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  Malpractice Insurance and Public Policy


Malpractice Insurance and Public Policy

by J. Russell Tyldesley

Although the propaganda machine decries the increasing size of awards and the number of "frivolous" suits being filed, the record amounts to, at best, anecdotal evidence and anomalies. The facts on the ground paint a far different picture.
There has been much political posturing of late around the issue of escalating premiums for medical professional liability insurance, or "malpractice insurance" for short. The Governor of Maryland and others, including certain insurance executives, President Bush, and even some doctors have jumped on the "tort reform" bandwagon.

For them, a big part of the solution lies in reining in runaway, bleeding-heart juries and activist judges, by capping damage awards. Much like the apocryphal "welfare queen" of the Reagan years, however, the facts don't seem to fit the myth. Although the propaganda machine decries the increasing size of awards and the number of "frivolous" suits being filed, the record amounts to, at best, anecdotal evidence and anomalies. The facts on the ground paint a far different picture.

In the 1990s, punitive damages (tort reformers' biggest bugaboo) were awarded in only 6% of all jury trials and averaged $50,000.

Earlier this year the nonpartisan watchdog organization Public Citizen released the results of their studies, which showed paid losses in medical malpractice cases to be down considerably from the previous year. In the current issue of Mother Jones, the National Center for State Courts is reported to have found that the rate of tort filings in Texas fell by 37% between 1990 and 2000. In California, the rate fell by 45%. On top of that, plaintiffs lose about 50% of the time in state courts, and, according to the Bureau of Justice Statistics, in medical malpractice cases doctors win about 75% of the time. The "jackpot" that plaintiffs and their attorneys are putatively seeking is getting smaller--the medium award fell by about half during the l990s, from $65,000 to $37,000. Punitive damages (tort reformers' biggest bugaboo) were awarded in only 6% of all jury trials and averaged $50,000.

Corporations can price the cost of their negligence into their products. Doctors cannot.

An article appeared in the Baltimore Sun on August 19 titled, "Malpractice insurance rise of 41% sought." As an example of how this affects doctors, an obstetrician's annual premium would go from $155,919 to $160,130. A primary care doctor would see the same percentage change, but would go from $14,171 to $19, 528. The biggest part of the answer to what has precipitated this crisis is contained in the Sun article but, apparently, it eluded the writer because he draws no particular attention to it. He refers to a Dr. David Bianchi, who was paid $1,000 to remove tonsils 10 years ago, but is now paid $250 to $300 for the procedure. Nowhere does the article mention that HMOs are the reason doctors no longer get paid anywhere near what they should be getting for many common procedures. (Dr. Bianchi would probably charge $2,000 for a tonsillectomy today if he had a choice, and at those rates he might be able to keep up with medical malpractice premiums.)

It is the serious decline in the performance of investment portfolios that has placed the entire life and health insurance industry in crisis, not actuarial errors in computing death and accident trends.

Delivering babies has also been severely devalued. As a personal example, my former next-door neighbor retired early from his OBGYN practice several years ago, about ten years earlier than he had planned. The HMOs literally destroyed the value of his practice and he had not been paying himself for about a year, just to be able to maintain his staff. He wound up selling his practice for a fraction of its former value, even though it had grown and, though he delivered thousands of babies, he never had a malpractice claim. He showed me invoices that he continued to send to his patients which indicated what they should have been charged versus what HMOs were actually reimbursing him. He wanted his patients to at least know, although I doubt that many of them would have called the HMO to complain about shortchanging their doctor.

Another insidious result of the concept of "managed care"--the euphemism adopted for taking control away from doctors--is that some docs are prone to take shortcuts, work too fast, and, perhaps, use less care when what they earn is now largely dependent on how many procedures they can bill for. It has probably also contributed to a reported increase in fraudulent claims for reimbursement.

A few years ago, Medicaid and Medicare looked closely at requiring surety bonds from medical equipment and home health care firms as a result of studies that indicated billions were being milked from the system. Intensive lobbying killed this idea, but it may yet re-emerge. More noticeably, the bedside manner of old has virtually disappeared from the assembly line, revved-up, factory-like approach to medical services.

Have the HMOs lived up to their original stated purpose of preventing doctors from being able to afford second homes and sports cars? I doubt it. They have just managed to make them far more cynical about their profession, which carries over to students contemplating careers in medicine. Most hospitals are in some stage of financial distress and public hospitals are becoming rare.

Only the HMOs and pharmaceutical companies have prospered in this environment. Their executives routinely earn million-dollar salaries and bonuses, and their profit margins can border on the obscene. Any savings squeezed out of the doctors goes right into the pockets of the corporations--protected as they are by regulations and patents earned through excellent lobbying. Beyond the money scams, they often sanction bad medicine, but the courts consistently rule for the HMOs so that they can't be sued (one of the many patient bills of rights not granted) and the pharmaceuticals get their patents extended in dubious fashion.

