The medical malpractice 'crisis': Recent trends and the impact of state tort reforms

Health Affairs

Volumn 23, Issue SUPPL., 2004, Pages

  Thorpe, Kenneth E ^a  

^a EMORY UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

CORRELATION ANALYSIS; ECONOMIC ASPECT; EMPIRICISM; HEALTH CARE COST; HEALTH CARE POLICY; HEALTH CARE SYSTEM; HEALTH SURVEY; HUMAN; INCOME; LAW; LEGAL LIABILITY; MALPRACTICE; MARKETING; MEDICAL CARE; MEDICAL LIABILITY; MEDICAL PRACTICE; PHYSICIAN; POLITICAL SYSTEM; POPULATION RESEARCH; PUBLIC HEALTH; REVIEW; STATISTICAL SIGNIFICANCE; UNITED STATES; ARTICLE; ECONOMICS; GOVERNMENT; INSURANCE; LEGAL ASPECT;

INSURANCE, LIABILITY; LIABILITY, LEGAL; MALPRACTICE; STATE GOVERNMENT; UNITED STATES;

EID: 3242699668     PISSN: 02782715     EISSN: None     Source Type: Journal    
DOI: 10.1377/hlthaff.W4.20     Document Type: Review

References (52)

1. See, for example, R. Bovbjerg, "Legislation on Medical Malpractice: Further Developments and a Preliminary Report Card," University of California, Davis, Law Review 22, no. 2 (1989): 499-556.
2. As reported by Medical Liability Monitor, October 2003.
3. Tabulations from National Association of Insurance Commissioners, Market Share Report - Medical Malpractice, 1997-2001 (Kansas City: NAIC, various years).
4. American Medical Association, "AMA Analysis: A Dozen States in Medical Liability Crisis" (Chicago: AMA, 17 June 2002).
5. This broader combined loss ratio combined with the investment income ratio produces a measure of net income. This is a standard measure used by actuaries in medical malpractice firms to measure changes in calendar-year profitability.
6. See, for example, Jim Hurley, Tillinghast-Towers Perrin, testimony before the House Energy and Commerce Subcommittee on Health, "Harming Patient Access to Care: The Impact of Excessive Litigation," 17 July 2002. Much of the discussion in this section is based on my analysis of data from the NAIC. In addition, I benefited greatly from the analyses of Jim Hurley from his testimony and a recent study from the U.S. General Accounting Office, Medical Malpractice Insurance, Multiple Factors Have Contributed to Increased Premium Rates, Pub. no. GAO-03-702 (Washington: GAO, June 2003).
7. See, for example, Jim Hurley, Tillinghast-Towers Perrin, testimony before the House Energy and Commerce Subcommittee on Health, "Harming Patient Access to Care: The Impact of Excessive Litigation," 17 July 2002. Much of the discussion in this section is based on my analysis of data from the NAIC. In addition, I benefited greatly from the analyses of Jim Hurley from his testimony and a recent study from the U.S. General Accounting Office, Medical Malpractice Insurance, Multiple Factors Have Contributed to Increased Premium Rates, Pub. no. GAO-03-702 (Washington: GAO, June 2003).
8. Actuaries use a variety of methods for establishing reserves for medical malpractice firms. Reserves are generally posted on a claim filed within ninety days of the date an expected loss is reported. Reserves depend on the number of claims filed, the firms' expectation of the percentage of claims that will result in a payment, expenses (defense costs), and the expected payout. Reserves are reported as part of the loss expenses incurred in each firm's statement of income. If reserves turn out too high (that is, expected payouts were lower than actual payouts), a credit on the income statement is taken in a later year. Therefore, expenses on an income statement reflect both actual benefit and loss payments during a year (for events that occurred in a prior year) and reserves for claims filed this year expected to result in a future payment. They also show up on the balance sheet as a liability.
9. Hurley, "Harming Patient Access to Care."
10. A.M. Best, Aggregates and Averages, 1997-2002 editions (Oldham, N.J.: A.M. Best, various years).
11. The precise impact will depend on the length of time it takes to resolve a claim. Some states with fast-track laws resolve claims faster than other states. The shorter the tail, the less impact a one-percentage-point change in investment returns will have on premiums.
