The underpinning of medical practice has always been patient care and patient safety. The past several decades, however, have seen an erosion of the patient-doctor relationship. A number of factors have contributed to the ongoing medical malpractice crisis that continues in the United States. There are three social goals of malpractice litigation: to deter unsafe practices, to compensate persons injured through negligence, and to exact corrective justice. This article examines how well the current system achieves these goals.
The underpinning of medical practice has always been patient care and patient safety. The past several decades, however, have seen an erosion of the patient-doctor relationship. Unfortunately, this erosion is caused by a variety of factors, including increased reliance on technology and pressure for increased clinical productivity. Added to this observation is the fact that the United States has become an increasingly litigious society with over 1,000,000 lawyers (approximately 1 per 300 citizens), which is far more than any other country. A number of factors have contributed to the ongoing medical malpractice crisis in the United States. There are three social goals of malpractice litigation: (1) to deter unsafe practices, (2) to compensate persons injured through negligence, and (3) to exact corrective justice. This article examines how well the current system achieves these goals.
The history
There have been three major medical malpractice crises in recent years in the United States. The first occurred in the early to mid 1970s and was described as a crisis of insurance availability. Major malpractice insurers left the market and many physicians were unable to obtain coverage at any price. This gave rise to the formation of insurance companies owned and operated by physicians.
The second crisis in the early to mid 1980s was a crisis of affordability. Many physicians could not afford to pay the cost of increased premiums. The third and current crisis seems to involve both availability and affordability. Starting in 2001, there was an exodus of some of the larger malpractice carriers from the market. This has resulted in the inability of physicians to obtain malpractice insurance in some states and markedly increased the cost of insurance premiums in some areas. Some states, such as Florida, do not require physicians to carry liability insurance, which has resulted in an increasing number of physicians to “go bare” and not purchase insurance. “Asset protection” is gaining increased attention by many physicians who decide not to purchase malpractice coverage.
The role of caps
Over the past several decades, as the malpractice crisis has intensified, there has been increasing focus on the impact of malpractice costs. The first major attempt at limiting caps was the California Medical Injury Compensation Reform Act (MICRA), which was passed in 1975. This legislation was passed in response to skyrocketing judgments in malpractice suits and dramatic increases in malpractice insurance premiums and decreased access to health care. The malpractice environment in California at that time included a 200% increase in the number of malpractice claims in the preceding 10 years and a 1000% increase in the dollar amount of judgment awards in the prior decade. The major provisions of MICRA are listed in Box 1 .
- •
A cap of $250,000 on noneconomic damages (ie, pain, suffering, loss of consortium)
- •
Disclosure to the jury of collateral sources of payment (other sources of health insurance payments for the same injury)
- •
Limits on attorney fees
- •
Periodic payments for future damages
- •
A requirement that plaintiffs give a 90-day warning of an impending claim to the provider so that the provider has a chance to settle the claim out of court
- •
A strengthened physician discipline system
Data from www.thedoctors.com/advocacy/miora.asp . Accessed January 15, 2008.
In California, since MICRA was enacted, benefits to the health care system have accrued. Specifically, lower malpractice premiums, improved patient access to care, and earlier and more equitable settlements have occurred since the passage of MICRA. Malpractice caps alone have not proved, however, to be the panacea to the malpractice crisis that they were initially thought to be.
A cogent analysis of the impact of malpractice caps reveals there are multiple factors that influence physician premiums and the level of awards. In the period between 1991 and 2002, the median payout in malpractice cases was 15.7% lower in states with caps compared with states without caps. Furthermore, during the same period, payouts increased by 83.3% in states with caps compared with 127.9% in states without caps. Despite these trends, however, there were unanticipated results. In states with caps the median annual premium increased by 48.2%, whereas in states without caps the annual premium increase was only 35.9%. The analysis by The Street.com Ratings concludes that there are other more important factors that drive up malpractice premiums than either caps or payout. They identify six other factors that influence medical malpractice premium rates ( Box 2 ). These factors are reviewed next.
- 1.
The medical inflation rate
- 2.
The insurance business cycle
- 3.
The need to shore up insurance company reserves
- 4.
A decline in investment income
- 5.
Financial safety
- 6.
Supply and demand
Data from TheStreet.comRatings . Accessed January 15, 2008.
The medical inflation rate continues significantly to outpace the national inflation rate. In 2005, total national health expenditures rose 6.9%, which was two times the rate of the inflation of the nation’s economy. This continued inflation influences malpractice awards where reimbursement for medical costs are considered.
