Physician liability insurance reform

Sonia Rivera-Martinez, DO, FACOFP, Depart- ment of Family Medicine, New York College of Osteopathic Medicine of NYIT, Northern Blvd, PO Box 8000, Old Westbury, NY 11562.

E-mail address: srmartin@nyit.edu.

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The volatile nature of the medical malpractice market has created a crisis of affordability and availability for the third time since the 1970s. Investigative studies published in 2003 by the US Department of Health and Human Services (DHHS) and the US General Accountability Office (GAO) revealed reduced access to health care services in localized areas resulting from recent drastic increases in medical malpractice insurance premiums ranging as high as 165%.1-3 Physicians, hospitals, and other health care pro- fessionals have either limited or discontinued certain ser- vices to curtail their risk of litigation and to reduce insur- ance costs.1,2 Across the country, patients are forced to travel greater distances to receive emergency surgery or labor and delivery services.1,2 A factor further exacerbating the crisis is that medical malpractice insurance is becoming increasingly difficult to obtain, regardless of price, because a number of major carriers have exited the market.1

Although it is commonly accepted that the current medical liability system needs to be restructured, there is significant disagreement regarding the types of reforms that would pro- vide a resolution to the present crisis. The Medical Injury Compensation Reform Act (MICRA) enacted by the state of California in 1975 is touted by proponents as a model for tort reform and is currently the subject of considerable debate. The most heated and often acrimonious discussions between stake- holders involve the limits on noneconomic damages.

Both promoters and opponents of tort reform point to the results of MICRA to support their respective arguments. The American Bar Association (ABA) contends that the increases in malpractice insurance are a result of a reduction of the insurance companies’ investment income and the insurance underwriting cycle that causes periodic swings in premium rates.4 They state that reforms similar to MICRA do not have a proven record of reducing malpractice rates and for this reason they oppose them. Countering these arguments are the American Osteopathic Association and American Medical Association, who maintain that rising jury awards and the high cost of defending against lawsuits are the primary causes of the unprecedented increase in liability rates. They assert that states with caps of $250,000 on noneconomic damages have been successful in restrain- ing the increases in malpractice premiums.5,6 Both sides of the debate present conflicting statistical evidence in defense of their positions. The issues behind these opposing views include the origins of the escalating malpractice premiums, the frequency of malpractice claims and average jury award, and the effects of past tort reforms upon liability rates and their impact on access to health care. States have enacted various types and combinations of tort reforms (i.e., caps on noneconomic damages, limits on contingency fees, aboli- tion of collateral source rule), which make the analysis of the performance of each type of reform across multiple states difficult at best.

Solving the medical malpractice crisis will involve a mul- tilevel approach that includes both short- and long-term pro- visions. Short-term changes should include insurance reform, federal legislation for tort reform, a strict physician peer review system, and the establishment of methods to report medical errors confidentially, ultimately improving patient safety. Long-term restructuring of the current tort system would ne- cessitate government-subsidized studies on the viability of pro- posed alternatives such as establishing specialized medical courts to review malpractice cases; instituting a specific dam- age award for a similar type of injury; implementing enterprise liability, a no-fault malpractice system, and a national reinsur- ance program; and possibly using private contracts between physicians and patients.

‌History and background

The legal system of torts was created to compensate victims of negligence and to deter acts of negligence. Medical malprac- tice is part of the tort system or personal-injury law. Insurance companies accept the financial responsibility for the payment of malpractice claims made against health care professionals covered by their policies. In this manner, the insurance com- panies provide professional liability insurance (PLI) to protect health care professionals from potential financial devastation stemming from malpractice awards.

Three medical malpractice crises have occurred over the last 30 years (early 1970s, mid-1980s, and early 2000s), all of which were marked by an acute rise in insurance premi- ums and departure of major insurance carriers from the market. As a consequence, physicians and other health care professionals were left scrambling to obtain insurance cov- erage.7 In response to the crisis of the 1970s, the state of California enacted the Medical Injury Compensation Re- form Act (MICRA) in 1975. Key provisions under MICRA are listed in Table 1.8

Over the years, all states have enacted a mix of MICRA- like tort reform measures. During each of the malpractice insurance crises, much debate ensued regarding the reasons for the sharp increases in liability premiums. The most divisive discussions revolved around the role of the insurance cycle during economic downturns, losses of invest- ment income, frequency of claims filed, and jury awards. These very issues are still being debated.7,8

