Malpractice Reform:
Solution to our Health Care Cost Problem?

As health care costs continue to rise at a startling rate, the American public, policymakers, health plans, and health providers are aggressively pursuing possible solutions to reduce costs within the current system. Headlines hallmarking medical malpractice reform as a means to reduce health costs and improve access are common, as this policy arena continues to be prominent, even after the elections have been decided. President Bush has called upon Congress to approve his medical malpractice reform bill, states have struggled to develop their own medical malpractice legislation, and medical liability reform is the American Medical Association's top legislative priority.¹

For the third time in the past 40 years, the American medical system has entered a "malpractice crisis."² The median increase in malpractice premiums in 2003 ranged from 15 to 30 percent in most states, depending on the location and specialty in which a physician practiced.³ However, rates in some states that are categorized by the AMA as "medical liability crisis states" spiked at an even higher rate.⁴ Pennsylvania, a crisis state, had rate increases ranging from 26 to 73 percent in 2003.⁵ In 2004, Louisiana saw an overall medical malpractice rate increase of 29.4 percent.⁶

These drastic increases in malpractice insurance rates have resulted in doctors striking in West Virginia, the temporary closings of hospital services (e.g., the trauma care center at the University of Nevada Medical Center), the reduction or elimination of physicians performing high-risk services, and the early retirement of some physicians to pursue other fields.⁷ Concerns caused by high malpractice premiums relate to the costs of care and affordability of malpractice insurance for physicians, but also to the access of care for the public.

Physicians across the country bear significant financial burdens due to costly malpractice premiums. Other financial and administrative pressures compound these burdens (and indeed, the degree to which malpractice premiums are a major or minor factor is a matter of debate). For example, as health plans attempt to reduce the rate of increase in insurance premiums, fee increases to physicians are small, if they happen at all. These negligible increases in physician payment, combined with rising malpractice premiums and reductions in the availability of malpractice coverage for physicians in some states, certainly engenders discontent among doctors. In a few highly publicized cases, physicians cite these factors as their reason for switching professions, moving to a different state, or halting high-risk procedures. Experts worry that if such responses to the malpractice crisis become more widespread, it could lead to decreased access to health care.

On both the state and national level, politicians are rushing to solve the malpractice crisis with a focus on three strategies: providing insurance subsidies, enforcing stricter insurance regulation, and enacting liability tort reform.⁸ In Maryland, the state legislature and the governor have been battling for the past month to pass a medical malpractice reform bill that would create a fund to limit malpractice insurance increases and freeze the cap on damages against doctors over pain and suffering at its current level of $650,000. It would lower the cap to $812,500 from $1.6 million, in the event of patient death.⁹ Governor Robert Ehrlich (R) vetoed what he considered to be too weak of a bill on January 10, but the Maryland Legislature overrode Ehrlich's veto the following day. Ohio also recently passed a tort reform bill, capping pain and suffering for non-catastrophic injuries at $350,000 and establishing criteria for judges to review and possibly reduce big jury awards for pain and suffering in catastrophic injuries.¹⁰

On a federal level, President Bush has begun a campaign to impose strict limits on medical malpractice litigation, pushing Congress to develop legislation that would set a cap of $250,000 on the amount that patients could recover from non-economic damages in malpractice suits.¹¹ When speaking in Collinsville, Ill., on January 5, President Bush said, "We need to fix a broken medical liability system. The United States Congress needs to pass real medical liability reform this year."¹²

What will the proposed makeover of the medical liability system accomplish? Studies indicate that caps on awards adopted by several states were associated with lower malpractice premiums for physicians. In fact, premiums in states with a cap on awards were 17.1 percent lower than in states without such caps.¹³ A 2003 Congressional Budget Office (CBO) analysis of malpractice premiums in states with and without tort reform indicates that certain caps on damage awards in combination with other elements of proposed tort reform legislation would effectively decrease malpractice premiums an average of 25 to 30 percent from 2004 to 2013.¹⁴ This reduction in malpractice premiums would certainly appease doctors, and likely lead to increased access to care, but would it drastically reduce overall health care costs?

