True Cost of Malpractice Insurance in the Health Services Industry

Rising Cost of Medical Malpractice: The Impact of Medical Insurance on Patients and Physicians

The purpose of this study is to examine the extent to which rising medical malpractice premiums have affected the quality care provided by physicians. Research suggests that a majority of specialty practitioners are pulling out of practice because of rapidly rising medical insurance premiums. A majority of physicians are unable to pay premiums that are rising upwards of 43% on average per year. Research has suggested that the recent crisis is due to a number of factors, including a recessive economy and excessive jury awards in recent claims. The solution lies not solely in legislative measures that entail caps on punitive damages, but rather more intensive examination of the cause of such premium increases and examination of more alternative solutions. This study aims at examining the causes and consequences of rising premiums, and examination of proposed solutions to the potential crisis of American health care. If a solution is not found, research suggests that with more frequency, the quality of health care provided will decline and more and more practitioners drop out of practice as a result of an inability to afford ever increasing premiums.

Chapter One: Introduction and Problem Statement

Medical malpractice premiums have increased exponentially during the last decade, resulting in a decreased pool of qualified physicians available to consumers seeking quality care. As a consequence, consumers are left with fewer and fewer options when seeking out quality medical care. In some circumstances, consumers are left with no convenient available options. In addition, physicians are faced with the ever looming prospect of discontinuing many services formerly offered patients. Physicians are dropping many practices as a result of an inability to cover the premiums associated with insuring such services. Many physicians have been forced out of practice as a result of rising medical malpractice premiums. Patients have found themselves faced with the crisis of finding qualified professionals in an ever shrinking market. A majority of smaller physician practices find themselves at a crossroads; desiring to provide patients with the utmost in quality care, but unable to do so because of exorbitant premiums.

Health care costs and insurance premiums are both a social and economic problem (Gilfillan, 1993). Rising insurance premium costs affects consumers and physicians equally; physicians are plagued by rapidly rising premiums causing them to reduce either the quality or volume of care offered to patients. Patients are forced to select from a narrowing pool of physicians due to the changes resulting from physicians dropping out of critical care practice. Yet premiums continue to rise, and adequate solutions have yet to be developed and implemented across the board.

Due to many factors, in recent years health insurance premiums and medical malpractice insurance premiums have risen to remarkable rates (Gilfillan, 1993). Part of the rapid increase in health insurance premiums has been attributed to the decline in the economy. Additionally, rapidly rising premiums have been associated with increased jury awards in cases of medical malpractice. Regardless of the causes, physicians are crying out for reform, as are patients seeking quality care under limited circumstances.

Medical malpractice rewards were originally intended to punish violations of trust (Bloche, 2002). Originally, a majority of medical malpractice claims arose from serious medical deficiencies. In recent years however, juries seem to have imposed idealized expectations upon doctors and health plans (Bloche, 2002). An increasing number of medical malpractice claims have in part resulted. Some may be legitimate, others may be considered extraneous in nature. Regardless of the legitimacy of such claims, a crisis is resulting, one that must be addressed from numerous perspectives.

Some opponents of increasing claims have suggested that the current medical malpractice liability system in fact encourages a potentially "increasing risk of error and patient injury" by causing doctors to focus on protective measures rather than quality medicine (Liang, 2001). Indeed, a number of physicians have indicated a reduction of services as a result of increased premiums. Many physicians as well, rather than focus on "quality" care, have adjusted their outlook to reflect preventive and defensive practice. It seems that a majority of physicians are implementing practices more akin to protecting themselves rather than ensuring the safety and well being of patients.

For a plaintiff to prevail in a medical negligence lawsuit, they must first prove that he/she sustained damages that were caused by the "failure of the physician to take due care, defined as customary practice of physicians in good standing with the profession" (Danzon, 1991). However, experience shows that medical malpractice claims arise for many reasons above and beyond those that might be defined by true liability.

