Medical malpractice

Medical malpractice presents challenges for policy makers, physician/provider purchasers of insurance, and companies offering professional liability insurance covering medical providers. Medical malpractice is buffeted by three distinct, uncoordinated, policy drivers: the health care system, the insurance system, and the legal system. While cases of medical malpractice arise within the health care system, determinations of fault and the assessment of financial damages are made through the tort system; most of the direct costs of the system to health care providers are experienced through the insurance system, which distributes costs across the pool of insured providers. Because of the complexity of the interactions between these three systems, policy changes in one area may have unanticipated consequences in another. For example, quality improvements in the health care system could result in fewer instances of medical malpractice, but if other circumstances change in the tort or insurance systems, such as an increase in the cost of capital for insurance companies or an increase in amounts awarded in the tort system for medical malpractice claims, the premiums paid by providers for medical malpractice liability insurance still might increase.

Depending on how one counts, the nation is perceived by some to be in the midst of its third modern medical malpractice crisis in the past 225 years. The first medical malpractice crisis occurred from 1835 through 1865, and that crisis confronted many of the same issues raised in the more recent crises, including but not limited to the number of lawsuits, the proper role of expert testimony, a lack of trust in lay juries, the perception that plaintiffs’ attorneys can sway the emotions of jurors, the need for specialized judges knowledgeable in medicine, the size of jury awards, the tendency to sue those with “deep pockets,” the appropriate standard of care, the relationship between malpractice suits and quality improvement, and the impact of malpractice suits on future access to care. The three modern crises date from the 1970s, 1980s, and late 1990s. Perhaps the most significant difference between the first crisis and modern crises was the historical absence of malpractice insurance.

Most medical malpractice claims are brought under a theory of negligence. On a fundamental level, an action for medical malpractice is generally a claim against a provider of health care for injuries or loss incurred as a result of the provider’s failure to adhere to the current and applicable standards of care. If a court determines that the health care provider’s conduct did not meet the applicable standard of care, then the health care provider will be held legally responsible. Accordingly, to hold a provider legally liable and to recover damages, the plaintiff must prove the four elements of a negligence case: (1) a duty of care, (2) violation of the standard of care, (3) causation (that the injury was caused by the substandard conduct), and (4) compensable injuries. In medical malpractice, the duty of care generally arises out of contract law, express or implied, where the medical provider agrees to treat the patient with proper professional skill. Second, for negligence to arise, the plaintiff must establish that the provider breached the duty of care or did not provide a professional standard of care.

In 2009, it is estimated that there were 10,739 paid medical malpractice claims in the United States—29.5% fewer than in 2003.47 Some of these claims were settled and paid without a trial. Paid claims represented only a part of total claims; in fact, most claims were either dropped or resolved through litigation in which the defendant provider was not found liable. At least one study found that in roughly 80% of the cases that went to trial, the alleged wrongdoer in a medical malpractice case was exonerated. The Department of Justice, Bureau of Justice Statistics, reported that in “2005 an estimated 2,449 medical malpractice cases were disposed of by trial in state courts of general jurisdiction throughout the country with plaintiffs prevailing in less than a quarter of trials.” In federal court, there were about 2,728 cases filed in 2009. Therefore, it appears that a minority of all cases involving a paid claim result from a judge or jury trial determination for the plaintiff—slightly more than half of the claims paid appear to have been settled out of court or pretrial.

The National Association of Insurance Commissioners (NAIC) reported that direct earned premiums for medical malpractice insurance totaled $10.6 billion in 2010, or an average national increase of 5.5% per year over the 2000-2009 time period. Like the average awards paid out in medical malpractice, these aggregate figures of direct premiums earned mask somewhat different experiences across specialties with states or across states. For example, an internist in Los Angeles, insured by The Doctors Company, who paid $10,097 in malpractice premiums in 2000 for a $1 million/$3 million claims made policy paid $10,343 in 2009—an annual increase of less than a one-quarter of one percent. During the 2000-2009 time period, an OB/GYN in San Diego, insured by Medical Insurance Exchange of California would have experienced a 6.4% average annual increase in premiums and paid $76,188 in 2009 for malpractice insurance. In Minnesota, over the same 2000-2009 time period, internists and OB/GYN insured by the Midwest Medical Insurance Company experienced an average annual increase of 2.5% in premiums, while general surgeons experienced a 3.7% average annual increase in premiums

