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US General Accounting Office
Excerpts from Medical Malpractice and Access to Health Care (GAO-03-836)
August 2003

Medical Malpractice


In the United States, patients injured while receiving health care can sue health care providers for medical malpractice under governing state tort law, usually the law of the state where the injury took place. Laws governing medical malpractice vary from state to state, but among the goals of tort law are compensation for the victim and deterrence of malpractice.

Nearly all health care providers buy medical malpractice insurance to protect themselves from potential claims that could cause financial harm or even bankruptcy absent liability coverage. For example, the average reported claims payment made on behalf of physicians and other licensed health care practitioners in 2001 was about $300,000 for all settlements, and about $500,000 for trial verdicts. 11

Under a malpractice insurance contract, the insurer agrees to investigate claims, to provide legal representation for the health care provider, and to accept financial responsibility for payment of any claims up to a specified monetary level during an established time period. The most common policies sold by insurers provide $1 million of coverage per incident and $3 million of total coverage per year. The insurer provides this coverage in return for a fee— the medical malpractice premium. Medical malpractice premium rates differ widely by medical specialty and geography. Premiums paid by traditionally high-risk specialties, such as obstetrics, are usually higher than premiums paid by other specialties, such as internal medicine. Premium rates also vary across and within states. Across states, for example, a large insurer in Minnesota charged base premium rates of $3,803 for the specialty of internal medicine, $10,142 for general surgery, and $17,431 for OB/GYN in 2002 across the entire state. 12

In contrast, a large insurer in Florida charged base premium rates in Dade County of $56,153 for internal medicine, $174,268 for general surgery, and $201,376 for OB/GYN, and $34,556, $107,242, and $123,924, respectively, for these same specialties in Palm Beach County. In addition to the wide range in premium rates charged, the extent to which premiums increase over time also varies by specialty and geographic area. Beginning in the late 1990s, malpractice premiums began to increase at a rapid rate for most, but not all, physicians in some states. For example, between 1999 and 2002, the Minnesota insurer increased its base premium rates by about 2 percent for each of the three specialties, in contrast to the Florida insurer that increased its base premium rates by about 98, 75, and 43 percent, respectively, for the three specialties in Dade County.  

Rising Claims Costs Among Factors Contributing to Malpractice Insurance Premium Increases

Since 1999, medical malpractice premium rates for certain physicians in some states have increased dramatically. In a related report issued in June 2003, we examined the extent and causes of these recent increases. 13

More specifically, we reported on (1) the extent of increases in medical malpractice insurance rates in seven states, 14 (2) factors that have contributed to the increases, and (3) changes in the medical malpractice insurance market that may make the current period of rising premium rates different from earlier periods of rate hikes. Key findings from that report include the following.

  • Among the seven states we analyzed, the extent of medical malpractice premium increases varied greatly not only from state to state but across medical specialties. For example, among the largest writers of medical malpractice insurance in the seven states, increases in base premium rates for general surgeons from 1999 to 2002 ranged from 2 percent in Minnesota to 130 percent in and around Harrisburg, Pennsylvania. Across specialties, one carrier raised premiums for the area in and around El Paso, Texas, during this period by 95 percent for general surgery, 108 percent for internal medicine, and 60 percent for OB/GYN.
  • Multiple factors have contributed to the recent increases in medical malpractice premium rates. First, since 1998, the greatest contributor to increased premium rates in the seven states we analyzed appeared to be increased losses for insurers on paid medical malpractice claims. However, a lack of comprehensive data at the national and state levels on insurers’ medical malpractice claims and the associated losses prevented us from fully analyzing the composition and causes of those losses. Second, from 1998 through 2001, medical malpractice insurers experienced decreases in their investment income as interest rates fell on the bonds that generally make up around 80 percent of these insurers’ investment portfolios. 15