The purpose of this study is to examine how rising medical malpractice premiums are affecting physicians and patients. Additionally, this study will aspire to examine what solutions may be possible to prevent continuance of the crises facing practicing physicians. To that extent the following have been developed:

Null Hypothesis: Rising medical malpractice insurance premiums directly impacts a physician's ability to practice quality medicine and patients' subsequent access to quality care in a negative manner.

Alternative Hypothesis: Rising medical malpractice insurance premiums do not directly affect a physician's ability to practice and patients' subsequent access to quality care in a negative manner.

This research study will document the impact of rising premiums on physician's ability to provide care and patients subsequent access to quality health care programs.

Significance of Study

The significance of this study is based on the researcher's commitment to quality care and particularly to consumers within the United States in desperate need of continuing quality care. The author believes that the abundance of unnecessary claims has resulted in a deficiency of qualified physicians, as more and more find themselves unequipped to deal with the rising expense of providing care.

As a current and future patient the author has a special interest in ensuring the best outcome for both physicians and patients in the future, and is thus obligated to explore the crisis in much greater detail, in the hope of developing alternative solutions for the future. This thesis will allow the researcher to investigate the decline in availability of qualified professionals perhaps resulting from increasing medical malpractice insurance premiums, and expose the potential crisis related to unsubstantiated medical malpractice claims that may be facing American citizens.

Definitions:

AMA - American Medical Association

Medical Malpractice: Generally medical malpractice has been defined as the "failure to take due care, defined as efficient care" when providing medical services (Danzon, 1991).

Tort Law - Common law, in which the law provides a remedy for injustices delivered to a person or persons

Likert Scale- A tool utilized to measure survey responses, typically utilizing a scale with a ranking system of 1-5, whereby survey participants rank responses according to their level of acceptance or agreement with statements.

Chapter Two: Review of the Literature

The purpose of this study is to examine the effects and consequences of rising medical malpractice premiums on patients and healthcare providers. A trend has surfaced in recent years indicating that more medical malpractice premiums are rising. Supplemental to this, medical malpractice claims seem to be on the rise. This is due perhaps, to an increased evidence of awards to patties suing physicians for claims of medical malpractice. The aim of this study is not to deny patients the right to pursue legitimate compensation for medical negligence claims; rather it is intended that this study will uncover the mechanisms which have led to rapidly rising and uncontrollable premiums. This study also intends to examine the impact of such rises in premiums, and assess how these changes have affected both patients and physicians. This study also intends to identify and assess potential solutions for the currently healthcare crisis that has resulted from rapidly rising premiums.

According to Fielding and Waitzkin (1999), the problem of medical malpractice claims "is like an iceberg; the bulk is hidden beneath the surface, and the visible portion is the few sensational cases covered in the media."

Indeed, the media tends to focus on the few extreme cases of medical malpractice that have occurred in order to sensationalize victims of negligence. Unfortunately, such practices do not assist the plight of physicians attempting to protest against the recent surge of exorbitant medical insurance premiums. In fact, such sensationalism only serves to fuel the fire of such practices.

The practice of medicine in contemporary society has increasingly become more technology based. Physicians are utilizing ever increasingly sophisticated procedures that often add new risks, which consequently set the stage for an increased rate of claims (Fielding & Waitzkin, 1999). As a result of increasingly new technology, physics take on more and more risks when treating patients. At the same time, physicians present patients with better outlooks and the potential for greater healing by utilizing newer technologies. However, new technology is not without risk.

Medical malpractice claims are rising exponentially in contemporary society. A great majority of these cases are civil rather than criminal complaints (Fielding & Waitkin, 1999). Regardless, the impacts of such claims are devastating, not only to physicians but also to patients.

A majority of the research conducted related to medical malpractice claims up until this point in time have focused exclusively on statistical data, including insurance claims and surveys of patients regarding claimants (Fielding & Waitzkin, 1999). This data suggests that the incidence of medical malpractice claims is rising rather than declining.