While Medicare providers do not receive a separate payment from Medicare for their malpractice insurance costs, Medicare pays its proportionate share of each Medicare provider’s malpractice insurance premium as a part of each Medicare payment for services rendered. While the exact amount paid to physicians for each service varies by geographic location and the risk associated with the service being provided, on average 3.9% of the physician fee is designated to reimburse physicians for the cost of their medical malpractice insurance. MedPAC (the Medicare Payment Advisory Commission) reported that Medicare payments to physicians under the Part B fee schedule totaled $64 billion in 2009, of which roughly $2.5 billion was for malpractice coverage.

There are various definitions of defensive medicine and a wide range of dollar estimates of the cost of defensive medicine. The Congressional Budget Office (CBO) reported that “recent literature generally uses defensive medicine only to refer to those extra tests and procedures undertaken out of fear of liability.” Physician surveys of defensive medicine, some of which use broader definitions of defensive medicine, often generate different results. For instance, a recent survey of orthopedic surgeons in Pennsylvania found that one in five tests were conducted for defensive reasons and that surgeons who had been sued in the past were more likely to order such tests. Another survey conducted by Gallup and commissioned by Jackson Health care concluded that the costs of defensive medicine could be as high as $650 billion to $850 billion per year.

The most recent academic studies suggest a lower dollar estimate for the cost of defensive medicine. One recent study in Health Affairs addressed the cost of defensive medicine, and another study addressed whether tort reform would lower health care costs by reducing defensive medicine. In the first study, the authors estimated that the total costs of defensive medicine in 2008 were $45.6 billion—a figure not widely different from the less than the 2% of health care spending number used by the CBO. Moreover, as the article notes, some of these medical services, while motivated by a desire to avoid liability, may actually be beneficial. These benefits, along with any benefit associated with deterrence generally from the tort system, are not included to produce a net cost.

In a second study in Health Affairs, the authors used claims from more than 35 million episodes across 30 states to examine the tests and procedures ordered in 35 clinical specialties to see if malpractice reforms would reduce health care costs. This study concluded that while “defensive medicine practices exist and are widespread their impact on medical care costs is small and that a 30% reduction in malpractice premiums would reduce medical costs by only 0.4 percent.” This study noted that their results were similar to other studies and the CBO. Other studies also suggest that malpractice suits have a relatively short-term effect on physician practice patterns. From these studies, it can be generally concluded that while the dollars spent on defensive medicine do not appear to be insignificant and the health care system would benefit from saving some of these costs, the total impact of reducing defensive medicine on total health care expenditures may be relatively small.

Physicians and their insurance companies typically are the key groups that advocate for malpractice reforms. A recent national survey of physicians found “high levels of concern about the risk of malpractice litigation among physicians across a range of specialties, practice settings, and geographic areas and even among physicians practicing in relatively low risk environments.” Moreover, the study found that “physicians’ assessment of their risk is driven less by the true risk of malpractice claims or the cost of malpractice insurance, and more by the perceived arbitrary, unfair, and adversarial aspects of the tort process—which most traditional state reform efforts do not address.” The study concluded that “physicians tend to view lawsuits as random events, unpredictable and uncontrollable, because they are not viewed as related to the quality of care provided.”

With respect to randomness, given that most individuals injured do not sue, some providers may perceive that being sued is part of a random process drawing from the pool of injured individuals. Second, because defendants appear to win most cases, it is often perceived that being sued is independent of any actual negligence. In support of the non-randomness of suits, there is evidence that there are certain “claims-prone” physicians. Moreover, if medical malpractice suits were truly random, they would have been independent of preventable injuries.

However, a 2010 Rand Corporation study of malpractice in California found that a reduction of in-hospital events associated with the occurrence of preventable injuries during care (patient safety indicator, or PSI, events) was strongly associated with a reduction in the number of medical malpractice suits; fluctuations in such events over time are associated with fluctuations in malpractice claims. In fact, three-fourths of the variation in annual malpractice claims is explained by changes in PSI events. These findings held even when researchers looked at subgroups of physicians such as specialists, surgeons, and OB-GYNs. The Rand study concluded that “to the extent that improved safety performance can be shown to have a demonstrable impact on malpractice claims, this offers another focal point for policymakers in seeking to address the malpractice crisis.”