis, but it's unfortunate that the battle lines and proposals seem to have changed so little since 1975," says William M. Sage, MD, JD, professor at Columbia Law School in New York. "I think we're missing major changes in the healthcare system since the last crisis in the mid-1980s that alter the range of useful responses, such as the financial strain on healthcare providers, the appreciation of medical error as a system or institutional problem and the public's insistence on information and accountability."

Among other provisions, HR 4600 encourages speedy resolution of claims in that the time for the commencement of a lawsuit will be three years after the date of manifestation of injury, or one year after the claimant discovers the injury, whichever occurs first, unless there is proof of fraud, intentional concealment or the presence of a foreign body which has no therapeutic or diagnostic purpose. The legislation also seeks to place a $250,000 cap on non-economic damages, regardless of the number of parties against whom the action is brought.

Aaron Krupp, a member of the government affairs committee of the Medical Group Management Association (MGMA), says the association supports HR 4600 but recognizes its limits to resolve the entire complicated issue. "HR 4600 is not the only answer," he says. "There are other factors such as the ailing economy and the insurance companies that have invested poorly and passed along their problems to the physicians by way of increased premiums. However, premiums are way out of hand and some physicians and surgeons have reacted by either closing down their practices, refusing to perform high-risk procedures or moving across state lines where premiums aren't as expensive. The effect this has on patients is of great concern."

Krupp continues, "In the hearings I've attended, providers in rural areas say their grandfathers and their fathers practiced medicine locally but they would have to pull up stakes because they couldn't afford the premiums. In these smaller, more rural areas, patients are impacted significantly because losing just one practice can be devastating. MGMA members report their premiums are really high and some say they will have to cut corners somewhere in their practice, such as not hiring staff or purchasing capital equipment. The issue is having a real impact."

Skyrocketing malpractice insurance premiums have affected more than 1,300 healthcare institutions, according to a survey released by the American Hospital Association (AHA) in June. The survey revealed that 20 percent of the AHA's 5,000 member healthcare facilities had trimmed services and that 6 percent had eliminated some units, including obstetric wards where medical errors have triggered exorbitant jury awards and settlements. To cope, the medical community says some specialists have abandoned their existing practices and established new ones in states where malpractice insurance prices are lower, while other physicians and surgeons have restricted their practice to low-risk procedures. This physician exodus is false, asserts the American Trial Lawyers of America (ATLA). The group, which is the No. 1 political action committee (PAC) in the country, maintains the medical malpractice crisis is blown out of proportion. It asserts that bills like HR 4600 are unnecessary because it isn't the fear of litigation that is causing physicians to leave, it's frustration with HMOs. The ATLA also points to Bureau of Justice statistics in the August 2000 study Tort Trials and Verdicts in Large Counties that only 26 percent of malpractice cases tried result in an award for the plaintiff. It further argues that "the problem with medical malpractice is medical malpractice" and that the best way to reduce the number of medical malpractice claims made is to fix the source of those claims -- medical negligence.

The fingerpointing will continue, Sage says, but he hopes for a peaceful resolution of the issue. "A non-adversarial approach to medical error would certainly be welcome," he adds. "As we discovered with managed care, adversarial medicine is bad medicine." Sage, the author of many editorials and white papers on the subject of patient safety and its association with malpractice, advocates innovative systems for engaging patients and their families in efforts to improve safety following errors, including "near misses." He says the policies requiring physicians and healthcare facilities to disclose such events when they occur are a welcome step in the right direction.

American Medical Association (AMA) Chair J. Edward Hill, MD, in support of HR 4600 and SB 2793, points to a U.S. Department of Health and Human Services report that showed the annual cost of defensive medicine to the U.S. healthcare system is $60 billion, and that if reasonable limits on non-economic damages were enacted, taxpayers would save at least $30 billion annually by reducing federal healthcare spending. "The AMA has always held that patients who have been injured through negligence should be compensated fully and fairly," he says. "Unfortunately, the current liability system has failed patients. The United States has created a litigation lottery, where select patients receive astronomical awards and others pay higher costs for healthcare and suffer access problems because of it."

