Those of us who have been around a while are used to the cyclical nature of medical malpractice insurance. Every 10 years or so there's a huge jump in premium costs, always accompanied by a clamor for limiting plaintiffs' rights to sue and collect for pain and suffering. And each time around, providers have joined in pursuit of the wrong culprit.
This year, the uproar is the loudest yet, and though Congress is unlikely to adopt a national tort reform law (despite the American Medical Association's best efforts), governors and state legislatures from New Jersey to Nevada are scrambling to respond.
For hospitals and physicians, this crisis is very real. Malpractice premiums are skyrocketing, and some doctors can't even find coverage, opting to "go bare." Worst hit is obstetrics, with some physicians picking up their practices and moving to states with lower premiums and less litigious residents. Hospitals in a number of states are self-insuring and paying dearly for "excess coverage" of claims that go beyond their set-asides.
Things turned dramatic earlier this month, when University Medical Center in Las Vegas closed its Level I trauma center, the only such facility in a four-state region, after surgeons refused to work there unless lawmakers stopped the big malpractice awards. Nevada Gov. Kenny Guinn quickly called for a special legislative session to capitulate to the docs.
In truth, the medical liability insurance crisis has very little to do with jury awards and everything to do with an out-of-control insurance industry. Insurers such as St. Paul Cos. and PHICO Insurance Co. engaged in a premium price war in the 1990s, using the go-go stock market to cover the spread. The invested reserves grew so large that some of the funds were released to the bottom line as profit. Meanwhile, PHICO and other mutuals that had been started by providers overexpanded.
Then the music stopped at the stock party, leaving most "med mal" insurers scrambling, either out of the market or toward huge premium increases. PHICO is in bankruptcy and its executives and directors are awaiting trial in a state fraud lawsuit.
Now the insurers have reached back into their bag of tricks, pointing the finger of blame at our litigious society. The problem is, our society was litigious a couple of years ago, too, but we didn't see big premium increases then. To listen to the industry and its unwitting provider allies, America's juries go haywire every 10 years or so, only to become socially responsible once insurance profits go back up.
The study being used to bolster such claims-compiled by Jury Verdict Research-found that since 1994, jury awards for medical malpractice cases have jumped 175%, to a median of $1 million in 2000, with the average settlement being $3.5 million. That's shocking, at least until you read the fine print.
When the Wall Street Journal called, Jury Verdict admitted that its 2,951-case malpractice database has large gaps in it. "It collects award information unsystematically, and it can't say how many cases it misses," the Journal reported. "(Jury Verdict) says it can't calculate the percentage change in the median for childbirth negligence cases. More important, the database excludes trial victories by doctors and hospitals-verdicts that are worth zero dollars. A separate database on settlements is less comprehensive."
Meanwhile, a study by the Physician Insurers Association of America found that the average payout by individual defendants in 2000 was $328,396. Then A.M. Best Co., an insurance-rating agency, came out with an estimate that once all malpractice claims from 1991 through 2000 are resolved, which will take until about 2010, the average payout per claim will have risen 47%, to $42,473. That projection includes legal expenses and suits in which doctors or hospitals prevail. This crisis is shrinking.
A coalition of consumer groups and some members of Congress have called for a General Accounting Office investigation of the insurance industry's responsibility for creating nationwide medical malpractice insurance problems for doctors. That's a start. In the longer term, self-insurance through shared-risk pools may be the solution, so we don't have to go through another cycle like this one again.