The insurance business cycle is variable and cannot always be anticipated. When underwriting practices fail to cover anticipated claims this results in a shortfall for the insurers, which they react to by raising subsequent premiums.
Insurance company reserves are fluid and to a large degree unpredictable. When insurance companies write a new policy, they review previous claims experience, make some actuarial assumptions, and place a portion of that policy’s premium into a reserve to cover expected future claims. Most insurers make conservative assumptions when estimating reserves. If the assumptions err on the side of being overly optimistic, however, the level of reserves suffers and the only way to compensate for this misestimation is to raise future premiums.
Insurance companies make their profits not just by writing policies, but also by their investment income. When the stock market experiences a down period, the insurance companies can observe a dramatic decline in their investment income, which can be softened, in part, by raising premiums.
The financial corporations can also have an indirect impact on malpractice premiums. Insurance companies measure their financial strength based on evaluations of capitalization, reserve adequacy, profitability, liquidity, and stability. If an analysis of these factors causes the directors of the corporation to conclude that their financial safety has been jeopardized, one remedy is to raise premiums.
The insurance industry, like other businesses, is influenced by the forces of supply and demand. The number of medical malpractice carriers has decreased over the past two decades and this has diminished somewhat the competition within the industry.
It should be clear that although caps on both economic and noneconomic damages may well have beneficial effects on lowering malpractice premiums, there are other forces that can have profound effects on the rates that insurance companies set on malpractice insurance. There are data to demonstrate, however, that caps have had some benefit in addressing the malpractice crisis. There is strong evidence that caps on noneconomic damages reduce the average size of awards by 20% to 30%. There are also data to suggest that caps on noneconomic damages have a modest impact on premium growth. Recent studies show that caps have reduced the growth of premiums by 6% to 13%.
Recent studies also suggest that state laws limiting malpractice awards have an impact on the geographic distribution of physicians. Encirosa and Hellinger reported that between 1970 and 2000, the number of physicians per 100,000 residents more than doubled in the 13 states that enacted caps on noneconomic damages during the 1980s, compared with an 83% physician growth rate in the 23 states that did not cap malpractice awards before 2000. Further evidence of the beneficial effect of malpractice reforms was provided by Kessler and colleagues, who reported a 3.3% increase in physician supply in states where such reforms were enacted. In some geographic areas the impact of malpractice reform is even greater. In Texas, in the 4 years since malpractice reform in 2003, medical license requests have increased by 18%. A summary of medical malpractice liability reform appears in Table 1 .
| State | Punitive Damages | Noneconomic Damages |
|---|---|---|
| Alabama | — | — |
| Alaska | — | $400,000 |
| Arizona | — | — |
| California | — | $250,000 |
| Colorado | — | $1,000,000 |
| Connecticut | — | — |
| Delaware | — | — |
| District of Columbia | — | — |
| Florida | $1,500,000 | $1,000,000 |
| Georgia | $250,000 | — |
| Hawaii | — | $375,000 |
| Idaho | $250,000 | $250,000 |
| Illinois | Not recoverable | — |
| Indiana | 3 times compensatory damages or $50,000, whichever is greater | $250,000 |
| Iowa | — | — |
| Kansas | The lesser of the defendant’s annual gross income or $5,000,000 | $250,000 from each party |
| Kentucky | — | — |
| Louisiana | Punitive damages prohibited at common law | $500,000 exclusive of future medical care |
| Maine | $75,000 in wrongful death | $400,000 |
| Maryland | — | $500,000 |
| Massachusetts | In wrongful death cases, not less than $5000 where punitive damages are appropriate; punitive damages otherwise prohibited at common law | $500,000 |
| Michigan | Exemplary damages | $500,000 |
| Minnesota | — | — |
| Mississippi | $20,000,000 if net worth greater than $1 billion, otherwise a sliding scale | $5,000,000 |
| Missouri | — | $350,000 per defendant |
| Montana | — | $250,000 |
| Nebraska | Punitive damages prohibited at common law | $1,750,000 |
| Nevada | $300,000 | $350,000 |
| New Hampshire | No punitive damages in malpractice actions | $250,000 |
| New Jersey | $350,000 | — |
| New Mexico | — | $600,000 |
| New York | — | — |
| North Carolina | $250,000 | — |
| North Dakota | $250,000 | $500,000 |
| Ohio | — | $5000,000 for each plaintiff or $1,000,000 for each occurrence |
| Oklahoma | $500,000 | $300,000 |
| Oregon | Prohibited against specified health practitioners | Felt to violate state constitution |
| Pennsylvania | When awarded, not less than $100,000 | $1,500,000 per annual aggregate |
| Rhode Island | — | — |
| South Carolina | — | — |
| South Dakota | — | $500,000 |
| Tennessee | — | — |
| Texas | $750,000 | $250,000 |
| Utah | — | $400,000 adjusted for inflation |
| Vermont | — | — |
| Virginia | $350,000 | $1,500,000 |
| Washington | Prohibited at common law | — |
| West Virginia | — | $250,000 |
| Wisconsin | — | $350,000 or $500,000 if decreased minor |
| Wyoming | — | — |
Not everyone is in agreement, however, that malpractice caps are worthwhile. The head of the Association of Trial Lawyers of America believes that caps set arbitrary, absolute limits on compensation and are unfair to patients. Some state courts have ruled that caps on awards to malpractice victims are unconstitutional.
