Understanding the US Medical Malpractice Crisis
Submitted to Executive – 2-25-04
Covenant HealthCare System – Saginaw, Michigan
Deryl Gulliford MHA, FAAMA
CEO – Seiling Hospital – Seiling, Oklahoma
National Chairman – AAMA Small and Rural Healthcare Section
Medical malpractice occurs when a physician or hospital fails to properly
treat a medical condition and the negligent act or omission is the cause of a
new or aggravated injury to the patient. Medical malpractice insurance covers
doctors and other professionals or entities in the medical field for liability
claims arising from their treatment of patients.
While everyone agrees that a patient who has been injured through negligence
should be compensated fairly, the authors feel that the US system has turned
into a “lawsuit lottery” where many patients have received astronomical
settlements, tens of millions of dollars. This in turn has caused malpractice
insurers to restrict coverage, drop physicians and continue to hike rates.
Our nation is in a full-blown crisis in at least a dozen states. Obstetricians
have been forced to stop delivering babies, trauma centers have closed, and
physicians will no longer staff emergency rooms. Patients are suffering
access-to-care problems as a result (American Medical Association, 2003). We
absolutely need reform in this area of healthcare. The consequences generated by
spiraling liability costs are borne by everyone.
Ramifications for Hospitals
According to the Midwest Medical Insurance Company, hospitals have even more
problems with availability and affordability than do physicians. Sharp increases
of 20 to 25 percent in the size of awards against hospitals have elevated their
rates, and in some cases make them unable to get coverage at all. This
effectively closes the hospital (Medical Economics, 2003).
Hospitals are already being hit with other financial pressures such as
shrinking reimbursement, increased wages, shortage of nurses, higher drug costs,
providing care to a higher number of uninsured patients and loss of specialists
due to their own malpractice woes.
In response to rising premiums and fear of litigation, some hospitals have
reduced access to services such as emergency surgery and newborn deliveries. For
example, the only hospital in a rural Pennsylvania county no longer has
Orthopedic on-call surgery coverage in its emergency room because their
Orthopedic Surgeons left due to the high cost of malpractice insurance.
Similarly, women in rural Mississippi must now travel 65 miles to the nearest
hospital that which still has an obstetrics unit, because the local hospital
stopped providing maternity services (Medical Benefits, 2003).
When physicians can no longer, or are unwilling to, provide services due to
the medical liability crisis, it affects both hospitals and patients. Some
examples provided by the AMA include (American Medical Association, 2003):
? More than 50 percent of Arkansas physicians reported in a recent survey that
they have been forced to reduce or discontinue one or more medical services in
the last two years due to rapidly increasing medical liability premiums.
? Because of our legal climate making $1 million-plus jury verdicts and
settlements more common, an increasing number of Connecticut obstetricians are
no longer delivering babies. Premiums for neurosurgeons and other high-risk
specialists are more than $100,000 annually.
? In Illinois, where the state supreme court has overturned medical liability
reforms on three separate occasions, health clinics, hospitals, and small towns
are in jeopardy because physicians no longer perform certain procedures such as
neurosurgery and maternity.
? High-risk specialists in Kentucky, including emergency room physicians and
general surgeons, saw increases in their liability premiums last year between 87
and 200 percent. Nearly one-quarter of the state’s physicians say medical
liability concerns make them consider leaving the state.
? Women with gynecological cancers in three rural Missouri towns now have to
drive more than 100 miles because the only gynecological oncologist was forced
to eliminate his rural outreach clinic due to increasing insurance premiums.
Physicians saw their premiums increase more than 60 percent on average last
? North Carolina hospitals have experienced professional liability insurance
premium increases of 400 to 500 percent over the past three years, with small,
rural hospitals experiencing the greatest increases. Jury awards are increasing
at an alarming rate, with top awards ranging from $4.5 million to $15 million in
Causes of Skyrocketing Liability Insurance Rates
Many believe that medical liability premiums have skyrocketed due to
increasing awards. However, other drivers include insurers who kept premiums
artificially low to gain market share and major insurance carriers which are
leaving the market.
The strong economy and stock market of the 1990’s enabled insurers to keep
medical malpractice premiums low, and in some cases even below market value
since profits from investment income helped offset low premiums and underwriting
losses (NGA Center for Best Practices, 2002). A decrease in investment income
meant that income from insurance premiums had to cover a larger share of
insurer’s costs. Due to the high investment returns in the 1980’s, companies
could offer prices that in hindsight did not completely cover their ultimate
losses. As a result, they become insolvent or left the market in the late1990’s.
At the same time, jury awards for medical malpractice lawsuits have risen over
the years. Jury awards in medical malpractice claims jumped 43 percent in one
year – from $700,000 in 1999 to $1 million in 2000, and continue to rise (NGA
Center for Best Practices, 2002).
Finally, one of the largest medical malpractice insurers left the market. The
St. Paul Companies stopped writing medical liability policies at the end of
2002. St. Paul was one of the largest insurers in some states and the only
insurer in other regions and is leaving the market due
to the fact they can no longer afford to offer medical malpractice coverage.
The effect of a major carrier leaving the market was significantly less
incentive for others to keep rates competitive.
Fallout on Patient Care
An important consideration is how the cost and availability of professional
liability insurance can alter physician treatment decisions and affect patient
care. Many physicians try to avoid malpractice claims by practicing defensive
medicine such as ordering excessive tests and services, declining elective
referrals, and giving up certain high-risk practices. Physicians are also
referring more patients to emergency departments and refusing to provide on-call
emergency department coverage (Center for Studying Health System Change, 2003).