The idea of medical negligence and malpractice is longstanding; for generations the issue of medical malpractice is evidenced through records. Historically, records of malpractice insurance claims date back to the first quarter of the early nineteenths century (Fielding & Waitzkin, 1999; Mills, 1956). Kenneth Allen De Ville reports that medical malpractice claims started to become more common during the Jacksonian period, and have risen continuously ever since (Patel & Rushefsky, 1995). During the time between 1835-1865, a medical malpractice "crisis" was identified, that paralleled the crisis occurring today within the medical field (Fielding & Waitzkin, 1999). Data from research conducted at this time indicates that the number of malpractice cases rose in fact, at a rate faster than the population growth (see Table 1.1).

Among the reasons cited for such increases during this time include the idea that medicine was becoming more heroic, where decisive medical intervention was becoming more the norm rather than the exception to the rule (Fielding & Waitzkin, 1999). Physicians began utilizing new treatments such as bloodletting and induced vomiting, which at the very least left "much to be desired in the eyes of the public" (Fielding & Waitzkin, 1999).

Progress often comes with pain. The development of the forceps for example, was accompanied by "numerous accounts of fetuses being dismembered during delivery in order to save the mothers life" (Fielding & Waitzkin, 1999). Unrelated to such horror stories, medical advances have also been cited as raising patients expectations of projected outcomes, and once those outcomes are not fully realized a greater number of malpractice claims subsequently results (Fielding & Waitzkin, 1999). This rationale is far more likely applicable to the modern day insurance premium crisis.

Medical malpractice cases arise for a number of reasons. Medical treatment rendered by a physician that is inadequate or incorrect, even excessive may result in adverse outcome and a subsequent case. Fielding and Waitzkin (1999) note that from a structural perspective, the American health care system at present makes physicians easy targets for claims because "the complexity of this system increases the chances that something will go wrong despite the efforts of even the best trained practitioners." Medicine in contemporary times has also become a capitalized, profit hungry industry, where physicians and patients alike are often left feeling "isolated and dehumanized" (Mills, 1956; Fielding & Waitzkin, 1999).

Physicians often describe medicine as "fraught with frustration" (Fielding & Waitzkin, 1999). Many are faced with increasing demands and workload pressures, as well as insurance provider limitations that dictate the amount of time allocated for each patient, often preventing a physician from spending what they feel is an adequate amount of time with patients. Also, the ever increasing threat of malpractice claims has now affected physicians in such as way that they now view patients as potential threats (Fielding & Waitzkin, 1999). Distrust has subsequently evolved and encouraged physicians to practice more "defensive medicine" (Fielding & Waitzkin, 1999).

According to a recent report in "State Legislatures" (2002), more than 60 specialists at the University Medical Center in Las Vegas "walked off their jobs" because of the rising cost of medical malpractice insurance (Boulard, 2002). The mass exodus resulted in the closing of a 24-hour trauma center (Boulard, 2002).

In Nevada, lawmakers responded to the crisis by passing a bill that set a cap on medical malpractice claims to $350,000 (Boulard, 2002). Two exceptions to this cap exist however, in situations where a "gross malpractice" or "clear and convincing evidence" exists suggesting intentful malpractice. The recent crisis in medical insurance has increased rapidly from about the year 2000, when insurance premiums started to rise rapidly. In December of 2001, St. Paul companies claimed that they would no longer offer medical malpractice coverage, in part because of losses cited "in the hundreds of millions" (Boulard, 2002). St. Paul covered more than 42,000 workers and more than 73,000 other types of health care workers (Boulard, 2002). These figures represent more than 40% of the covered physicians in some states.

In Ft. Lauderdale, obstetricians now pay in excess of $200,000 per year for medical malpractice insurance (Boulard, 2002). Rising insurance premiums have resulted in national cutbacks of services. In Hopwood Pennsylvania for example, three local obstetricians who "together delivered up to 450 babies each year" stop practicing because their insurance premiums increased to greater than 260% (Boulard, 2002). Part of the problem lies in juries who are continually awarding plaintiffs larger and larger claims. According to Boulard, juries awards "contributed to a 33% jump in claims paid by insurers between 2000 and 2001" (Boulard, 2002). The size of awards has been growing by approximately seven percent over the last 10 years, an increase "that is about 3% more than the rate of inflation" (Boulard, 2002).