12. Median jury awards plus median settlements per paid (awards plus settlements) claim, derived from the Physician Insurers Association of America (PIAA) data-sharing project. See L. Bartholomew, "Using PIAA Data: A Valuable Resource" (Washington: PIAA, 17 May 2002).
13. Missouri Department of Insurance, Medical Malpractice Insurance in Missouri (Jefferson City: Missouri Department of Insurance, February 2003). These data also indicate a rise in severity of injury per paid claim.
14. Bartholomew, "Using PIAA Data."
15. Illinois Department of Insurance, Medical Malpractice Claims Study (Springfield: Casualty Actuarial Section, 2001).
16. The St. Paul Companies, "The St. Paul Announces Fourth-Quarter Actions to Improve Profitability and Business Positioning," Press Release, 12 December 2001.
17. Market share data are from NAIC, Market Share Reports, 1994-2001.
18. Tabulations by author from NAIC, Market Share Report by Line of Business - Medical Malpractice, 1995-2001 (Kansas City: NAIC, 2003).
19. I b i d.
20. However, the number of liability companies with closed claims still flowing through the system that report claims has likely declined here as well. For instance, the 2001 totals do not include claims from PHICO. So it is not clear whether the reports of falling claims frequency are real or simply an artifact of exiting companies' failure to report closed claims to the state.
21. See, for example, LAMMICO, "The Letter" (no date provided), www.lammico.com/letter/article.asp?letter_article_id=294&letter_id=35 (23 July 2003).
22. The scheduled 4.5 percent additional cut was recently replaced by a 1.5 percent increase in payments in 2004. See H.R. 1, The Medicare Prescription Drug Improvement Act of 2003.
23. Illinois Department of Insurance, Medical Malpractice Claims Study.
24. Bartholomew, "Using PIAA Data."
25. P.C. Weiler et al., A Measure of Malpractice: Medical Injury, Malpractice Litigation, and Patient Compensation (Cambridge, Mass.: Harvard University Press, 1993).
26. J.S. Kakalik and N. Pace, Costs and Compensation Paid in Tort Litigation (Santa Monica, Calif.: RAND, 1986).
27. Weiler et al., A Measure of Malpractice, 77-109.
28. Ibid., 70.
29. W.B. Schwartz and N.K. Komesar, "Doctors, Damages, and Deterrence: An Economic View of Medical Malpractice," New England Journal of Medicine 298, no. 23 (1978): 1282-1289.
30. See, for example, S. Shavell, "A Model of the Optimal Use of Liability and Safety Regulation," RAND Journal of Economics 15, no. 2 (1984): 271-280.
31. See, for example, L. Dubay et al., "The Impact of Malpractice Fears on Cesarean Section Rates," Journal of Health Economics 18, no. 4 (1999): 491-522; F. Sloan et al., "Effects of the Threat of Medical Malpractice Litigation and Other Factors on Birth Outcomes," Medical Care 33, no. 7 (1995): 700-714; and Harvard Medical Practice Study, Patients, Doctors, and Lawyers: Medical Injury, Malpractice Litigation, and Patient Compensation in New York (Cambridge, Mass.: Harvard University, 1990), chaps. 8 and 10. For additional discussion concerning the paucity of published empirical work linking the threat of suit to lower rates of negligent adverse events (or a reduction in substandard medical care), see M. Mello and T. Brennan, "Deterrence of Medical Errors: Theory and Evidence for Malpractice Reform," Texas Law Review 80, no. 7 (2002): 1595-1637.
32. See, for example, L. Dubay et al., "The Impact of Malpractice Fears on Cesarean Section Rates," Journal of Health Economics 18, no. 4 (1999): 491-522; F. Sloan et al., "Effects of the Threat of Medical Malpractice Litigation and Other Factors on Birth Outcomes," Medical Care 33, no. 7 (1995): 700-714; and Harvard Medical Practice Study, Patients, Doctors, and Lawyers: Medical Injury, Malpractice Litigation, and Patient Compensation in New York (Cambridge, Mass.: Harvard University, 1990), chaps. 8 and 10. For additional discussion concerning the paucity of published empirical work linking the threat of suit to lower rates of negligent adverse events (or a reduction in substandard medical care), see M. Mello and T. Brennan, "Deterrence of Medical Errors: Theory and Evidence for Malpractice Reform," Texas Law Review 80, no. 7 (2002): 1595-1637.