As physicians stop performing procedures, close portions of their practice and
refer more patients to other care settings, health care access, continuity of
care and patient choices are being affected. Physicians also fear low-income
patients who have inadequate or no insurance and who are known for not following
through on treatments. This increases the likelihood of adverse outcomes, and
thus malpractice claims. Physicians are also reluctant to refer to, or receive
referrals from, physicians with little liability coverage. This relates to
increased exposure under joint and several liability (Center for Studying Health
System Change, 2003).
Options for Reform
Many argue for tort reform as a means of lowering certain awards in medical
malpractice lawsuits and advocate legislative changes at the state level
designed to place a cap on such awards. The authors concur that meaningful tort
reform is an essential aspect of any long-term solution to the problem. A study
conducted by the AMA revealed that 78% of Americans are concerned that
skyrocketing medical liability costs could limit their access to care, and 73%
favor a law that would guarantee insured patients full payment for lost wages
and medical costs and place reasonable limits on awards for “pain and suffering”
in medical liability cases (American Medical Association, 2003).
Others argue for medical reforms as a means for reducing the incidence of
medical malpractice, and for insurance reforms as a way to moderate premium rate
Market Newsletter, 2003). There are dramatic differences in rates, specific to
state and specialty. In Florida, premium rates for general surgeons rose 75% in
three years as opposed to a 2% rise over the same interval in Minnesota.
Recently, an increasing number of large hospitals and physicians have had to
become creative by insuring themselves. While self-insuring can save money,
entities insured through these arrangements face a greater risk of insolvency,
and some states simply will not permit self-insurance as an option.
Physicians have also chosen to join together to form physician-owned insurance
companies. Initially, much more capital is required, but due to the time factor
for a claim to be resolved, much of that money is used as capital contribution
to surplus. This avenue also offers a cost advantage because the company does
not need to provide shareholders with profits. In addition, the physician-owned
company may have some underwriting advantages over the for-profit entity, such
as intimate knowledge of local doctors and hospitals and the legal customs and
climate. Finally, physician-owned companies have different management
philosophies than for–profit companies, one that places greater emphasis on risk
management and thus lowering the incidence of claims. This philosophy may also
extend to defending claims more aggressively than traditional insurers
(Biomedical Market Newsletter, 2003).
A “consumer-choice” system has been discussed. This option involves the
patient actively selecting his or her individual level of malpractice
protection, based upon personal preference and economic circumstances. When an
individual buys a used car, he or she has the option of purchasing an extended
warranty. He or she may either take the risk of not purchasing the warranty and
paying for repairs themselves, or buying the warranty and transferring that risk
to a third party. By allowing physicians to set fees based upon their level of
liability protection, medical care would be more affordable for low-income and
uninsured patients. In this system, insurance companies could offer dramatically
lower premiums for patients willing to accept low-limit malpractice providers.
These reductions would make employers more willing to continue benefits to their
employees. The extent of medical litigation would be reduced, easing the strain
on our judicial system, and with doctor visits more affordable, the number of
non-emergency visits to the emergency rooms would be reduced. It is felt that
such a system would enhance doctor-patient relationships as well. Doctors would
have less incentive to treat patients as potential adversaries, and therefore
would have less reason to perform unnecessary diagnostic procedures to protect
themselves from lawsuits (NPRI Issue Brief, 2003). Yes, the logistics of
implementing such a plan are huge, and state statutes permitting lower levels
of coverage would
need to be in place before any moves in this direction could proceed.
Lastly, some physicians are going “bare”. Physicians are practicing medicine
without any medical liability coverage. Dr. Mark Macumber of Chicago has opened
his office without medical liability insurance and relying on trust. He hopes
his patients trust him to provide quality care, and in return trusting his
patients not to rush to a lawyer at the first sign of trouble. He has his
patients sign an informed consent so they realize that there is no
million-dollar policy should they decide to sue. This course of action has had
its consequences. Dr. Macumber had to take out a home equity loan to furnish and
equip his office. He cannot sign billing agreements with health insurers, so his
patients must pay him and then seek reimbursement from their health plans. He no
longer has hospital admitting privileges and must rely on colleagues to admit
and treat his patients requiring hospitalization. Dr. Macumber has made
arrangements with an outpatient surgery center to utilize the x-ray facilities,
and is seeking similar arrangements for other diagnostic tests his patients may
need. The advantages of Dr. Macumber’s decision are that because he has no
administrative costs in processing paperwork and saves $40,000 a year for the
liability bill, he can charge his patients less for office visits. He charges
about one-third the going rate. This makes his service affordable to poor and
uninsured patients, who are the ones he most wants to serve. As a group, his
physician colleagues have been very supportive of Dr. Macumber’s decision, and
all are watching his practice very closely to see how this really
works (Family Practice News, 2003).
There are clear signs that malpractice insurance pressures are altering
physician treatment decisions and affecting patient care in unexpected ways and
places. The time for action on our nation’s liability crisis is well past due.
We must act now to fix our broken medical liability system. We need to utilize
common sense in our courtrooms so that every patient can have access to
physician care in emergency rooms, operating rooms and delivery rooms. Creative
solutions such as those presented in this paper must be pursued. Most urgently,
there must be meaningful tort reform legislation which limits jury awards to
sane levels when a true case of medical malpractice occurs.
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