Some solutions that have been presented include the notion of insurance "caps." Lawyers argue however, that such caps "penalize patients most severely injured from medical malpractice" (Boulard, 2002). The bigger issue perhaps is addressing the problem of rising premiums. Caps can help stabilize the market, but research suggests that caps rarely "have the immediate effect of reducing premiums" (Boulard, 2002). West Virginia has taken an alternative approach, passing in 2001 HB 601, which established a limited state-run insurance plan that is designed to provide reasonable insurance for physicians who aren't able to obtain traditional coverage (Boulard, 2002).

Certain specialties are more at risk than others, including obstetrical care providers and the field of neurosurgery (Cornell, 2002). States currently have several options available to them that are not adequately being utilized to reduce the medical malpractice problem. These include insurance market interventions or "stopgag solutions" that specifically target the problem of a lack of affordable or available insurance for practicing physicians (Cornell, 2002). One method these programs may help is by providing subsidies to providers or creating state-run insurance programs such as those in operation in West Virginia. These measures however, are generally considered more "short-term" in nature. Another proposed intervention is tort reforms, which in general target the manner in which medical malpractice claims are processed through the court system (Cornell, 2002). Tort reforms "are aimed at reducing either the size of awards or the number of suits that make it to the court" (Cornell, 2002). This type of reform is perhaps the most controversial, as lawmakers and patients are concerned that such reforms might adversely impact patients who are the victims of severe medical malpractice situations. Another proposed intervention is alternative dispute resolutions programs, which attempt to reconcile medical malpractice claims outside of the court system (Cornell, 2002).

Patient safety efforts have also been proposed, which would focus on prevention and patient well being as an approach to "resolving the issues that contribute to medical errors" (Cornell, 2002).

For adequate reform to be enacted, states must firs analyze the market forces operating within their market segments and ascertain the depth of the medical claims crisis within their judicial system. Even in 2002, many insurance companies in various states are quoting rates that were double and triple what doctors had paid in 2003 (Cornell, 2002). Insurance rates apply not only to doctors, but also hospital emergency rooms, trauma centers, birthing centers and nursing homes (Cornell, 2002). Americans face a crisis if these facilities continue to shut their doors in response to the lack of available and/or affordable medical malpractice insurance.

Research suggests that three primary factors are contributing to the increasing rise in insurance premiums. These include the following: (1) insurers in the past kept premiums artificially low in order to gain a market share, and this practice has changed, (2) jury awards are continuing to rise in cases of medical negligence, (3) major insurance carriers (such as St. Paul) are leaving the market, or no longer offering physicians medical negligence coverage because of the frequency and amount of claims (Cornell, 2002).

A strong economy and stock market typically enable medical insurers to better mitigate the costs of insurance premiums; I some cases in a well supported economy medical malpractice premiums can be kept below market value (Cornell, 2002). This is possible because the profits "from investment income help offset low premiums and underwriting costs" (Cornell, 2002). This evidence suggests that the rapid rise in medical insurance premiums during the last five years specifically might be attributed to the deficient state of the economy within the United States. The poor economy in and of itself however, cannot be blamed wholly for the rise in premiums.

Jury awards as mentioned, are continually arising. Some reports indicate that jury awards jumped as much as "43% in one year" (1).

State run stop gap medical malpractice liability coverage may help alleviate some of the problem. In this type of situation, a state establishes its own insurance fund that doctors can purchase insurance from, but only if there is not other insurance carrier currently on the market or available (Cornell, 2002). This type of coverage traditionally is administered via a third party administrator (Cornell, 2002).

State patient compensation programs might also offer some relief. This type of program spreads the cost of high awards "more broadly" (Cornell, 2002). Under this type of program a state would be required to create a fund that would pay part of an award or settlement against a health care provider if the award exceeds a designated amount (Cornell, 2002). Funds for this type of account would be provided via an annual surcharged that would be assessed against healthcare providers participating in the program (Cornell, 2002). Currently seven states have similar programs implemented including the following: Indiana, Louisiana, Nebraska, New Mexico, North Dakota, South Carolina and Virginia (Cornell, 2002). All of these programs are voluntary at the time however, not mandatory.