33. See, for example, L. Dubay et al., "The Impact of Malpractice Fears on Cesarean Section Rates," Journal of Health Economics 18, no. 4 (1999): 491-522; F. Sloan et al., "Effects of the Threat of Medical Malpractice Litigation and Other Factors on Birth Outcomes," Medical Care 33, no. 7 (1995): 700-714; and Harvard Medical Practice Study, Patients, Doctors, and Lawyers: Medical Injury, Malpractice Litigation, and Patient Compensation in New York (Cambridge, Mass.: Harvard University, 1990), chaps. 8 and 10. For additional discussion concerning the paucity of published empirical work linking the threat of suit to lower rates of negligent adverse events (or a reduction in substandard medical care), see M. Mello and T. Brennan, "Deterrence of Medical Errors: Theory and Evidence for Malpractice Reform," Texas Law Review 80, no. 7 (2002): 1595-1637.
34. See, for example, L. Dubay et al., "The Impact of Malpractice Fears on Cesarean Section Rates," Journal of Health Economics 18, no. 4 (1999): 491-522; F. Sloan et al., "Effects of the Threat of Medical Malpractice Litigation and Other Factors on Birth Outcomes," Medical Care 33, no. 7 (1995): 700-714; and Harvard Medical Practice Study, Patients, Doctors, and Lawyers: Medical Injury, Malpractice Litigation, and Patient Compensation in New York (Cambridge, Mass.: Harvard University, 1990), chaps. 8 and 10. For additional discussion concerning the paucity of published empirical work linking the threat of suit to lower rates of negligent adverse events (or a reduction in substandard medical care), see M. Mello and T. Brennan, "Deterrence of Medical Errors: Theory and Evidence for Malpractice Reform," Texas Law Review 80, no. 7 (2002): 1595-1637.
35. In some states plaintiffs can file a claim with its initial adjudication completed by a medical review panel. Plaintiffs can use this process for discovery, and if concurrence is received from the panel, the claim may proceed. Plaintiffs in other states must receive an expert (outside) validation or certificate of merit before the claim proceeds. Limited expenses are incurred under the first approach, while the latter approach provides some financial incentive not to file a claim with low likelihood of receiving a positive verdict.
36. The two most recent studies were conducted by W.K. Viscusi and P. Born, "Medical Malpractice Insurance in the Wake of Liability Reform," Journal of Legal Studies 24 (June 1995): 463-490, which evaluated the impacts through 1991; and by S. Zuckerman, R.R. Bovbjerg, and F. Sloan, "Effects of Tort Reforms and Other Factors on Medical Malpractice Insurance Premiums," Inquiry 27, no. 2 (1990): 167-182, which tracked the impact of state reforms through 1986.
37. The two most recent studies were conducted by W.K. Viscusi and P. Born, "Medical Malpractice Insurance in the Wake of Liability Reform," Journal of Legal Studies 24 (June 1995): 463-490, which evaluated the impacts through 1991; and by S. Zuckerman, R.R. Bovbjerg, and F. Sloan, "Effects of Tort Reforms and Other Factors on Medical Malpractice Insurance Premiums," Inquiry 27, no. 2 (1990): 167-182, which tracked the impact of state reforms through 1986.
38. NAIC, Profitability Report (Kansas City: NAIC, 2003).
39. See, for example, Viscusi and Born, "Medical Malpractice Insurance"; and Zuckerman et al., "Effects of Tort Reforms." Also see F. Sloan, P.M. Mergenhagen, and R.R. Bovbjerg, "Effects of Tort Reforms on the Value of Closed Medical Malpractice Claims: A Microanalysis," Journal of Health Politics, Policy and Law 14, no. 4 (1989): 663-689.
