Malpractice

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Malpractice Insurance Caps

January 13, 2012 in Malpractice | 3 comments

Many people support malpractice insurance caps.  They believe that malpractice insurance award caps will reduce medical costs in two ways: i) by decreasing malpractice premiums and ii) by decreasing the amount of defensive medicine physicians practice to avoid lawsuits.  An article by Shirley Svorny, however, argues that malpractice awards are bad medicine.  Physicians who are more careless will have higher malpractice premiums; instituting malpractice caps dulls the incentive to practice safe medicine.

Physicians make a number of arguments of why this logic doesn’t fly. The first is that malpractice awards are haphazard and that few victims of actual negligence sue.  Svorny cites some research (see below) which finds a correlations between the presence of negligence and the amount of the award; demonstrating that there is some relationship between physician performance and court awards.  Other critics claim that the malpractice system has high administrative costs.  This is true.  Svorny accurately points out, however, that most of the administrative costs occur in the limited number of cases that go to court.  Further, there is open debate of whether malpractice lawsuits keep doctors from reporting errors.  Although the article cites some research that states that lawsuits start discussions about improving care quality, I believe that self-reporting of errors will decrease in a non-linear fashion as malpractice awards increase.

Svorny’s research also identifies that conventional wisdom that physician malpractice premiums are not experience rated is not entirely correct.  Additional information is below.

Malpractice Insurance Market, Premiums and Risk

Physicians who are higher risk do end up paying higher malpractice premiums. This occurs through a number of mechanisms.

  • Underwriting: When applying for malpractice insurance, physicians describe their practice profile, whether they perform surgery, number of patients treated, educational background, whether their license has been suspended, whether they are board-certified and other information.
  • Experience Rating.  Although base premiums often do not very within a specialty by state, carriers often “impose premium surcharges on physicianswhose claims histories do not meet the company’s standards, or offer discounts to physicians with clean histories.”  Some carriers also give physician longevity credits to physicians with good claims experience.
  • Experience Rating across carriers.  “…most experience rating takes place across carriers. Insurance carriers specialize in serving physicians with similar risk profiles. Physicians who do not meet one carrier’s risk profile must seek insurance elsewhere. This allows insurance carriers to specialize in underwriting certain risks.”  Specifically, surplus-line carriers offer malpractice coverage to physicians who cannot secure coverage through more standard market.  As expected, premiums are much higher in this market.

Other Malpractice Insurer’s Risk Management Tools

  • Practice Constraints.  Some insurers limit the scope of the physicians practice which they will cover.  “For example, California rate filings include forms to exclude performing surgery, administering anesthesia, treating pregnancy, and practicing over the Internet…Underwriters verify that physicians adhere to the restrictions in their policies when the policies are renewed each year and by looking at the doctor’s website or advertisements aimed at consumers.”
  • State Medical Board Sanctions.  Although State Medical Board sanctions of physicians is somewhat rare, those who are sanctioned generally must gain malpractice coverage in the more expensive surplus lines.
  • New Treatments. Malpractice insurers often do not cover more novel and riskier procedures.
  • Direct Risk Management Practices. “A 1989 Institute of Medicine survey of 20 commercial and physician-owned carriers found four types of risk-management strategies to be prevalent: (1) data gathering and analysis,(2) development of clinical standards and protocols, (3) educational programs, and (4)premium discounts for risk-management activities.

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Is ‘Loser Pays’ the solution for frivolous Medical Malpractice Lawsuits?

December 26, 2011 in Malpractice | 1 comment

Frivolous lawsuits may increase medical spending in two ways: i) they increase the cost for physicians to practice medicine by raising malpractice insurance premiums, and ii) they increase utilization of unnecessary services when physicians practice ‘defensive medicine’.

Creating a ‘loser pays’ tort system may be the best way to stop frivolous lawsuits.

Loser-pays in the U.S. and Around the World

In a loser-pays framework, the individual who loses a lawsuit must pay the legal costs of the winning side.  This framework decreases the incentive of brining cases to court where the plaintiff is unlikely to win.  According to the Economist, ”‘Loser pays’ is the norm in many countries, including England, Canada and Germany. But there, “loser pays” is the rule in most torts.”

However, the ‘lower pays’ framework has appeared in the U.S.  Alaska currently has a loser-pays framework, but the loser only pays a portion of the winner’s legal fees.  ”…Florida imposed ‘loser-pays’ in 1980 for medical-malpractice cases. The number of claims dropped, but the average award rose, suggesting that more high-merit cases got their day in court while low-merit filings were deterred or settled for less.”

Additional Loser-Pays Regulation

Fairly implementing a loser-pays system, however, requires regulation.  Poor plaintiffs may never bring a lawsuit if they are required to pay the defendants legal costs if they lose or (as is currently the case) poor plaintiffs would have an incentive to bring the case to court if poor plaintiffs didn’t have to pay the legal costs.

One could still make poor plaintiffs pay even if they could not afford it.  The plaintiff’s lawyer could be made responsible for the opposing side’s legal fees.  Thus, the lawyer would have to be very sure of the merits of their case to take it to court.

