U.S. News and World Report Says Litigation Not To Blame

U.S. News and World Report

In its June 30-July 7 issue, U.S. News and World Report discusses physician and insurers’ claims that malpractice awards are driving up the cost of physician malpractice premiums. According to this prestigious business magazine, “their diagnosis may be wrong.”

The article, written by author Christopher Schmitt, reports that there is “no explosion of cases that might drive up legal costs. The number filed each year has remained fairly steady during the past decade.” Moreover, the article correctly notes that two thirds of the cases that are filed, are dropped before ever making it to a jury. Of those that are tried, only a small fraction are in favor of the patient.

0.9 percent of 5,500 cases surveyed in the year 2002 were decided in favor of the patient or plaintiff. The overwhelming majority were decided in favor of the health care provider. According to the Physicians Insurers Association of America, the trade group for malpractice insurers which accounts for about 60% of the market, the 0.9 percent is down by half since the year 2000. Within that 0.9%, the article reports that the number of payments that doctors’ insurers make following jury verdicts has held steady in recent years, at around 400 annually.

The article also reports that doctors and insurers also complain about the size of medical malpractice awards. However, U.S. News found that in 2002, the median jury award was approximately $295,000, far below the $1million number that the American Medical Association and others often cite.

U.S. News also reports that in the 19 states that have medical malpractice caps, the premiums actually grew faster than in the nearly three dozen states without caps. Although it is not clear what is driving the costs of insurance higher, U.S. News reports that chief among the forces driving those costs is the usual business cycle of insurance. “Early in the cycle, competition or a desire to expand encourages low premiums. Later, losses clash with cheap rates, forcing premiums up. In addition, the number of malpractice insurers has declined, so there is less competition to keep rates low.”

Standard & Poors, a financial services industry research firm says malpractice insurers’ loss ratio has been improving since 1998, and the industry should soon return to profitability and strengthening reserves. According to U.S. News, J. Robert Hunter, insurance director of the Consumer Federation of America has explained: “Doctors and insurance companies are all saying it’s the dastardly lawyers, [but] nobody who really studies it seriously thinks it’s a bunch of million-dollar verdicts exploding that’s causing this.”

U.S. News points out that 17 years ago, during an earlier malpractice crisis, florida legislators enacted rules like those being pushed today.One malpractice insurer, St. Paul Fire and Marine Insurance Company, told regulators that the changes would mean no savings in payouts and hence no rollback of premiums.

U.S. News quotes J. Robert Hunter “Caps don’t work to cut costs, and if they do, the money just goes to insurance company profits.”

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