On the surface, the current crisis may seem like a repeat of the previous ones. However, many events between then and now have changed the climate. What is different about the current medical malpractice crisis of the 2000s? A recent article published in the New England Journal of Medicine highlights two significant differences: (1) The inability of the health care industry to absorb abrupt in- creases in malpractice premiums and (2) recently height- ened concerns about patient safety. In the 1970s and 1980s, health care professionals were able to increase their billing for services to cover the increased premiums. The advent of managed care, fee-for-service set by insurers, and the Medi- care strict price control policy have virtually blocked this avenue of cost recovery for health care professionals.7 The 1999 Institute of Medicine report “To Err is Human” esti- mated the number of deaths per year caused by medical error to be 44,000 to 98,000.9 The release of this report brought patient safety to the front pages and with it medical malpractice and patient safety have become inseparable, adding another facet to the malpractice debate.7 As a result, any provisions proposed for the resolution of the malprac- tice crisis must address patient safety concerns as well. Finally, access to health care in localized regions is being affected during the current medical malpractice crisis in contrast to those of the 1970s and 1980s.1,2

Another factor confounding the analysis of the present medical malpractice crisis is that the insurance market un- derwent gradual modifications since the 1970s and 1980s. The medical malpractice insurance market transformed from traditional large property and casualty insurers to com- panies primarily owned and operated by physicians. In addition, the types of malpractice policies underwritten by insurance companies changed from mainly occurrence- based claims (covers incidents that occur, but are reported after the policy period ends) to claims-based (covers inci- dents that occur and are reported during the policy period). These changes make it difficult to determine the extent to which past tort reforms have limited the increase in malprac- tice premiums. Moreover, all of the states have passed different combinations of tort reform since the 1970s, further fueling the debate on the impact of each type of reform.2 The combination of these factors are fertile grounds for the conflicting evidence presented by interested parties and make it difficult for policy makers to sort through the different proposals for solutions that have been brought to the table.

Adding yet another dimension to the medical malpractice liability debate is evaluating the performance of the current tort system concerning the compensation of victims of neg- ligence and the deterrence of acts of negligence. According to the results obtained in the Harvard Medical Practice Study III, only 1.53% of persons injured by medical negli- gence file a claim.10 In contrast, a large percentage (up to 70%) of malpractice claims filed result in no payment to the plaintiff.3,11 In light of these facts, the system as it stands performs poorly with regard to compensation of victims. It appears that the performance of the tort system is just as inadequate as a form of deterrence of medical errors. Med- ical malpractice premiums are sold on a non–risk rated basis. As a result, the cost of premiums is not entirely assumed by the doctor who committed the act of negligence, but rather it is spread to all of the physicians in his/her specialty. This type of arrangement greatly undermines the deterrent effect that the current tort system is alleged to exert.1 The striking failure to compensate most victims of medical negligence and its meager deterrence effect high- lights the need for a reformation of the current medical malpractice tort system.

In recent years, several MICRA-type legislations have been presented for consideration at the federal level in an effort to stabilize the malpractice insurance market. The latest bill H.R. 5, the “Help Efficient, Accessible, Low-cost, Timely Health- care (HEALTH) Act of 2011” was introduced on January 24, 2011 to the 112th US Congress. In contrast to some of the legislative bills previously presented to the US congress, the HEALTH Act of 2011 includes a provision for an early offer program in which the defendant may make a reasonable offer to the claimant to settle the health care claim. If the claimant rejects the offer, the amount of any noneconomic damages awarded to the claimant in a lawsuit may not exceed $350,000. In addition, the HEALTH Act of 2011 includes provisions to protect current and future state liability reforms. The bill was referred to the House Committee on the Judiciary and the House Committee on Energy and Commerce. To date, no further actions on this bill have been taken by the US Congress and is pending consideration by these committees.

‌Stakeholders

The American Bar Association and Public Citizen

‌(a large consumer advocacy group) oppose MICRA-type tort reforms.

They contend that this type of medical malpractice re- form would not have the effect of reducing the cost of obtaining liability insurance and limits the rights of patients

to receive just compensation for adverse events from acts of medical negligence. These groups place blame upon the insurance companies for the rise in malpractice premiums. Their argument is that the decrease in investment income propelled the insurance companies to markedly increase the rates for liability insurance.4,12

Their greatest concerns regarding the MICRA-type provi- sions included in the HEALTH Act of 2011 are as follows4,12:

• Noneconomic caps: Compensate injured parties for

  human suffering, pain, or negligence that lead to loss of child bearing, disfigurement, and paralysis. These damages are not easily measured in monetary terms, yet the losses are real. A cap on noneconomic damages affects victims of severe permanent injuries who are in the greatest need of financial protection.

• Joint and Several Liability: In the case of more than one defendant, this provision allows a plaintiff to collect the full amount of the award from either defendant in the case that the other is unable to pay. Abolishing this provision would leave the injured party with no recourse to recover compensa- tion in the event of an uninsured or bankrupt defendant.

• Limits on attorneys’ fees: Attorneys take risks in terms of expenses in preparation for representing a malprac- tice lawsuit. Placing caps on attorney fees potentially de- creases the benefit of taking on malpractice cases and there- fore may prevent many victims from being able to obtain legal representation.

