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