While almost no medical malpractice insurers experienced net losses on their investment portfolios over this period, a decrease in investment income meant that income from insurance premiums had to cover a larger share of insurers’ costs. Third, during the 1990s, insurers competed vigorously for medical malpractice business, and several factors, including high investment returns, permitted them to offer prices that, in hindsight for some insurers, did not completely cover their ultimate losses on that business. As a result of this, some companies became insolvent or voluntarily left the market, reducing the downward competitive pressure on premium rates that had existed through the 1990s. Fourth, beginning in 2001, reinsurance rates for medical malpractice insurers also increased more rapidly than they had in the past, raising insurers’ overall costs. 16

  • While the medical malpractice insurance market as a whole had experienced periods of rapidly increasing premium rates in the mid-1970s and mid-1980s, the market has changed considerably since then. These changes are largely the result of actions insurers, health care providers, and states have taken to address increasing premium rates. Beginning in the 1970s and 1980s, insurers began selling “claims-made” rather than “occurrence-based” policies, enabling insurers to better predict losses for a particular year. 17

Also in the 1970s, physicians, facing increasing premium rates and the departure of some insurers, began to form mutual nonprofit insurance companies. Such companies, which may have some cost and other advantages over commercial insurers, now make up a significant portion of the medical malpractice insurance market. More recently, an increasing number of large hospitals and groups of hospitals or physicians have left the traditional commercial insurance market and sought alternative arrangements, for example, by self-insuring. While such arrangements can save money on administrative costs, hospitals and physicians insured through these arrangements assume greater financial responsibility for malpractice claims than they would under traditional insurance arrangements and thus may face a greater risk of insolvency. Finally, since the periods of increasing premium rates during the mid- 1970s and mid-1980s, all states have passed at least some laws designed to reduce medical malpractice premium rates. Some of these laws are designed to decrease insurers’ losses on medical malpractice claims, while others are designed to more tightly control the premium rates insurers can charge. These market changes, in combination, make it difficult to predict how medical malpractice premiums might behave in the future.

States Use Tort Reform to Help Contain Costs Associated with Medical Malpractice

In order to improve the affordability and availability of malpractice insurance and to reduce liability pressure on providers, states have adopted varying types of tort reform legislation. 18

Tort reforms are generally intended to limit the number of malpractice claims or the size of payments in an effort to reduce malpractice costs and insurance premiums. Also, some believe tort reforms can lower overall health care costs by reducing certain defensive medicine practices. Such practices include the overutilization by physicians of certain diagnostic tests or procedures primarily to reduce their exposure to malpractice liability, therefore adding to the costs of health care. 19

State tort reform measures adopted during the past three decades include

  • placing caps on the amount that may be awarded to plaintiffs for damages in a malpractice lawsuit, including noneconomic, economic, and punitive damages;
  • abolishing the “collateral source rule” that prevents a defendant from introducing evidence that the plaintiff’s losses and expenses have been paid in part by other parties such as health insurers, or damage awards from being reduced by the amount of any compensation plaintiffs receive from third parties;
  • abolishing “joint and several liability” to ensure that damages are recovered from defendants in proportion to each defendant’s degree of responsibility, not each defendant’s ability to pay;
  • allowing damages to be paid in periodic installments rather than in a lump sum;
  • placing limits on fees charged by plaintiffs’ lawyers;
  • imposing stricter statutes of limitations that shorten the time injured parties have to file a claim in court;
  • establishing pretrial screening panels to evaluate the merits of claims before proceeding to trial; and
  • providing for greater use of alternative dispute resolution systems, such as arbitration panels.

Among the tort reform measures enacted by states, caps on noneconomic damage awards that include pain and suffering have been the focus of particular interest. Cap proponents believe that such limits can result in several benefits that help reduce malpractice insurance premiums, such as helping to prevent excessive awards and overcompensation and ensuring more consistency among jury verdicts. In contrast, cap opponents believe that factors other than award amounts affect premiums charged by malpractice insurers and that caps can result in undercompensation for severely injured persons.