THE STATE OF THE INDUSTRY

While members of the medical community have pondered patient-safety initiatives, after more than a decade of fairly stable rates for professional liability insurance (PLI), these same physicians and surgeons were startled by significant premium increases in 2001, according to the AMA's Council on Medical Services. Data showed eight states had two or more liability insurers increase rates by at least 30 percent last year, and physicians in more than a dozen states saw one or more insurers implement a 25 percent or higher rate increase. The Medical Liability Monitor (MLM) estimated that nationally, average rates increased 14.6 percent from 2000 to 2001.

The recent crisis is one of five that have occurred every decade for the past 50 years, according to the AMA's report, The Rise in Professional Liability Insurance Premiums. A pattern has emerged: first, a surge in claims, followed by reduced earnings on insurance company investments, increased malpractice premiums and numerous insurance companies ceasing to offer malpractice insurance. The situation was exacerbated in December 2001 when Minnesota-based St. Paul Companies left the medical malpractice insurance business. St. Paul's decision affected 750 hospitals, 42,000 physicians, 73,000 other healthcare professionals and 5,800 other healthcare facilities nationwide. The company reported its losses had mounted despite average increases of 24 percent in its malpractice premium rates in more than 25 states. As the country's fourth-largest insurer, St. Paul had losses on its malpractice business of $940 million last year and had already stopped writing policies for what it considered to be higher-risk specialists such as obstetricians/gynecologists, general surgeons and emergency medicine physicians. As the AMA report says, "Higher rates and market withdrawals reflect nationwide turmoil in medical malpractice as insurers grapple with higher jury awards and settlements, climbing reinsurance costs and lower investment returns."

The Physician Insurers Association of America (PIAA) states the average cost of defending a claim was $21,773 in 1999, and that from 1987 to 1999 malpractice claim severity increased by 117 percent. While defense expenses per claim increased by $14,303 during this period, indemnity costs per claim increased by $38,321 during the same period. According to the AMA report, a significant factor underlying the recent increase in the cost of claims appears to have been increased severity per claim, rather than increased frequency of claims.

Medical malpractice underwriting has evolved in response to factors such as regional spikes in high jury awards, state insurance commissions that are slow to approve PLI rate increases, and problematic or unprofitable medical specialties. According to the AMA, traditionally low-risk radiologists are finding it more difficult to obtain PLI because of their susceptibility to "failure to diagnose" claims. In fact, entire healthcare sectors are avoided by carriers due to unfavorable claims histories because of the inability to project future losses with confidence.

Jury Verdict Research (JVR) Reports provide information on indemnity payments through reports of median malpractice settlements and awards from 1993 to 1999 based on the sample of jury verdict reports contained in its database. Award and settlement data show persistent and rapid growth of more than 8 percent per year. JVR reports the overall plaintiff recovery rate has been about 35 percent. Plaintiffs receive indemnity payments in about one third of claims, even though they only win about 20 percent of all verdicts. Many carriers think the increasing frequency of large awards drive claims costs upward.

DEFENSIVE MEDICINE

It's little wonder that physicians continue to practice "defensive medicine," whether they admit it or not. In a 1999 article published in the Archives of Internal Medicine, Richard E. Anderson, MD, FACP, chairman of the board of governors of The Doctors Company, writes, "Physicians practice defensive medicine all of the time. Some of us know it, acknowledge it and accept it. Others believe this to be quite untrue and find the concept morally unconscionable and reprehensible. Precisely because the concept is elusive and the practice is pervasive, it is incumbent upon us to define the process and understand its effects. Not until then will we be able to do something about it."