Another solution to the inability to pay the opposing sides legal fees is legal insurance.  ”Marie Gryphon of the Manhattan Institute…argues that loser-pays countries need legal insurance, which can be bought (for example) in England for just £100-200 ($150-300) after an alleged loss, but before a suit is filed. Lawyers can advance the premiums and add them to their bills. In other countries, such as Germany, many households carry standing legal insurance with a small monthly premium.”

Effect on National Health Spending

Although implementing a loser pays system may improve the efficiency of the tort process, it will only have a small effect of overall medical spending. Although large jury awards grab headlines, in practice reducing medical spending simply requires patients and physicians to agree to use less services.

For instance, the CBO rated a legislative proposal [the “Help Efficient, Accessible, Low Cost, Timely Healthcare (HEALTH) Act of 2003] that would impose limits on jury awards in medical malpractice cases. The CBO concluded that this proposal would reduce federal direct spending on Medicare, Medicaid, and the Federal Employees Health Benefits program by about $1.5 billion per year. Since federal spending on Medicare and Medicaid in 2004 was about $484 billion, this amounts to a 0.3% decrease in spending.

Fixing med mal would reduce spending but certainly not be a cure for larger medical spending issues.

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Does Health Reform Change the Malpractice System

September 24, 2010 in Health Reform, Malpractice | No comments

Health Reform (a.k.a. Patient Protection and Affordable Care Act [PPACA]) provides two small provisions that will affect malpractice costs.  Randall Bobvjerg explains:

“As enacted, PPACA contained only two, quite limited malpractice provisions.  Section 10607 authorized malpractice demonstrations by states, and section 10608 extended federal malpractice protections to free clinics’ nonmedical personnel.

The demonstration authority comes with many conditions that are much more limiting than the demonstrations grants already implemented by the Obama administration.  Under PPACA, only states may be funded; funding levels are too low to backstop alternative compensation systems; even those funds are unappropriated; and any patient in a demonstration can, at any time, bring a conventional tort claim instead. The free-clinic provision extends the scope of the Federal Tort Claims Act (FTCA). The act had previously been modified to cover health professionals‘ volunteered services at free clinics, as well as care at federally qualified community health centers, as though the caregivers were federal employees, such as Veterans Administration physicians. The FTCA does not alter state rules of tort law, which govern any claims made; but claims resolution follows federal processes, any trials occur in federal courts, and payouts come from federal funds.”

In short, not much has changed.

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Malpractice in China

August 17, 2010 in Malpractice | No comments

In the U.S., physicians often fear that if a patient experiences a bad health outcome, the physician will be liable for millions of dollars as part of a malpractice suit.  Although the malpractice system in the U.S. may be far from perfect, most physicians would certainly prefer it over the more informal forms of “malpractice” that have recently been used by patients in China.

“In 2006, the last year the Health Ministry published statistics on hospital violence, attacks by patients or their relatives injured more than 5,500 medical workers…

In June alone, a doctor was stabbed to death in Shandong Province by the son of a patient who had died of liver cancer.  Three doctors were severely burned in Shanxi Province when a patient set fire to a hospital office. A pediatrician in Fujian Province was also injured after leaping out a fifth-floor window to escape angry relatives of a newborn who had died under his care.”

I am not sure whether the U.S. or China is the anomaly.  If physician promising to cure the patient and they either become more ill or die, the patient’s relatives inevitably place a large share of blame on the doctor.  Thus, taking out one’s anger through violence against physicians could be a natural response; fortunately, instances of patient-physician violence in the U.S. are relatively rare.

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Best Practice Insurance

September 29, 2009 in Malpractice | No comments

Problems:

  1. Malpractice Insurance is expensive.
  2. Medical errors are associated with 98,000 deaths every year [more than twice the deaths from car accidents by some estimates.]
  3. About two-thirds of the guidelines developed by AHPR between 1990 and 1996 were out of date with current research by 2001.

Solutions:

One solution is to enact damage caps.  These are limits placed on awards in malpractice lawsuits.  This would certainly decrease malpractice insurance, but would not incentivize doctors to take more care when treating a patient.

Ronen Avraham proposed private guideline insurance.  Here’s the theory:

  • Doctors or groups of doctors adopt guideline insurance.  If the doctor follows the guidelines, he is not liable for any malpractice damages.  If he does not follow the guidelines, then he is liable for damages.
  • The private ‘guideline insurance’ company is liable for the quality of the guidelines.  If the guidelines are poor, a patient can bring a suit against the guideline insurance companies.
  • Doctors will have an incentive to choose the lowest cost guideline insurance company.  Guidelines insurance companies bring down their cost by adopting the most up-to-date, cost-effective guidelines.

Do you think this could work?  More information is available here and here.

Source: Avraham, Ronen (2009) “Private and Competitive Regulation of Medicine,” The Economists’ Voice: Vol. 6 : Iss. 8, Article 2.

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Scottish NHS pay £23 million in compensation, but U.S isn’t doing any better.

September 15, 2009 in International Health Care Systems, Malpractice | No comments

The Scotland Sun reports that the Scottish NHS paid £23 million ($40 million) to patients for subpar care. Is this due to the inherently substandard quality of care in a single-payer system?

The answer is likely no. This figure only amounts to about £4.50 ($7.34) for every person in Scotland however. Drug-related errors in the U.S. cost patients $3.5 billion per year or $11.50 per patient. Thus, it matters not whether a health care system is single payer or not; single-payer and private health care systems both have significant room for improvement.

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