Larry Smarr, President of the Physicians
Insurers Assosciation of America.
Photo Credit PIAA
Doctors are overwhelmingly in favor of reform that protects them from lawsuits; an understandable position if somewhat less popular with injured patients. Politicians of the right have done a wonderful job of blaming malpractice lawsuits for the spiraling cost of health care in America. Medical malpractice liability reform has become one of several wedge issues that are cited in opposition to health delivery reform.
Complicated Subject:
The facts are considerably more complicated than what is presented in sound bites. There is even an American Tort Reform Association formed to advocate in favor of changes.
Insurance required in 49 states
All states and jurisdictions except Florida mandate physicians carry medical malpractice insurance. Forty of the fifty states have already passed some form of malpractice tort reform.
The PIAA:
Larry Smarr, President of the Physician’s Insurance Association of America, was kind enough to talk on the record about how Medical malpractice insurance works and why it has become such an issue.
PIAA is an organization of insurance companies owned mainly by doctors. While its member companies are not classified as mutual companies. In many ways they act as a mutual company might. These companies were formed because normal commercial insurers chose not to risk malpractice awards.
According to Smarr, over 60 percent of malpractice insurance and about 50 percent of premium is written by physician owned companies because no one else will write these contracts. Coincidentally, price competition is limited by a lack of players in the field.
These companies may make profits, but instead of providing dividends to shareholders, profits, if any, are distributed back to policyholders.
How big a problem?
Malpractice cases are relatively rare compared to the number of patients and providers, but 250,000 new cases are filed each year. Of these, 60 percent never go to court, and only 5 percent ultimately result in an award.
A crap shoot:
Why then won’t commercial insurers take the risk of insuring doctors if success rate for lawsuits are so low? There are a number of reasons. First among them is malpractice litigation is kind of a crap shoot.
A huge cost is defending the litigation. The AMA says the average defense cost $22,000 in 2008. If a case goes to trial, then the average defense costs balloon to $110,000.
Torts happen on state level:
Torts are mostly a state court matter. Outcomes vary wildly from state to state. There are less than 670,000 doctors currently seeing patients (according to the 2009 AAMC workforce study). This total is subdivided by the 50 plus states and jurisdictions and further parsed by specialty. Some specialties like OB/GYN, Neurology, Anesthesiology, and others are especially prone to lawsuit.
Shared risk:
All insurance is based on the idea of insurance risk pools or shared risk. The miniature size of doctor pools because of all the subdividing means that one adverse result in court can cause rates for all doctors and hospitals in a state to act like a rocket to the moon.
Premiums can also vary to an extreme according to location and specialty. An internist in Minnesota may pay $4000 a year. An OB/GYN will pay $250,000 a year in Dade County, Florida.
Long tail:
The other factor, said Smarr, is that these cases have a very “long tail.” The average case takes four and a half years to conclude, but can stretch out to seven or even ten years.
The accounting:
As premiums come into the insurer, they cannot be taken as straight revenue. Instead they must be invested in very conservative venues against the possibility of suit and held as fund liabilities on the company balance sheet. Law requires that at least 80 percent be invested in safe bonds.
This is similar to a magazine subscription. When a reader buys a magazine, the subscription price becomes revenue only after the product is delivered. Each time a monthly magazine is delivered, one twelfth of the subscription is credited to revenue.
Findings for plaintiffs:
When a jury finds against the provider, several kinds of damages are awarded. Actual damages pay for expenses of care. Economic damages pay for losses in potential earning power. Non-Economic damages pay for pain and suffering.
Certainly, some people are damaged by provider negligence. They deserve compensation. Who, as a common non-professional person on a jury, can arrive at an impartial or consistant verdict? Jurors have listened to expert witnesses from both sides of the issue offer diametrically oppoaws views of what happened years before. Verdicts can be literally anything.
Already passed reforms:
Reforms that have been passed place limits on non-economic damages only. The first and most common of these reform states is California. Their program called MICRA limits pain and suffering awards to $250,000. In some places, there is a time limit in which to file suits.
In most states, there is a limit on joint and several liability claims. Usually lawsuits in the medical area feature several defendants – hoping to get from one defendant what another cannot pay. This means someone who has relatively minor fault could end up with a big bill. Joint and several liability limits attempt to assign a percentage of responsibility to each party.
Sucess in Texas:
The poster child for successful tort reform is Texas. Rates have come down and new doctors arriving in the state have gone up. This is not true everywhere.
Relationship to overall reform:
Is medical malpractice liability reform going to be a big deal to overall health reform? It is a concern for doctors. Doctors practice defensive medicine partly out of fear and is estimated to cost $160 billion a year. But overall, court awards and costs are about one half of one percent of total medical expense.
Fixing this aspect of health delivery is a dollop of spit in the ocean and a red herring offered by opponents to change.
Who gets what?
Even more revealing is that only about 40 percent of the rare award end up in the pockets of the persons who were injured. Lawyers and court costs take the rest.
Al Portner is a former daily newspaper editor and publisher in seven states and author of the forthcoming “Mark Twain and the Tale of Grant’s Memoir.” Portner is also the proprietor of The Assignment Desk, LLC and provides writers, editors, and photographers for numerous kinds of contract projects from proposals and speeches to public relations and journalism. Reach him at alanportner@gmail.com.
Next: Possible solutions to and motivations of defensive medicine.
For more info:
The jury is still out
NCSL on Medical Tort Reform
A primer on malpractice tort reform
The PIAA
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