Anderson defines defensive medicine as "medical responses undertaken to avoid liability rather than to benefit the patient" and says it violates the Hippocratic Oath, violates the doctor-patient relationship and is self-serving to the physician. However, he adds that doctors address most clinical problems by mandating tests and procedures with at least some benefit to patients. So when does medicine become defensive? The Office of Technology Assessment (OTA) says defensive medicine is when "doctors order tests, procedures or visits, or avoid high-risk patients or procedures primarily (but not necessarily solely) to reduce their exposure to malpractice liability." While the OTA says there is no acceptable method for determining the full incidence rate of defensive medicine, it determined from a physician survey that no more than 8 percent of diagnostic testing is consciously defensive. It has been determined that defensive medicine accounts for as much as 9 percent of the healthcare budget.

Sometimes, honesty may be the best policy. A study published in the December 1999 issue of the Annals of Internal Medicine revealed that when a hospital in the Veterans Administration system promptly and fully disclosed all medical errors to its patients and offered them fair compensation, litigation costs were reduced. In that same month, Ray McEachern, executive director of the Association for Responsible Medicine, testified before a senate subcommittee, "To err is human, to forgive divine, but to cover up is criminal ... the reporting system must be mandatory and its results must be open to all."

It's difficult to ignore the medical injury data collected by JVR. In its report, Medical Malpractice: Verdicts, Settlements and Statistical Analysis, JVR shares tales of horror related to diagnosis, non-surgical treatment, lack of informed consent, improper treatment, medication errors, inadequate care, negligent surgery, erroneous plastic surgery, negligent supervision and unnecessary surgery. The report says jury awards climbed 43 percent, from $700,000 to $1 million in 2000. The median settlement in these cases fell 16 percent, from $592,074 in 1999 to $500,000 in 2000. Overall, the median award for medical liability was $523,000. Claims involving death accounted for 23 percent of the total number of plaintiff verdicts from 1994 to 2000. According to the report, the amount of time for a case to be brought to trial declined from an average of 61 months in 1994 to 45 months in 2000; the time it takes for a trial to occur after a claim is filed went from 36 months in 1997 to 24 months in 2000. The report revealed that the probability that a plaintiff will win a case is 38 percent. The probability of a plaintiff win in cases of liability involving the diagnosis was 37 percent in 2000, an increase of 4 percent from 1998, and in cases of liability involving negligent surgery, the probability was 48 percent in 2000 -- an increase of 16 percent from 1999.

AGGRAVATING FACTORS

There are numerous financial and social underpinnings of the $6 billion malpractice industry that have contributed to the deterioration of the PLI industry, including claim frequency and claim severity. Experts report that while frequency has remained fairly flat, severity has increased, given the escalation of large jury awards and settlements. According to the AMA, claims data suggest that premium growth is driven by increases in claim severity, which, in turn, are driven mostly by larger payoffs for verdicts, settlements or both. In more than 70 percent of malpractice suits, the case is either won by the physician, dismissed or dropped. When cases go to trial, physicians prevail 80 percent of the time. However, many insurance companies base their risk assessments on the number of times that a physician receives notification of suit, whether or not that suit is ever brought to trial or an award or settlement is made. The data indicate that, while the number of suits is remaining flat or increasing very little, the size of the awards is increasing dramatically.

Social factors also come into play. Public trust in the healthcare industry has been eroded by managed care dictates, negative publicity about medical errors and media attention to malpractice suits, according to Paul A. Greve, Jr., JD, RPLU, vice president of marketing for GE Medical Protective of Fort Wayne, Ind. Since the 1999 release of the Institute of Medicine's study, To Err is Human: Building a Safer Healthcare System, which reported that as many as 44,000 to 98,000 deaths are directly contributable to medical errors, the public is more sensitive to adverse events and are more willing as jurors to increase the amounts of awards in malpractice suits.