  ‌The American Osteopathic Association, American Medical Association, and American Hospital Association have declared medical malpractice reform as a top priority issue on their legislative agendas.

  These associations favor MICRA-type reforms and state they have a proven record of restraining the elevations in malpractice premiums. They further state the primary cause of the medical liability crisis is the escalating and unrelent- ing rise in jury awards. As a consequence of the crisis, physicians and other health care professionals have limited their scope of practice to avoid risky services that may place them at risk for litigation. Emergency and obstetric services have been the most affected and patients are being left without needed services that are readily obtainable.5,6,13

  Their arguments in favor of tort reform include the fol- lowing:

• Limits on noneconomic damages: Noneconomic

  damages have no precise monetary value; as a result awards are erratic. Placing a cap of $250,000 on these damages has a proven record of reducing the rate at which insurance premiums rise and increases the availability of medical malpractice insurance. In addition, patients will be able to recover fully any and all economic damages.

• Abolishment of Joint and Several Liability: The current system imposes a hardship on defendants who are minimally at fault in a malpractice case. Eliminating this provision would ensure that the defendants are liable only for their share of the plaintiff’s injury.

• Limits on contingency fees: Maximizes the award that a plaintiff may receive by making certain that a large portion of the award is not taken up in attorney’s fees.5,6,13 According to the American Bar Association, the most common contingency fee rate is one third of the recovery award.14

  
  

  ‌The National Association of Health Underwriters and the American Insurance Association are in favor of tort reform.

  They argue that the main cause of the dramatic increases in malpractice premiums is the losses sustained on medical malpractice claims.15,16 This fact was confirmed by the investigational study conducted by the GAO dated June 2003.3 Although the study did acknowledge that other fac- tors such as declines in the insurer’s investment income and increased reinsurance rates had an impact on malpractice premium rates, it concluded that the major part of the insurer’s cost are the losses on malpractice claims and thusly the chief culprit in rate increases.

  
  

  ‌Recommendations

  The current tort system has been criticized for its inability to compensate victims of medical negligence and as a form of deterrence of medical errors.8 In recognition of the need for medical malpractice liability reform, the Patient Protection and Affordable Care Act (H.R. 3590), which was signed into law on March 23, 2010, authorized the Secretary of Health and Human Services (HHS) to award grants to states for the development, implementation, and evaluation of alternatives to the current system of tort litigation.17 Nev- ertheless, providing solutions to the medical malpractice crisis will require a multilevel approach.

  Health care professionals’ distrust and fear of litigation must be addressed to improve patient safety. In an era in which medical malpractice premiums are drastically rising, and obtaining coverage is becoming increasingly difficult, it is not surprising that health care professionals are fearful of error disclosure. Open yet confidential disclosure of medical errors will lead to the establishment of methods to prevent the same errors from recurring. Enactment of the Patient Safety and Quality Improvement Act of 2005/S544 in July 2005 was a positive step in identifying and preventing medical errors. Physicians must take an active role in adopt- ing measures toward reduction of medical errors that would ensure patient safety. In addition, they should implement an effective peer review policing system to identify and swiftly remove from practice physicians who provide substandard care and are negligent in their practices. These measures could potentially improve patient confidence in the services provided by physicians.

  Passage of all of the MICRA key provisions at the federal level is an essential short-term provision to curtail the current malpractice crises. MICRA has been successful in providing a more stable malpractice market in California compared with

  other states. Graphs presented in the GAO report of June 2003 demonstrate this stability.3 Moreover, in an October 2009 anal- ysis of the MICRA tort reform provisions, the Congressional Budget Office reported that enactment of these provisions at the federal level would reduce total national health care ex- penditures by 5%; reduce national medical liability premiums by 10%; reduce mandatory spending on Medicare, Medicaid, and other federal health insurance programs by $41 billion over 10 years; and reduce the federal deficit by $54 billion over the next 10 years.18

  The following insurance reforms should be enacted to increase the availability of malpractice insurance: (1) Place limits on the ability to cancel malpractice policies, (2) re- quire a mandatory review of rates charged by the insurance company before approving a premium increase, and (3) call for full disclosure to insurance regulators of the disposition of all claims filed against malpractice policies. The review of premiums ought to be conducted by an appropriate gov- ernment agency.

  Finally, long-term provisions should include govern- ment-funded studies on the feasibility of other proposed reforms such as8,19:

• Formation of a specialized tribunal, which according to Common Good, would provide predictability to the liti- gation process. One advantage is that the judges would have enough medical training to be able to interpret standards of care.19

• Formation of an agency to predetermine the compen- sation for specific types of injuries that would provide consistency and uniformity for similar injuries.