Congress is currently considering federal tort reform legislation that includes several elements adopted by states to varying degrees, including placing caps on noneconomic and punitive damages, allowing evidence at the trial of a plaintiff’s recovery from collateral sources, abolishing joint and several liability, and placing a limit on contingency fees, among others. 20

Results in Brief

Actions taken by health care providers in response to malpractice pressures have contributed to localized health care access problems in the five states we reviewed with reported problems. 8

We confirmed instances in the five states where actions taken by physicians in response to malpractice pressures have reduced access to services affecting emergency surgery and newborn deliveries. These instances were not concentrated in any one geographic area and often occurred in rural locations, where maintaining an adequate number of physicians may have been a long-standing problem, according to some providers. For example, the only hospital in a rural county in Pennsylvania no longer has full orthopedic on-call surgery coverage in its emergency room (ER) because three of its five orthopedic surgeons left in the spring of 2002, largely in response to the high cost of malpractice insurance. Similarly, pregnant women in rural central Mississippi must now travel about 65 miles to the nearest hospital obstetrics ward to deliver because family practitioners at the local hospital, faced with rising malpractice insurance premiums, stopped providing obstetrics services. In both areas, providers also cited other reasons for difficulties recruiting physicians to their rural areas. We did not identify similar examples of access reductions attributed to malpractice pressures in the four states without reported problems. In the five states with reported problems, however, we also determined that many of the reported provider actions taken in response to malpractice pressures were not substantiated or did not widely affect access to health care. For example, some reports of physicians relocating to other states, retiring, or closing practices were not accurate or involved relatively few physicians. In these same states, our review of Medicare claims data did not identify any major reductions in the utilization of certain services some physicians reported reducing because they consider the services to be high risk, such as certain orthopedic surgeries and mammograms. Continuing to monitor the effect of providers’ responses to rising malpractice premiums on access to care will be essential, given the import and evolving nature of this issue.

In response to rising premiums and their fear of litigation, research indicates that physicians practice defensive medicine in certain clinical situations, thereby contributing to health care costs; however, the overall prevalence and costs of such practices have not been reliably measured. Recent surveys of physicians indicate that many practice defensive medicine, but limitations to these surveys suggest caution in interpreting and generalizing the results. For example, the surveys typically ask physicians if or how they have practiced defensive medicine but not the extent of such practices. In addition, very few physicians tend to respond to these surveys, raising doubt about how accurately their responses reflect the practices of all physicians. Some empirical research has identified defensive medicine practices, but under very specific clinical situations that cannot be generalized more broadly. For example, one study examined Medicare patients with two specified heart diseases and concluded that certain tort reforms that reduce malpractice pressures, such as caps on damages, may reduce hospital expenditures for treatment of the two conditions by 5 to 9 percent. However, subsequent preliminary research that expanded this study to additional Medicare patients with a broader set of conditions did not find similar savings.

Limited available data indicate that rates of growth in malpractice premiums and claims payments have been slower on average in states that enacted certain caps on damages for pain and suffering—referred to as noneconomic damage caps—than in states with more limited reforms. 9

Premium rates reported for the specialties of general surgery, internal medicine, and OB/GYN were relatively stable on average in most states from 1996 through the late 1990s and then began to rise, but more slowly among states with certain noneconomic damage caps. For example, from 2001 through 2002, average premium rates rose approximately 10 percent in states with noneconomic damage caps of $250,000 compared with approximately 29 percent in states with more limited tort reforms. Although payments for claims against all physicians from 1996 through 2002 tended to be lower and grew less rapidly on average in states with caps on noneconomic damages than in states with limited reforms, the averages obscured wide variation in claims payments and rates of growth across states and over time. Moreover, claims payments we reviewed were limited to claims against physicians and did not include claims against institutional providers such as hospitals and nursing homes. Differences in both premium rates and claims payments are also affected by factors other than damage caps, including the presence of other tort reform measures, the presence of state laws regulating the premium rate-setting process, and certain market forces, including the level of market competition among insurers and interest rates that affect insurers’ investment returns. 10

We could not determine the extent to which differences in premiums and claims payments across states were attributable to states’ tort reform laws or to these additional factors.