The role of caps
Over the past several decades, as the malpractice crisis has intensified, there has been increasing focus on the impact of malpractice costs. The first major attempt at limiting caps was the California Medical Injury Compensation Reform Act (MICRA), which was passed in 1975. This legislation was passed in response to skyrocketing judgments in malpractice suits and dramatic increases in malpractice insurance premiums and decreased access to health care. The malpractice environment in California at that time included a 200% increase in the number of malpractice claims in the preceding 10 years and a 1000% increase in the dollar amount of judgment awards in the prior decade. The major provisions of MICRA are listed in Box 1 .
- •
A cap of $250,000 on noneconomic damages (ie, pain, suffering, loss of consortium)
- •
Disclosure to the jury of collateral sources of payment (other sources of health insurance payments for the same injury)
- •
Limits on attorney fees
- •
Periodic payments for future damages
- •
A requirement that plaintiffs give a 90-day warning of an impending claim to the provider so that the provider has a chance to settle the claim out of court
- •
A strengthened physician discipline system
Data from www.thedoctors.com/advocacy/miora.asp . Accessed January 15, 2008.
In California, since MICRA was enacted, benefits to the health care system have accrued. Specifically, lower malpractice premiums, improved patient access to care, and earlier and more equitable settlements have occurred since the passage of MICRA. Malpractice caps alone have not proved, however, to be the panacea to the malpractice crisis that they were initially thought to be.
A cogent analysis of the impact of malpractice caps reveals there are multiple factors that influence physician premiums and the level of awards. In the period between 1991 and 2002, the median payout in malpractice cases was 15.7% lower in states with caps compared with states without caps. Furthermore, during the same period, payouts increased by 83.3% in states with caps compared with 127.9% in states without caps. Despite these trends, however, there were unanticipated results. In states with caps the median annual premium increased by 48.2%, whereas in states without caps the annual premium increase was only 35.9%. The analysis by The Street.com Ratings concludes that there are other more important factors that drive up malpractice premiums than either caps or payout. They identify six other factors that influence medical malpractice premium rates ( Box 2 ). These factors are reviewed next.
- 1.
The medical inflation rate
- 2.
The insurance business cycle
- 3.
The need to shore up insurance company reserves
- 4.
A decline in investment income
- 5.
Financial safety
- 6.
Supply and demand
Data from TheStreet.comRatings . Accessed January 15, 2008.
The medical inflation rate continues significantly to outpace the national inflation rate. In 2005, total national health expenditures rose 6.9%, which was two times the rate of the inflation of the nation’s economy. This continued inflation influences malpractice awards where reimbursement for medical costs are considered.
The insurance business cycle is variable and cannot always be anticipated. When underwriting practices fail to cover anticipated claims this results in a shortfall for the insurers, which they react to by raising subsequent premiums.
Insurance company reserves are fluid and to a large degree unpredictable. When insurance companies write a new policy, they review previous claims experience, make some actuarial assumptions, and place a portion of that policy’s premium into a reserve to cover expected future claims. Most insurers make conservative assumptions when estimating reserves. If the assumptions err on the side of being overly optimistic, however, the level of reserves suffers and the only way to compensate for this misestimation is to raise future premiums.
Insurance companies make their profits not just by writing policies, but also by their investment income. When the stock market experiences a down period, the insurance companies can observe a dramatic decline in their investment income, which can be softened, in part, by raising premiums.