• Establishment of a national reinsurance program to

  stabilize swings in insurance premiums.

• Establishment of enterprise liability whereby the large institutions would bear the weight of the liability in a mal- practice case instead of individual health care professionals. Proponents favor this type of arrangement because it could improve the deterrence effect of the malpractice system.

• Adoption of a no-fault approach to medical malprac- tice claims. By eliminating the determination of negligence, such a system could potentially facilitate the filing of claims, streamline awards of injured parties, and augment reporting of medical errors.

In summary, the present medical malpractice tort system fails to deter medical errors, compensates only a small percentage of patients affected by negligent care, and is driving shortages in specialty and primary care services through rapidly rising insurance rates. New approaches, including those suggested here may address these issues and improve patient safety.

‌References‌

1. US Department of Health and Human Services: Addressing the New Health Care Crisis: Reforming the Medical Litigation System to Im- prove the Quality of Health Care. March 3, 2003.

   
   

2. ‌U.S. General Accounting Office: Medical Malpractice: Implications of Rising Premiums on Access to Health Care. August 2003 (GAO-03- 836)‌

3. ‌US General Accounting Office: Medical Malpractice Insurance: Mul- tiple Factors Have Contributed to Increased Premium Rates. June 2003 (GAO-03-702)

4. ‌American Bar Association: Frequently Asked Questions about Medical Malpractice. Available at: www.abanet.org/media/docs/mmqa.pdf. Accessed August 5, 2010

5. American Medical Association: Advocacy, Medical Liability Reform– NOW! Available at: http://www.ama-assn.org/ama1/pub/upload/mm/-1/ mlrnow.pdf. Accessed August 4, 2010

6. ‌American Osteopathic Association: Issue Brief: The “Help, Efficient, Accessible, Low-Cost, Timely, Healthcare (HEALTH) Act of 2011” (H.R. 5). Available at: http://www.osteopathic.org/inside-aoa/advocacy/ Documents/talking-points-hr5-help-efficient-accessible-low-cost-timely- healthcare-act.pdf. Accessed May 26, 2011

7. ‌Studdert DM, Mello MM, Brennan TA, et al: Medical malpractice. N Engl J Med 350:283-292, 2004

8. ‌Rosman BP; Council on Health Care Economics and Policy: Medical Malpractice in Crisis: Health Care Policy Options. March 3, 2003.

9. ‌Institute of Medicine (IOM); Corrigan J, Donaldson M, eds: To Err is Human: Building a Safer Health System. Washington, DC: National Academies Press, 1999

10. Localio AAR, Lawthers AG, Brennan TA, et al: Relation between malpractice claims and adverse events due to negligence. Results of the Harvard Medical Practice Study III. N Engl J Med 325:245-251, 1991

11. US General Accounting Office: Medical Malpractice: Characteristics of Claims Closed in 1984, April 1987 (GAO/HRD-87-55).

12. Public Citizen: Fact Sheets: H.R. 5 Restricts Patients’ Rights and Shields Special Interests from Liability. Available at: http://www.citizen. org/documents/HR5factsheet.rev.pdf. Accessed August 5, 2010

13. ‌American Hospital Association: Issues, Liability Reform. Available at: http://www.aha.org/aha_app/issues/Liability-Reform/index.jsp. Acces- sed August 4, 2010

14. ‌American Bar Association: Legal Fees and Expenses: What are con- tingency fees? Available at: http://www.abanet.org/publiced/practical/ lawyerfees_contingent.html. Accessed August 9, 2010

15. National Association of Health Underwriters: Issue Summary: Medical Liability Reform. Available at: http://www.nahu.org/media/media/kit/ Medical_Liability_issue_summary.pdf. Accessed on May 26, 2011

16. ‌American Insurance Association: Litigation and Tort Reform. Avail- able at: http://www.aiadc.org/AIAdotNET/IndustryIssues/index.aspx? I=Issue-Litigation. Accessed August 4, 2010

17. ‌US Government Printing Office: H.R. 3590 111th Congress of the USA, 2nd session, 891-896. Patient Protection and Affordable Care Act, 2010. Available at: http://frwebgate.access.gpo.gov/cgi-bin/ getdoc.cgi?dbname=111_cong_bills&docid=f:h3590enr.txt.pdf. Ac- cessed on August 5, 2010

18. Congressional Budget Office: Letter to the Honorable Orrin G. Hatch regarding effects of proposals to limit costs related to medical mal- practice (October 9, 2009). Available at: http://www.cbo.gov/ftpdocs/ 106xx/doc10641/10-09-Tort_Reform.pdf . Accessed August 5, 2010

19. Common Good: A Case for Medical Justice. Available at: http:// cgood.org/learn-reading-cgpubs-opeds-26.html. Accessed August 5, 2010