We received comments on a draft of this report from three independent health policy researchers and AMA. Each of the researchers has expertise in malpractice-related issues and has conducted and published research on the effects of malpractice pressures on the health care system, and two of the three are physicians. The health policy researchers generally concurred with our findings. AMA, however, questioned our finding that rising malpractice premiums have not contributed to widespread health care access problems, expressing concern that the scope of our work limited our ability to fully identify the extent to which malpractice-related pressures are affecting consumers’ access to health care. We disagree that the scope of our work limited our ability to identify the extent of malpractice-related access problems. In the absence of current and reliable national data on provider responses to rising malpractice premiums, we used a variety of qualitative and quantitative methods as a basis for our findings on the effect of provider actions on access to care in the five states we reviewed with reported problems. While we did not attempt to generalize our findings beyond these five states, we believe that—because they are among the most visible and often-cited examples of “crisis” states—the experiences of these five states provide important insight into the overall problem. In response to AMA’s comments, however, we clarified the report’s discussion of the scope of work and methods used for this issue.


8 - We define loss of access as the direct loss or newly limited availability of a health care provider or service resulting largely from actions taken by providers in response to malpractice concerns. We did not assess the impact on access that may result from the added costs malpractice pressures impose on the health care system (e.g., the combined cost of malpractice insurance premiums, litigation, and defensive medicine practices) and thus on the costs and affordability of health insurance because data to reliably measure malpractice-related costs in total are not available.

9 - Damage caps may apply to three types of damages awarded to plaintiffs in a medical malpractice suit: noneconomic damages, which compensate for harm that is not easily quantifiable (such as pain and suffering); economic damages, which compensate for lost wages and other financial harms; and punitive damages, which punish providers for especially egregious conduct.

10 - For more information on the factors that influence malpractice premium rates, see GAO-03-702.

11 - See Physician Insurers Association of America (PIAA), PIAA Claim Trend Analysis, 2001 Edition (Rockville, Md.: 2002). Averages are based on a compilation of medical malpractice claims data from more than 20 PIAA member companies that insure about 20 to 25 percent of all physicians. Most claims are resolved out of court. Among the closed claims PIAA reviewed in 2001 that resulted in an award to plaintiffs, about 96 percent were closed through an out-of-court settlement and about 4 percent through a trial verdict.

12 - Base premium rates exclude discounts, rebates, and surcharges that may affect the actual premium rate charged.

13 - GAO-03-702.

14 - The states are California, Florida, Minnesota, Mississippi, Nevada, Pennsylvania, and Texas.

15 - State insurance regulators generally require insurers to reduce their requested premium rates in line with expected investment income. That is, the higher the expected income from investments, the more premium rates must be reduced.

16 - Reinsurance is insurance for insurance companies, which insurance companies routinely use as a way to spread the risk associated with their insurance policies.

17 - Claims-made policies cover claims reported during the year in which the policy is in effect. Occurrence-based policies cover claims arising out of events that occurred but may not have been reported during the year in which the policy was in effect. Most policies sold today are claims-made policies.

18 - States have also experimented with approaches to constrain malpractice-related costs in addition to tort reforms. For example, Virginia created a no-fault compensation program for birth-related neurological injuries, and Maine temporarily used standardized clinical practice guidelines to provide physicians with a defense against potential malpractice lawsuits.

19 - Physicians may also reduce or eliminate certain services they believe place them at risk of malpractice litigation. Such practices may also be referred to as defensive medicine.

20 - On March 13, 2003, the House of Representatives passed the Help Efficient, Accessible, Low-cost, Timely Healthcare (HEALTH) Act of 2003 (H.R. 5); on June 27, 2003, a similar version (S. 11) of this bill was introduced in the Senate.  

This document is not necessarily endorsed by the Almanac of Policy Issues. It is being preserved  in the Policy Archive for historic reasons.

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