40. See, for example, Viscusi and Born, "Medical Malpractice Insurance"; and Zuckerman et al., "Effects of Tort Reforms." Also see F. Sloan, P.M. Mergenhagen, and R.R. Bovbjerg, "Effects of Tort Reforms on the Value of Closed Medical Malpractice Claims: A Microanalysis," Journal of Health Politics, Policy and Law 14, no. 4 (1989): 663-689.
41. See, for example, Viscusi and Born, "Medical Malpractice Insurance"; and Zuckerman et al., "Effects of Tort Reforms." Also see F. Sloan, P.M. Mergenhagen, and R.R. Bovbjerg, "Effects of Tort Reforms on the Value of Closed Medical Malpractice Claims: A Microanalysis," Journal of Health Politics, Policy and Law 14, no. 4 (1989): 663-689.
42. This is a standard measure of market concentration. It is simply the square of each firm's market share summed. Data on market shares were derived from the NAIC and from unpublished data from the Congressional Budget Office.
43. Data on state tort reform laws were initially developed using information from the Web site of a specialty law firm, McCullough, Campbell, and Lane, www.mcandl.com/states.html (30 July 2003). When information from this site was not clear, state insurance departments were asked for clarification. Finally, I compared these results with those used by the CBO to develop its estimates in developing H.R. 5, as seen at CBO, "H.R. 5: Help Efficient, Accessible, Low-Cost, Timely Healthcare (HEALTH) Act of 2003," 10 March 2003, www.cbo.gov/showdoc.cfm?index=4091&sequence=0 (30 July 2003). The classification used in the analysis was identical to that used by the CBO.
44. Data on state tort reform laws were initially developed using information from the Web site of a specialty law firm, McCullough, Campbell, and Lane, www.mcandl.com/states.html (30 July 2003). When information from this site was not clear, state insurance departments were asked for clarification. Finally, I compared these results with those used by the CBO to develop its estimates in developing H.R. 5, as seen at CBO, "H.R. 5: Help Efficient, Accessible, Low-Cost, Timely Healthcare (HEALTH) Act of 2003," 10 March 2003, www.cbo.gov/showdoc.cfm?index=4091&sequence=0 (30 July 2003). The classification used in the analysis was identical to that used by the CBO.
45. I ran both fixed- and random-effects models for the premium and loss-ratio regressions. The results from the Hausman Test do not allow us to reject the null hypothesis that coefficients estimated using random and fixed effects are the same. The fixed-effects estimate indicated that state award caps were associated with premiums that were 17.1 percent lower, and the random-effects estimate produced the same result. Thus, while the random-effects results are displayed, the fixed-effects results were the same for the tort-related variables. J.A. Hausman, "Specification Tests in Econometrics," Econometrica 46, no. 6 (1978): 1251-1271. Regression to the mean could also be an issue if states with high premiums adopting the award caps tended to return to the average over time. Thus, caps in high-premium states experiencing regression to the mean would appear more effective than laws in average- or low-premium states. Using 1985 data on states that had no award cap (about forty-five states), I estimated the premium regression (absent the tort variables). I estimated a second regression using the residuals (from the 1985 regression) as the dependent variable, a dummy set to 1 if the state ultimately adopted an award cap, as well as the other independent variables outlined in the text. If regression to the mean were an issue, the coefficient on the dummy variable would be positive and significant (that is, high-premium states adopted caps). The t-statistic on the dummy variable in this regression was -0.22. Since there was no apparent relationship here, there would be minimal (if any) bias due to re gression to the mean. For a related test, see D. Dranove and K. Cone, "Do State Rate Setting Regulations Really Lower Hospital Expenses?" Journal of Health Economics 4, no. 2 (1985): 159-165.