One problem with the potential solutions to malpractice reform is that they do not appear to address the underlying problem of preventable injuries. HCFO grantee Randall Bovbjerg is currently exploring the feasibility and appropriateness of alternative approaches that would address the underlying problems by increasing communication between physicians and patients about injuries and facilitate systematic improvements in patient safety.

Certainly, much more research is needed into the effect of malpractice reform on overall health care costs, access to care, and the frequency of preventable injuries. Policymakers need a more coherent framework as they continue to explore legislation and other ways to improve upon the current liability system.

HCFO has funded research that directly informs policy related to rising malpractice premiums:

Title: Medical Malpractice Reform and Implications for Health Insurance Costs
Grantee Institution: University of Alabama at Birmingham
Principal Investigator: Michael A. Morrisey, Ph.D.
Grant Period: February 2004 - July 2005

What effect have recent medical malpractice reforms had on health insurance costs? The researchers are: 1) evaluating the effect of tort reforms on physician (general practitioners and several specialty practices) malpractice insurance premiums; 2) determining the extent to which malpractice liability contributes to higher total health care costs, both by pass-through of physician malpractice insurance premiums and through "defensive medicine;" and 3) evaluating the effect that economic conditions and changes in the health care environment have exerted on malpractice premiums. The objective of this study is to provide a rigorous analysis of the effects of malpractice reform on the current environment and identify the savings, if any, that consumers may see as a result of reforms.

Title: Liability Problems and Transparent Disclosure to Patients as a Solution
Grantee Institution: The Urban Institute
Principal Investigator: Randall Bovbjerg, J.D.
Grant Period: March 2003 - November 2004

How can the understanding of the liability climate for safety reform and of differing theories and implementation of transparency be improved? The researchers are addressing the following three questions: 1) How widespread are liability insurance problems that may threaten access to care and can heighten practitioner concerns about disclosure of problems? What evidence exists on the root causes of problems? 2) What are the shortcomings of even strong liability incentives in preventing avoidable injuries and in promoting patient safety? 3) What models of increased transparency exist, with what theoretical advantages and disadvantages? What are the opportunities and obstacles to their implementation? Has enough innovation occurred in disclosure and safety methods that an assessment is feasible and pre-testable?

The objective is to assess two problems and one emerging solution: The problems are that malpractice insurance is perceived to be in crisis and that liability fears have not curbed high rates of medical injury, but have instead undercut cooperation with patient safety initiatives. The solution is more "transparent" disclosure to patients of their injuries, to ease malpractice fears, increase fairness, and facilitate systemic improvements.

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¹ www.ama-assn.org/ama/noindex/category/11871.html

² Thorpe, K.,"The Medical Malpractice 'Crisis': Recent Trends and the Impact of State Tort Reforms," Health Affairs, January 2004.

³ Ibid.

⁴ www.ama-assn.org/ama/noindex/category/11871.html

⁵ Thorpe, K. "The Medical Malpractice 'Crisis': Recent Trends and the Impact of State Tort Reforms," Health Affairs, January 2004.

⁶ "Developments Related to Malpractice in Three States," Kaiser Daily Health Policy Report, December 17, 2004.

⁷ Mello, M. et al. "Caring for Patients in a Malpractice Crisis: Physician Satisfaction and Quality of Care," Health Affairs, July/August 2004, and Thorpe, K. "The Medical Malpractice 'Crisis': Recent Trends and the Impact of State Tort Reforms," Health Affairs, January 2004.

⁸ Mello, M. et al. "Caring for Patients in a Malpractice Crisis: Physician Satisfaction and Quality of Care," Health Affairs, July/August 2004.

⁹ AP, (what does this mean? Associated Press?) "Maryland Governor Vetoes Malpractice Bill", The New York Times, January 10, 2005.

¹⁰ "Developments Related to Malpractice in Three States," Kaiser Daily Health Policy Report, December 17, 2004.

¹¹ Pear, R. "Bush Begins Drive to Limit Malpractice Suit Awards," The New York Times, January 6, 2005.

¹² Ibid.

¹³ Thorpe, K. "The Medical Malpractice 'Crisis': Recent Trends and the Impact of State Tort Reforms," Health Affairs, January 2004.

¹⁴ Hillman, R. and K. Allen. "Medical Malpractice Insurance: Multiple Factors Have Contributed to Premium Rate Increases," GAO Testimony, October 2003.