Another alternative solution is state subsidies to providers, whereby a state establishes a mechanisms that "subsidizes all or a portion of the provider's insurance premium" (Cornell, 2002). Subsidies are generally easy to implement and can be made available to all providers. This type of program was available in several states during the late 1980s, but subsequently abandoned "as the liability crisis abated" (Cornell, 2002).

Regarding caps, there are a couple of different approaches. Generally medical malpractice damages are awarded in the following areas: economic and non-economic damages. Economic damages are "for actual monetary losses due to negligence including medical expenses, lost wages and rehabilitation costs," whereas non-economic damages are typically awarded for "pain and suffering, disfigurement, and loss of companionship" (Cornell, 2002).

Alternative dispute resolution measures seem to be a desirable alternative to traditional in court claims. Alternative dispute resolution programs are designed to provide "fairer, faster and less expensive routes to a resolution" for all parties involved (Cornell, 2002). Under this type of practice, states would establish a system that provides compensation for injury resulting from medical negligence over the course of the injured person's lifetime (Cornell, 2002). Claims would be filed with "an expert panel of impartial physicians" assigned the responsibility of reviewing claims to determine whether or not injury is justified. Compensation would be limited to economic losses only, and not include pain and suffering (Cornell, 2002). This type of system can target specific types of injury, included "birth related injuries" (Cornell, 2002).

The problem is transparent. Increasingly doctors are "giving up on high-risk practices completely" while patients are facing a crisis of having few to no options (Ramstack, 2003). According to Donald Palmisano, president of the AMA, "You have a situation where the viability of a physician's practice is in great jeopardy" (Ramstack, 2003). The cost of malpractice insurance has "skyrocketed" over the last 20 years, with physicians spending upwards of $5 billion annually in premiums, and hospitals spending approximately half as much (Frankel, 1994). "Defensive Medicine" techniques, mentioned previous provided to "minimize the potential for future litigation" costs patients and consumers an additional $15 billion each year (Frankel, 1994). Despite tremendous jury awards in recent years, many critics state that the current system of tort liability "does a terrible job of compensating victims of negligent injuries" (Frankel, 1994).

Some cases do seem however, extreme in nature. For example, in 1986, a Philadephia jury "awarded $1 million to a spiritual advisor who claimed to have lost her psychic powers as a result of a negligently delivered CAT scan" (Miller, 1997). Still evidence suggests that not all awards are excessive, but rather the complete opposite (Miller, 1997). Clearly some clarification of the issues is required to ensure accurate assessment.

The tort system currently in place is tasked with the responsibility of providing an optimal level of "injury deterrence," as well as the task of punishing wrongdoers and compensating victims (Hsieh & Sloan; 1990; Broder, 1986; Trebilcock, 1989).

Some law systems are limiting the amount paid out in damages as related to other standards, such as those imposed by Medicare. The Pennsylvania Supreme Court in the case of Moorehead v. Crozer held that "compensatory damages for medical malpractices are limited to the actual amount paid out by Medicare and private insurance for medical services, rather than the fair and reasonable value of the services" (Welti, 2001).

Health care markets within the Unites States face an increasingly "turbulent and more fiercely competitive future" (Colon & Gupta, 1999). Executives and physicians must defy standards established by conventional wisdom in order to develop solutions to the ever threatening medical malpractice crisis (Colon & Gupta, 1999).

Research suggests that at present there is a great deal of dissatisfaction among consumers and physicians with the current tort liability system (Hsieh & Sloan, 1995; Schuck, 1991; Litan & Winston, 1988). Thus, one might adequately conclude that reform lies in the ability of consumers and physicians to come to agreement and compromise related to medical insurance resolution. Physicians need to be instilled with some sense of faith that they can attempt to practice the newest procedures and ensure the best outcome for patients without fear of retribution. Patients on the other hand, still need be ensured the physicians have their best interests in mind, not the interests of capitalistic adventures or profit seeking adventures. Without some manner of reform however, the outlook for the future of medical practice seems grim at best.