They also are arming themselves with information. In September, California Gov. Gray Davis signed legislation that gives patients the right to see if their physician or surgeon has been involved in multiple malpractice suits. SB 1950, authored by Sen. Liz Figueroa (D-Fremont), requires public disclosure on the Internet of three or more settlements of more than $30,000 in 10 years; the threshold for high-risk specialties is four or more settlements. The bill also requires the Medical Board of California to publicly disclose civil judgments of any amount against physicians not overturned by appeal; in addition, revocations, suspensions, probation orders and limitations on practice will be posted.

FORECAST FOR 2002/2003

The AMA suggests the following trends:

• Rate increases will continue.
• Underwriting standards will tighten. Many underwriters now require thorough loss information, including identifying an insured's open and closed claims. Without these materials, an underwriter may not release a quote.
• Limited number of new insurers. Most potential risk bearers will await the outcome of the changes that have occurred in 2001, such as higher rates and focused underwriting, before committing capital and resources to the industry.
• Re-emergence of alternative risk-funding vehicles. Other possible sources of relief for physician groups may be the re-emergence of captive insurance companies; risk purchasing pools; risk-retention groups; and insurance reciprocals. These alternative risk funding vehicles, which offer pricing stability and more control for the insured, may again prove to be increasingly attractive, but with an uncertain amount of risk.
• More physicians and surgeons "going bare." Malpractice insurance is a prerequisite for medical licensure in many states, so not carrying malpractice insurance coverage is not often an option. Fourteen of the 16 neurosurgeons in Florida's Broward County reportedly have gone bare because the rates are so high and the coverage so small, according to a Fort Lauderdale neurosurgeon who went bankrupt rather than pay a $1.5 million judgment against him. This could have serious consequences for patients who believe they have been wronged by a physician, because the lack of malpractice insurance coverage means patients may have no chance to win a substantial judgment.

TORT REFORM: BATTLE LINES ARE DRAWN

It would be erroneous to say that only two groups are waging war over tort reform, but the ATLA and the AMA are amassing financial war chests and throwing their political weight around as legislation makes its way through the Senate. According to the Web site www.opensecrets.org, the ATLA contributed more than $2 million in PAC donations to the 2002 election, while the AMA was in the process of raising $15 million to promote legislation, such as HR 4600, which follows in the footsteps of MICRA.

Though it has long been considered to be a model of tort reform, California's Medical Injury Compensation Reform Act of 1975 (MICRA) still has a 44 percent higher claim frequency than other states -- although costs per action are considerably reduced, according to Anderson. MICRA places a cap of $250,000 on compensation paid to malpractice victims for non-economic damages, allows damage awards of more than $50,000 to be paid in periodic installments, permits the defense to inform the jury about any other sources of compensation available to the plaintiff, mandates arbitration for malpractice victims⁹ and establishes a sliding scale for attorneys' fees. Anderson says California can hardly be free of defensive medicine when there are more than four claims for every 10 surgeons annually. Nationally, he says, there are 17 claims for about every 100 full-time practicing physicians and surgeons. Tort reform opponents from the ATLA say MICRA isn't working because California's medical malpractice insurance rates are 19 percent higher than the rest of the country, and point to the American Insurance Association's position that lawmakers shouldn't expect tort reform to reduce insurance rates.

The ATLA says SB 2793 would not decrease PLI premiums or increase the availability of PLI but instead would severely limit the ability of patients to hold healthcare providers accountable. The ATLA calls SB 2793's $250,000 cap on non-economic damages "arbitrary" and "discriminatory" and says it is more restrictive that any current state cap. Non-economic damages compensate patients for injuries such as the loss of a limb or sight, the loss of mobility, excruciating pain and permanent or severe disfigurement. The ATLA says juries are able to calculate these damages fairly and that the proposed caps would disproportionately affect individuals like women, children, the elderly or the disabled, who do not have substantial economic loss such as lost wages. The ATLA also says the bill, among other goals, hopes to place severe restrictions on punitive damages. These damages may only be awarded if the plaintiff proves by clear and convincing evidence that the defendant acted with malicious intent to injure the plaintiff or the defendant understood the plaintiff was substantially certain to suffer unnecessary injury yet deliberately failed to avoid such injury.

