Conflicting Claims

July 5, 2005
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GRAND RAPIDS — The past decade has been a frustrating one for physicians who have been trying to sanely manage their risk. As they know, malpractice insurance premiums have risen by multiples of the inflation rate annually over those years — just like medical costs for their patients.

The Property Casualty Insurers Association of America (PCI) said hikes to malpractice premium rates have ranged from 20 percent to 75 percent, depending on the state and the doctor's practice. PCI blamed the "skyrocketing size of jury awards" for the higher premiums.

From 1996 to 1999, PCI said jury awards rose by 76 percent — tripling the median award to $3.9 million — and that "groundless medical liability cases are soaring."

"The growing costs of medical liability insurance affect all Americans," said Carl Parks, senior vice president of government affairs for PCI.

The association has called for federal legislation that would limit non-economic damages in these cases to $350,000 for a single defendant and $1.05 million for multiple defendants. President Bush wants similar legislation, capping damages at $250,000, as he blamed trial lawyers and their "frivolous" lawsuits for the rising cost of health care in his last campaign.

But two recent studies argue that malpractice payouts haven't skyrocketed and that the number of cases isn't soaring.

"The large jury awards that attract so much public attention actually are rare events and comprise a very small portion of all malpractice payments. They're certainly not key drivers of malpractice insurance increases," said Amitabh Chandra of DartmouthCollege

Chandra was the lead author of a study that examined 184,506 U.S. malpractice payments from 1991 to 2003 that were reported to the National Practioner Data Bank. The findings were released in the journal Health Affairs late last month and the key result showed that payments grew by 4 percent per year during that period.

Another study from the Henry J. Kaiser Family Foundation found that payments rose by 35 percent or an average of 3.8 percent each year for the same 13-year period, when the awards were adjusted for general inflation. When medical inflation was used as the adjuster, the payments went up by 73 percent in 13 years or an average of 1.7 percent annually over those years.

In actual non-adjusted dollars, malpractice payments grew by 110 percent from 1991 to 2003 — or 6.4 percent each year.

The Health Affairs study also found that malpractice premiums for internists, general surgeons and obstetricians grew on average from 20 percent to 25 percent in 2002 alone — or 12 times the growth of the medical inflation-adjusted increase in malpractice payments.

The report also claimed that 96 percent of malpractice cases are settled and never get on a court docket. The Kaiser Foundation study revealed that the number of malpractice claims per 1,000 physicians fell by 25 percent from 1991 to 2003, while the number of physicians rose by 30 percent from 1992 to 2003.

"We already know that physicians' fears related to malpractice lawsuits affect how they practice medicine. Now we're finding that these fears affect where they choose to practice," said John Iglehart, Health Affairs' founding editor.

"Yet these concerns seem out of proportion to what's really happening with malpractice suits — and so, for that matter, are the sharp increases in malpractice premiums," he added.

Another study done by Health Affairs, which is published by Project HOPE in Bethesda, Md., showed that physicians are moving to states that have capped malpractice awards.

Using data from the Agency for Healthcare Research and Quality, the study said that the number of physicians grew by 102 percent in states that have limits on awards for pain and suffering and punitive damages. In states without caps, the number of doctors per 100,000 residents grew by a lower 83 percent.

Twenty-seven states have limited malpractice awards. Michigan has a $280,000 cap and finished eighth nationwide in the number of claims paid in 2003. (See related chart.)

So why are malpractice premiums rising?

Health Affairs reported that state regulation of malpractice insurers, along with a drop in investment income for insurers, were better explanations for the increases than the awards.

"Malpractice insurers were able to keep their premiums low because they had returns on the reserves they had in-house. They invested their reserves in the stock market and various other places. They were seeing profits even when the payouts were rising to a certain degree," John Gardner, of Health Affairs, told the Business Journal.

"Then when the stock market hit the wall, so to speak, they had some difficulties."

The General Accounting Office also reported in a 2003 study that investment returns to insurers allowed the companies to keep premiums low when the market was growing. When the terrorists attacked and stock prices fell, though, insurers had to raise premiums to cover losses.

But the GAO study also said malpractice claims "appear to be the primary driver of rate increases in the long run." The study concluded, though, that it couldn't fully analyze the "composition and causes of losses at the insurer level" due to a lack of inclusive data.

"We don't deny that there are multiple reasons why (malpractice premium) rates are going up," said Larry Smarr, president of the Physicians Insurers Association of America, to the LA Times. "But it's mainly due to the increase in the value of claims."    

Total U.S. Malpractice Payments — 1991 To 2003

Total malpractice payments rose by 110 percent from 1991 to 2003, or 6.4 percent per year. Over that same period, overall prices increased by 35 percent (Consumer Price Index – All Items) and the cost of medical-care services rose by 73 percent (CPI-Medical Care Services).

But the increase for total malpractice payments, when adjusted for general inflation, falls to 56 percent or an annual rise of 3.8 percent from 1991 to 2003. When adjusted for medical care inflation, the increase in malpractice payments is 22 percent or 1.7 percent per year for the period.

The number of claims over those years dropped by 25.4 percent.

Year         Actual Dollars        Adjusted By General Inflation Adjusted By Medical Inflation       No. of Claims Per 1,000 Physicians
2003 $4.45 $3.30 $2.58 18.8
2002 $4.14 $3.13 $2.50 19.2
2001 $4.42 $3.40 $2.81 21.5
2000 $3.82 $3.02 $2.54 21.7
1999 $3.37 $2.76 $2.34 21.5
1998 $3.08 $2.58 $2.21 20.4
1997 $3.10 $2.63 $2.29 21.9
1996 $3.16 $2.75 $2.41 23.7
1995 $2.71 $2.43 $2.14 22.4
1994 $2.79 $2.57 $2.32 25.3
1993 $2.64 $2.49 $2.30 25.0
1992 $2.55 $2.47 $2.37

25.5

1991 $2.12 DNA DNA 25.2

Note: Dollars are presented in billions. Claims per 1,000 physicians are for active non-federal physicians.

Source: National Practitioner Data Bank, May 2005. Inflation figures compiled from data at the Bureau of Labor Statistics

Paid Malpractice Claims — 2003

Michigan had 3.7 percent of all the paid medical malpractice claims in 2003 with 574, which ranked the state the eighth highest in the nation. Michigan was 17th that year for the number of paid claims based on the number of physicians the state has.

Alaska had the fewest number of paid claims in 2003, while Alabama had the fewest in relation to the state's total number of doctors.

State       Total Number Paid Claims       Rank        Paid Claims Per 1,000 Physicians Rank
New York 1,766 22.9 11
California 1,315 14.1 31
Florida 1,261 28.4
Pennsylvania 1,248 30.2
Texas 1,075 22.3 14
New Jersey 585 20.1 16
Ohio 577 17.9 24
Michigan 574 19.9 17
Illinois 491 13.6 32
Indiana 423 10 30.5
Alabama 48 41 5.0 51
Alaska 19 51 13.6 32
United States 15,287 NA 18.8 NA

Note: District of Columbia was included as a state. Physicians are active, non-federal physicians.

Source: HenryJ. KaiserFamilyFoundationState Health Facts, May 2005


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