The doctors are after the wrong culprits when they blame their patients for the rising malpractice premiums. All that said, insurance companies are far from blameless. Instead of lobbying for tort reform, they ought to be lobbying for positive changes in the medical delivery system. Why do 90% of the claims tend to come from 5% of the doctors? Why are medical mistakes at hospitals one of the leading causes of accidental death? And these aren't surgical mistakes, they are such things as administering the wrong medicine or allowing infections to go untreated. Hospitals can be very unsafe environments.

Furthermore, technological advances have been a mixed blessing. There is more reliance on the vendors, and patients have higher expectations for the science.

Market theory would suggest that all this will be sorted out by an "invisible hand" that will allocate costs efficiently. If we are to preserve the profit motive in medicine, why would we meddle and try to fix problems politically, especially at the level of our legal system? Doctors are asking for lower premiums and/or a government subsidy, and "reforms" to the court system. They can't go after the HMOs because they would be biting the hand that feeds them (however inadequately) and they run the risk of being blackballed. Many physicians would "go bare" and eschew malpractice insurance altogether on the theory that having insurance of at least $1 million actually invites suits--it enables a for-profit, privatized system. The problem is that they would lose their hospital privileges without evidence of insurance. Some doctors have found a solution by dropping their license altogether and becoming physicians' assistants. It pays a living wage and does not require insurance. Doctors are squeezed between the HMOs on the one hand and the insurance industry on the other.

If we are to socialize part of the medical system by controlling insurance premiums, capping jury awards, or subsidizing doctors with general tax revenues, we might as well go all the way. As of now, only doctors who don't rely on insurance reimbursements--like the plastic surgeons who are making the big bucks--will be unaffected by socialized medicine.

The Sun article previously mentioned also pointed out that 75% of the medical professional liability insurance in Maryland is written by one insurer, and that company, Medical Mutual, is owned by doctors. In some sense they are self-insuring. Why isn't there more competition? Why is this risk virtually uninsurable? Presumably, it is the unpredictability of loss, either in frequency or severity, or both. The tort reformers blame the ambulance-chasing attorneys, judges and juries.

Why is it that doctors are singled out as the uninsurables?

I tried to pry out of Medical Mutual some data on their claims. I was most interested in trying to see some trend in obstetrics that might be implicated in their poor experience. Such information is, of course, proprietary, and cannot be released to the public. I could look at their application filed with the insurance administration for their 41% rate increase, but I was told that it is very actuarial. In other words, it is only penetrable to mathematicians and other actuaries. I may look anyway, but answers may not clearly emerge.

Perhaps, the difference lies in the fact that corporations can price the cost of their negligence into their products. The cigarette companies have not suffered noticeably from the gargantuan awards against them. They have not yet been driven out of a business that kills by design. Doctors are not big corporations and they can be driven out of business when their rates cannot be conformed to their negligence, and they rarely kill by design, the exception being, perhaps, Dr. Kervorkian (who suffers in jail for mercy killings--another arguably victimless crime, that would not be a crime in many advanced countries).

It seems obvious to me that a market mechanism cannot be made to work, ultimately, for a service that is not elective and is considered to be a basic human right. Public policy demands that we heal the afflicted. Rationing of health care is being done, but we are not recognizing it as such. The same is, of course, true for many other basic necessities of life. Since the invention of agriculture, a written symbolic language, mathematics and scarcity, we have used money, property and land ownership to construct a system of haves and have-nots. Natural systems have been pushed to the limit to accommodate the greed and fallacious mythology of the only species with greed and envy as its driving life-force. More than ever living in this century demands cooperation and not competition. There are many good ideas out there for progressive reforms which do not benefit one group at the expense of another, but we can't talk about them when they all have to be screened for market viability.

In the face of doctor complaints (and not the 45 million uninsured) Governor Ehrlich is calling for a "fair and objective study of the evidence." If he is sincere, nothing should be off the table including an examination of claims and payments, albeit voluntarily surrendered. A task force will convene in November. In a recent speech to the association of counties, Governor Ehrlich lashed out at a variety of demons who would stop "progress." These included those who resist charter schools, slot machines, tort reform and other wonderful Republican innovations to transform an America still suffering from the legacy of Roosevelt's New Deal.

Energized by the ideology of every man for himself, the Governor would also pronounce the verdict before the trial--tort reform now, examine the evidence later. But, if a task force is not too politically constrained, it might consider such matters as why the availability of an adequate pool of assets to fund liability claims should be largely dependent on investment returns. It is, after all, the serious decline in the performance of investment portfolios that has placed the entire life and health insurance industry in crisis, not actuarial errors in computing death and accident trends.

And why, some ask (including our friends in Canada) should access to health insurance depend on a person's employment? Medicaid is evidence that certain classes of people cannot be served by the free market. Most social services these days are being privatized and there is very little resistance to this trend, despite the fact that there is little evidence that the customers (the American citizens) have benefited.

The crisis is certain to escalate as we face relentless population growth, outsourcing and automation of jobs, and an aging demographic. Perhaps it is time to draw the line at health care--and make it universal and affordable.

J. Russell Tyldesley, an insurance executive, writes from Catonsville, Md.

Copyright © 2004 The Baltimore Chronicle. All rights reserved.

Republication or redistribution of Baltimore Chronicle content is expressly prohibited without their prior written consent.

This story was published on August 26, 2004.
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