The public debate over medical liability reform is riddled with misleading information and assertions about the cause of and solution for the liability crisis. These arguments appear to be intended to divert attention from the actual cause of rising professional liability insurance premiums, and to prevent legislative action that would reduce medical liability payouts. Two strategies seem to determine the character of the myths. One strategy is to shift blame to insurers, who are easy targets for public distrust. Another is to blame poor professional oversight, justifying litigation as a source of professional discipline. Some of the common myths follow.
Insurers made bad investment decisions in the last decade, and now are trying to make up for losses in the stock market by raising premium rates. The strategy of this statement is to align lawyers, doctors and public opinion against insurance companies. However, insurer investments are 80 percent in bonds, unaffected by stock market fluctuations, and only 8 percent to 15 percent in the equity market, or stocks. The remainder is invested in mortgages, real estate, and short-term treasury notes or cash. Insurer return on investments has been stable at 5.0 percent to 5.5 percent since 1997, according to A.M. Best. Stock market decline had only minimal effect on investment return. However, decline in interest rates, led by reductions in the Federal Reserve discount rate since 2000, have reduced bond yields, and reduced funds available to subsidize premium income. Brown Brothers Harriman & Co. found that decline in equity income was balanced by capital gains in bonds, resulting in no net loss, and concluded that “investments did not precipitate the current crisis.”
The reduction in investment yield, however, has unmasked the effect of steeply rising awards since 1995, reducing the buffer between payouts and premiums, and requiring premium increases to bolster reserves and ensure solvency.
The current crisis is only an insurance business cycle, and will stabilize without resorting to legislation. If the crisis were simply a business cycle, all lines of insurance and all states would be equally affected. However, insurers are not pulling out of other lines of insurance, such as property and casualty. St. Paul’s is an example. In December 2001, St. Paul’s pulled out of all medical liability coverage after sustaining growing losses that could not be covered by premium increases, leaving 42,000 physicians nationwide without coverage.
The insurance cycle would be prevented if state insurance regulation adequately controlled insurance company premium rates and insurer investments. State insurance departments heavily regulate insurance and place strict limits on the types and risk of investments, as well as require annual reports on the status of investments. If investment regulation were the problem, all insurance lines offered by these companies would be equally affected. In regard to premium rate control, medical liability insurance payouts in 2001 were 150 percent of premium revenue, and in 2002, 165 percent. _Excessive control of rate increases when losses mount beyond premium revenue can only result in one of two unsatisfactory outcomes: insurer insolvency and bankruptcy or insurer withdrawal from the state.
Tort reforms unfairly penalize patients and are ineffective in holding down premiums. Tort reforms do not take away the right to sue, or to collect awards for medical negligence. Nor do the proposed federal reforms inspired by California’s Medical Injury Compensation Reform Act, known as MICRA, reduce awards for true economic damages. The problem is noneconomic or “pain and suffering” damages, which are not objectively quantifiable. They are the unpredictable component of payouts that cause chaos in predicting insurance risk, leading to the large losses that are driving insurers out of particular states, out of liability insurance coverage, or into receivership. In some instances, noneconomic damages account for 66 percent to 75 percent of total awards. (For more on MICRA, see the cover story.)
If the 5 percent of physicians who are responsible for 54 percent of payouts were disciplined by state licensure boards, the medical liability crisis would disappear. This assertion fails to account for the randomness of liability claims and the types of specialties that account for the high awards. According to the Harvard Medical Practice Study of New York, negligence was associated with only 16 percent of liability claims filed in 1984, while only 13 percent of the negligent injuries found through chart review resulted in a claim. Another study found that 46 percent of claims paid had no negligence, while only 56 percent of cases of claims with negligence resulted in any settlement or award. That is, claims and negligence do not correlate.
Furthermore, The Doctors Company data lists neurosurgeons as sustaining the highest claim frequency, with a claim every 18 months, on average. This means that high-risk specialties are sued more often, not because of negligence, but because of the risk of the medical condition and the severity of the adverse outcome. The assertion that disciplining physicians with multiple lawsuits or even large payouts fails to recognize or acknowledge that medical liability claims do not effectively identify or deter negligence, and that actions to discipline physicians have no effect on reducing claim frequency or the size of the damages claimed or awarded.
James R. Bean, MD, is editor of the Bulletin, chair of the AANS/CNS Washington Committee, and serves as secretary/treasurer of Neurosurgeons to Preserve Health Care Access (NPHCA). He is in private practice in Lexington, Ky.
This article is adapted from Medical Liability Reform-Now! by the American Medical Association.