Rising Malpractice Premiums:
Will Your Doctor Be Available If You Get Sick?

The headlines are scary. Doctors are striking, threatening to limit the scope of their practices, and considering relocating to other states. Some are threatening to abandon the practice of medicine altogether. A report by the United States General Accounting Office (GAO) finds that actions taken by health care providers in response to rising malpractice premiums have contributed to localized health care access problems, including reduced access to hospital-based services.(1) The American Medical Association has made liability reform its top legislative priority for 2003,(2) and legislators in 34 states considered a variety of ways to reform their malpractice systems this year with 11 states enacting laws concerning liability for damages.(3) Congress has also considered a cap on awards for non-economic damages arising from medical malpractice.(4)

Malpractice premiums for physicians began increasing dramatically in 2000, after leveling off for nearly a decade. Recent congressional testimony by the GAO concluded that multiple factors contribute to increases in malpractice premiums. These factors include insurers’ losses on medical malpractice claims, decreases in insurers’ investment income, under-pricing of premiums in a competitive market during the 1990s, and increases in reinsurance rates.(5) Insurers and health care providers argue that excessive litigation and overly generous awards are the major contributors.(6) Lawyers, on the other hand, claim malpractice premium rate increases have not kept pace with medical inflation or jury awards over the last 30 years.(7)

The median malpractice award in 1999 was $700,000, jumping 43 percent to $1 million in 2001. In addition, the largest award in 2001 was $131,700,000, more than twice the previous year’s largest award and the largest in six years.(8) The GAO report acknowledges that malpractice premiums and awards are increasing and finds that the extent and levels of the increase vary among states and across medical specialties. The report notes, for example, that the “largest writer of medical malpractice insurance in Florida increased premium rates for general surgeons in Dade County by approximately 75 percent from 1999 to 2002, while the largest insurer in Minnesota increased premium rates for the same specialty by about 2 percent.” (9)

The cost of malpractice insurance also can lead to changes in physician behavior that inflate overall health care costs and affect patient care. Many contend that physicians practice “defensive medicine,” ordering excessive tests and services, as well as giving up high-risk portions of their practices, such as obstetrics, in order to avoid malpractice claims. In addition, during recent site visits to 12 nationally representative communities physicians indicated that they are referring more patients to emergency departments, safety net hospitals, and academic medical centers as a response to the malpractice environment. They are also refusing to provide on-call emergency department coverage and are declining referrals from safety net providers.(10)

In an attempt to control increases in malpractice premiums, many states have passed a variety of tort reform laws, including caps on monetary penalties for non-economic damages. The American Academy of Actuaries Work Group recommends a cap on non-economic damages and an offset for collateral payment from other sources. They argue that these reforms would limit the financial exposure of health care providers to lawsuits and ensure that damages would not be collected through multiple suits.(11)

There is debate about the effectiveness of those reforms. Malpractice premium rates in California, where there has been a $250,000 cap on non-economic damages since 1975, are stable.(12) Weiss Ratings Inc. reports that caps on non-economic damages have resulted in decreased payout for most insurers, but adds that the savings have not been passed on to physicians. Therefore, overall, the caps have been ineffective in reducing medical malpractice premiums.(13) However, the Physician Insurance Association of America labeled the Weiss Ratings study “fatally flawed” due to its focus on median premiums rather than the spiraling rise in total claim payments caused by a greater proportion of large payments.(14)

Going forward, it will continue to be important to identify the root causes of the increases in malpractice premiums in order to effectively target policy interventions. Additional analyses of reforms already in place at the state level are also warranted, so that lessons about their impact can be shared with Congress and with other states considering the implementation or refinement of legislation intended to control the rising price of malpractice insurance.

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

Title: Liability Problems and Transparent Disclosure to Patients as a Solution
Grantee Institution: The Urban Institute
Principal Investigator: Randall Bovbjerg, JD
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 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 United States General Accounting Office, “Medical Malpractice: Implications of Rising Premiums on Access to Health Care,” August 2003, p. 1, www.gao.gov/cgi-bin/getrpt?GAO-03-836.

2 American Medical Association, “The Medical Liability Crisis: Talking Points,” January 21, 2003, www.ama-assn.org/ama/pub/article/9255-7188.html.

3 National Conference of State Legislatures, “Health Policy Tracking Service Issue Briefs Summary,” October 1, 2003, www.ncsl.org/programs/health/hptsMedMal.htm.

4 United States General Accounting Office, Testimony Before the Subcommittee on Wellness and Human Rights, Committee on Government Reform, House of Representatives, “Medical Malpractice Insurance: Multiple Factors Have Contributed to Premium Rate Increases,” October 1, 2003, p. 1, www.gao.gov/new.items/d04128t.pdf.

5 Ibid, p. 3.

6 National Conference of State Legislatures, “Health Policy Tracking Service Issue Briefs Summary,” October 1, 2003, p.1, www.ncsl.org/programs/health/hptsMedMal.htm.

7 Ibid.

8 Insurance Information Institute, “Medical Malpractice,” September 2003, p. 1, www.iii.org/media/hottopics/insurance/medicalmal/.

9 United States General Accounting Office, Testimony Before the Subcommittee on Wellness and Human Rights, Committee on Government Reform, House of Representatives, “Medical Malpractice Insurance: Multiple Factors Have Contributed to Premium Rate Increases,” October 1, 2003, p. 4, www.gao.gov/new.items/d04128t.pdf.

10 Center for Studying Health System Change, “Medical Malpractice Liability Crisis Meets Markets: Stress in Unexpected Places,” September 2003, p. 2, www.hschange.org/CONTENT/605/?words=malpractice.

11 United States General Accounting Office, Testimony Before the Subcommittee on Wellness and Human Rights, Committee on Government Reform, House of Representatives, “Medical Malpractice Insurance: Multiple Factors Have Contributed to Premium Rate Increases,” October 1, 2003, p. 4, www.gao.gov/new.items/d04128t.pdf.

12 Insurance Information Institute, “Medical Malpractice,” September 2003, p. 1, www.iii.org/media/hottopics/insurance/medicalmal/.

13 Weiss Ratings, Inc., “Medical Malpractice Caps Fail to Prevent Premium Increases, According to Weiss Ratings Study: Physicians in States with Caps Suffer 48% Increase In Median Annual Premiums Even While Insurers Enjoy Slowdown in Payments,” June 3, 2003, p. 2, www.weissratings.com/News/Ins_General/20030602pc.htm.

14 Insurance Information Institute, “Medical Malpractice,” September 2003, p. 2, www.iii.org/media/hottopics/insurance/medicalmal/.