46. I ran both fixed- and random-effects models for the premium and loss-ratio regressions. The results from the Hausman Test do not allow us to reject the null hypothesis that coefficients estimated using random and fixed effects are the same. The fixed-effects estimate indicated that state award caps were associated with premiums that were 17.1 percent lower, and the random-effects estimate produced the same result. Thus, while the random-effects results are displayed, the fixed-effects results were the same for the tort-related variables. J.A. Hausman, "Specification Tests in Econometrics," Econometrica 46, no. 6 (1978): 1251-1271. Regression to the mean could also be an issue if states with high premiums adopting the award caps tended to return to the average over time. Thus, caps in high-premium states experiencing regression to the mean would appear more effective than laws in average- or low-premium states. Using 1985 data on states that had no award cap (about forty-five states), I estimated the premium regression (absent the tort variables). I estimated a second regression using the residuals (from the 1985 regression) as the dependent variable, a dummy set to 1 if the state ultimately adopted an award cap, as well as the other independent variables outlined in the text. If regression to the mean were an issue, the coefficient on the dummy variable would be positive and significant (that is, high-premium states adopted caps). The t-statistic on the dummy variable in this regression was -0.22. Since there was no apparent relationship here, there would be minimal (if any) bias due to re gression to the mean. For a related test, see D. Dranove and K. Cone, "Do State Rate Setting Regulations Really Lower Hospital Expenses?" Journal of Health Economics 4, no. 2 (1985): 159-165.
47. The percentage changes reported here took each dummy variable from the log model and transformed them to a percentage change using the methods outlined in P. Kennedy, "Estimation with Correctly Interpreted Dummy Variables in Semi Logarithmic Equations," American Economic Review 71, no. 4 (1981): 801.
48. In a recent Georgia survey of physicians, a third of obstetrician/ gynecologists and a fifth of family practitioners stated that they would stop performing high-risk procedures. Another 12 percent noted that they would not cover the emergency room in the future. BNA's Health Care Policy Report 11, no. 5 (2003): 162.
49. This means that premiums are lower than they would be in the absence of award caps. It does not imply that the premiums decline. Premiums in states with award caps have risen over time, but they are lower than they would be absent the award caps.
50. At issue is whether the reforms would reduce deadweight loss associated with defensive medicine and costs of administering the system and improve deterrence and compensation. Some commentators are dubious about the prospects. See P. Danzon, Medical Malpractice: Theory, Evidence, and Public Policy (Cambridge, Mass.: Harvard University Press, 1985). However, any such analysis must also consider the impact that high premiums have on the availability of and access to medical care services.
51. California Medical Association and California Hospital Association, Report on the Medical Insurance Feasibility Study, ed. D.H. Mills (San Francisco: CMA/CHA, 1977); and D. Studdert et al., "Negligent Care and Malpractice Claiming Behavior in Utah and Colorado," Medical Care 38, no. 3 (2000): 250-260. These studies have generally coneluded that approximately 3.7 percent of hospital admissions are associated with an adverse event and that approximately a quarter of these are due to negligence.
52. California Medical Association and California Hospital Association, Report on the Medical Insurance Feasibility Study, ed. D.H. Mills (San Francisco: CMA/CHA, 1977); and D. Studdert et al., "Negligent Care and Malpractice Claiming Behavior in Utah and Colorado," Medical Care 38, no. 3 (2000): 250-260. These studies have generally coneluded that approximately 3.7 percent of hospital admissions are associated with an adverse event and that approximately a quarter of these are due to negligence.