The financial corporations can also have an indirect impact on malpractice premiums. Insurance companies measure their financial strength based on evaluations of capitalization, reserve adequacy, profitability, liquidity, and stability. If an analysis of these factors causes the directors of the corporation to conclude that their financial safety has been jeopardized, one remedy is to raise premiums.
The insurance industry, like other businesses, is influenced by the forces of supply and demand. The number of medical malpractice carriers has decreased over the past two decades and this has diminished somewhat the competition within the industry.
It should be clear that although caps on both economic and noneconomic damages may well have beneficial effects on lowering malpractice premiums, there are other forces that can have profound effects on the rates that insurance companies set on malpractice insurance. There are data to demonstrate, however, that caps have had some benefit in addressing the malpractice crisis. There is strong evidence that caps on noneconomic damages reduce the average size of awards by 20% to 30%. There are also data to suggest that caps on noneconomic damages have a modest impact on premium growth. Recent studies show that caps have reduced the growth of premiums by 6% to 13%.
Recent studies also suggest that state laws limiting malpractice awards have an impact on the geographic distribution of physicians. Encirosa and Hellinger reported that between 1970 and 2000, the number of physicians per 100,000 residents more than doubled in the 13 states that enacted caps on noneconomic damages during the 1980s, compared with an 83% physician growth rate in the 23 states that did not cap malpractice awards before 2000. Further evidence of the beneficial effect of malpractice reforms was provided by Kessler and colleagues, who reported a 3.3% increase in physician supply in states where such reforms were enacted. In some geographic areas the impact of malpractice reform is even greater. In Texas, in the 4 years since malpractice reform in 2003, medical license requests have increased by 18%. A summary of medical malpractice liability reform appears in Table 1 .
| State | Punitive Damages | Noneconomic Damages |
|---|---|---|
| Alabama | — | — |
| Alaska | — | $400,000 |
| Arizona | — | — |
| California | — | $250,000 |
| Colorado | — | $1,000,000 |
| Connecticut | — | — |
| Delaware | — | — |
| District of Columbia | — | — |
| Florida | $1,500,000 | $1,000,000 |
| Georgia | $250,000 | — |
| Hawaii | — | $375,000 |
| Idaho | $250,000 | $250,000 |
| Illinois | Not recoverable | — |
| Indiana | 3 times compensatory damages or $50,000, whichever is greater | $250,000 |
| Iowa | — | — |
| Kansas | The lesser of the defendant’s annual gross income or $5,000,000 | $250,000 from each party |
| Kentucky | — | — |
| Louisiana | Punitive damages prohibited at common law | $500,000 exclusive of future medical care |
| Maine | $75,000 in wrongful death | $400,000 |
| Maryland | — | $500,000 |
| Massachusetts | In wrongful death cases, not less than $5000 where punitive damages are appropriate; punitive damages otherwise prohibited at common law | $500,000 |
| Michigan | Exemplary damages | $500,000 |
| Minnesota | — | — |
| Mississippi | $20,000,000 if net worth greater than $1 billion, otherwise a sliding scale | $5,000,000 |
| Missouri | — | $350,000 per defendant |
| Montana | — | $250,000 |
| Nebraska | Punitive damages prohibited at common law | $1,750,000 |
| Nevada | $300,000 | $350,000 |
| New Hampshire | No punitive damages in malpractice actions | $250,000 |
| New Jersey | $350,000 | — |
| New Mexico | — | $600,000 |
| New York | — | — |
| North Carolina | $250,000 | — |
| North Dakota | $250,000 | $500,000 |
| Ohio | — | $5000,000 for each plaintiff or $1,000,000 for each occurrence |
| Oklahoma | $500,000 | $300,000 |
| Oregon | Prohibited against specified health practitioners | Felt to violate state constitution |
| Pennsylvania | When awarded, not less than $100,000 | $1,500,000 per annual aggregate |
| Rhode Island | — | — |
| South Carolina | — | — |
| South Dakota | — | $500,000 |
| Tennessee | — | — |
| Texas | $750,000 | $250,000 |
| Utah | — | $400,000 adjusted for inflation |
| Vermont | — | — |
| Virginia | $350,000 | $1,500,000 |
| Washington | Prohibited at common law | — |
| West Virginia | — | $250,000 |
| Wisconsin | — | $350,000 or $500,000 if decreased minor |
| Wyoming | — | — |
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