Will Medical Practices Survive Malpractice Insurance Rates?Published: October 15, 2009 in Knowledge@Emory
U.S. President Barack Obama's planned overhaul of America's healthcare system took a step forward October 13 when the powerful Senate Finance Committee voted 14 to 9 along party lines, except for Republican Senator Olympia Snowe, to move its healthcare bill along for broader consideration.
"Senator Snowe was the only question mark," says Alan I. Abramowitz, a chaired professor of political science at Emory University. "Her vote augers well for the bill's supporters. Equally important was that all the Democrats on the committee stayed in line. The next step will likely depend on the compromise bill, since the House currently supports a version that's more liberal than the one the Senate supports."
While this vote is a positive sign in a debate that has raged on for years, it comes too late for many physicians in high-risk specialties who have made the difficult choice to either restrict their practice, relocate to friendlier states, or to shut down shop altogether because of galloping increases in malpractice and other liability insurance.
“In response to rising medical malpractice insurance rates, many physicians feel compelled to practice so-called defensive medicine, which may involve ordering extensive patient tests primarily to help defend their decisions in case the physician is later sued,” says Kenneth E. Thorpe, the Robert W. Woodruff professor and chair of health policy and management at Emory’s Rollins School of Public Health. “Concern over malpractice insurance costs are also driving more specialists like obstetricians and gynecologists, and neurosurgeons to restrict, sell or close their practices, leading to some question about whether or not there will be enough specialists available to meet the demand for their services.”
When the American College of Obstetricians and Gynecologists released its 2009 Survey on Professional Liability in September, the feedback was sobering.
More than 63 percent of respondents reported making changes to their practice “due to the risk or fear of liability claims or litigation,” while 60 percent said liability insurance “is either unavailable or unaffordable.”
OB/GYNs continue to “decrease their number of high-risk obstetric patients and decrease gynecologic surgical procedures,” warns the survey. In fact, it adds, about eight percent of the survey respondents reported that they had stopped practicing obstetrics altogether.
“It is imperative that any changes to our current health system include meaningful federal medical liability reform," according to Albert L. Strunk, deputy executive vice president of the American College of Obstetricians and Gynecologists. "The current medical liability legal system is out of control as evidenced by the fact that over half of all liability claims against OB/GYNs are dropped or settled without payment on behalf of the OB/GYN."
Theoretically, malpractice suits can be a good idea, because they can affect physicians’ behavior in a positive way, according to Ray Hill, an assistant professor in the practice of finance at Emory's Goizueta Business School.
“The problem is that research indicates that doctors practicing good medicine are just as likely to lose malpractice suits as are careless doctors,” he adds. “The result is that all doctors are penalized by high med-mal rates. In some states, physicians in certain high-risk practices are either cutting down or eliminating their practice, or are simply leaving the state for more attractive locations.”
Meaningful reform is essential, say experts, but the problem is that despite years of debate and President Obama’s commitment to change, there’s still no consensus on reform elements that are needed.
A widely cited study in the New England Journal of Medicine quantifies the cost. “For every dollar spent on compensation, 54 cents went to administrative expenses (including those involving lawyers, experts, and courts),” according to the article, "Claims, Errors, and Compensation Payments in Medical Malpractice Litigation."
Although plaintiffs prevailedin only 21 percent of verdicts, administrative or overhead costsassociated with defending those claims amounted to $112,968 each, compared to $42,015 overhead incurred for claims resolvedout of court, according to the study.
“Some of this money is dead weight,” Hill says. “It’s not clear that the mechanisms proposed as part of the healthcare reform proposals will do much to cut these kinds of costs, which act as a form of tax on good doctors as well as bad ones. In turn, they will pass the costs onto their customers, the patients.”
There’s no dispute that high med-mal insurance rates have created “a defensive practice of medicine, according to Ani B. Satz, an associate professor at Emory’s School of Law who also holds faculty appointments at the Rollins School of Public Health and the Emory Center for Ethics.
“But many studies indicate that state tort reform measures do not have a significant impact,” she notes.
Satz points to a paper—"Estimating The Effect Of Damages Caps In Medical Malpractice Cases: Evidence From Texas"—published in the Winter 2009 edition of the Journal of Legal Analysis, which notes that limits on damage awards in jury trials range from 28 percent in Wisconsin to 76 percent in Louisiana.
But including “both tried and settled cases, the impact on mean payout ranges from seven percent in Illinois to 42 percent in Louisiana,” it continues. And total damages caps “generally have a larger impact on payouts in tried cases than non-econ[omic] caps.”
The study demonstrates that caps on damages have a larger impact on the verdict award than on the actual payout, Satz says.
“That’s because most verdicts would not have been fully paid,” she explains. “This means that the cap is eliminating money that wouldn’t be paid anyway.”
Meanwhile, health care institutions are businesses and as such are affected by economic issues, Satz observes.
“But their actions also have a significant effect on society, which is why a vast regulatory overlay is in place to govern their actions,” she adds. “It’s too early to speculate about the impact of national health care reform on particular business models until we have a better idea of what health care reform looks like.”
Part of the challenge is that the standard rules of a business model don’t always apply to medical providers, according to Thorpe.
“In a traditional business model, a larger organization can generally reduce many costs with economies of scale, but even if a doctor sells his or her practice to a larger group practice or a hospital, the insurance rates are still set by state commissioners,” he notes. “So even though a hospital practice may be substantially larger than a typical physician group practice, a hospital generally can’t exercise any more leverage when it comes to med-mal rates.”
Regulatory restrictions on the medical business model may limit the ability of medical practitioners to respond to liability insurance rates, but Thorpe says other approaches could put a dent in the costs.
“To begin with, more than 60 percent of med-mal claims go to identifying fault and administering the medical malpractice system leaving only 40% of the premium dollar paid to injured patients,” he says. At the same time 70 to in some states up to 90% of claims filed never receive any payment and are dismissed or dropped. “So it would likely be helpful if regulatory authorities or the courts can weed out the frivolous ones. Setting up specialized courts—similar to tax and other highly focused courts that already exist—might help to fast track the adjudication of these claims, which would cut down on administrative and other overhead costs. Will the proposed healthcare reforms address these issues? It remains to be seen if true reform can overcome the efforts of special interest groups that are trying to place their own interests above the public good.”