In its fight against tort reform, the ATLA maintains that the majority of states have ruled that restrictions like the ones proposed in SB 2793 (and including limits on attorneys fees, mandatory submission of claims to arbitration and "repose" statutes) are unconstitutional. It says tort reform is "not about lowering doctors' malpractice premiums, but about covering insurance companies' investment losses. HR 4600 won't help doctors or patients. It will just excuse insurance companies' price gouging."

PROPOSED SOLUTIONS

If tort reform doesn't work, other solutions abound, experts say. Because federal tort reform is uncertain at this point, states are examining the following:

State-run insurance plans
Physicians who cannot obtain affordable malpractice insurance elsewhere could turn to a state plan offering insurance at rates comparable to those available on the private market. A state-run plan has been proposed in West Virginia and is currently operating in Pennsylvania where, if a physician cannot obtain coverage elsewhere, he or she is placed in the state's Joint Underwriters Association, which acts as a default provider. All companies writing casualty insurance participate in the association; if not, they would not be allowed to write insurance in the state. According to the AMA, a few states have state-run patient compensation or excess funds that limit the liability of participants to a specific amount, and pay the full excess over that amount for any judgment or settlement against a member. Physicians obtain primary medical malpractice insurance from private insurance companies in an amount required by state statute. Coverage in excess of the primary insurance is provided by the fund.

Physician-owned mutual companies
These nonprofit insurance companies are owned by their policyholders and structured for their benefit. A mutual insurer established under, and subject to, state insurance laws is organized to provide insurance at competitive rates. A majority of a mutual insurer's investment income is used to reduce premiums.

Tax credits
Tax credits, already discussed in West Virginia, would offset a physician's PLI premium and could cost up to $5 million in state funds annually. Physicians would get a credit toward their provider tax for 10 percent of their malpractice premium after the first $10,000. The credit would then go toward the average malpractice premium for the physician's specialty or the physician's annual premium, whichever is less.

NO-FAULT CONCEPT GAINS GROUND

No-fault insurance, which circumvents the conventional legal procedure that finds fault in an accident, is gaining ground as a viable solution to the medical malpractice crisis. No-fault eliminates the concept of one party or the other being at fault and eliminates lawyers, the court, the judge, the jury and the lawsuit. The AMA says no-fault generally does away with costly legal proceedings that the state must manage and keeps rates down for insurance policyholders.

Experts say the no-fault approach would solve the professional liability crisis as well as provide information about medical errors. No-fault insurance could be purchased as a whole policy, piecemeal for a specific medical procedure or rolled into an individual's health insurance premium. Patients can opt out of the award and litigate privately, but most experts feel this would be rare due to the risk of receiving less or no compensation for an injury. Because excessive awards would be reduced with no-fault insurance, more money would be available to compensate injured patients. Although physicians would still need PLI coverage for cases not covered under no-fault insurance and for cases involving patients who elect to use the tort system, the cost of such coverage would be a small fraction of what it is currently.

"I support no-fault mechanisms that are linked to systems within healthcare institutions for detecting and preventing medical error and communicating more effectively with patients and families," says Sage. "I also believe that determining fair levels of compensation to be paid under a no-fault framework would help society better understand its expectations of the healthcare system."

Sage thinks no-fault could help stem the tide of physicians and surgeons leaving their specialties or medicine altogether. "Unlike the 1980s, health insurers today can't and won't just pay whatever costs physicians and hospitals incur, whether for liability premiums or otherwise. Therefore, I suspect that some physicians are leaving their fields or altering their practices. One of my biggest concerns is for women's health; in addition to a shortage of obstetric services in some areas, radiologists are under pressure to stop reading mammograms. I'm sure this crisis, like previous ones, will generate tort reforms at least in several states. I worry that these reforms won't address important underlying issues, such as the way in which liability insurance is sold and regulated, or the fact that most medical errors go undetected and uncompensated."