MEDICAL MALPRACTICE – SITUATION ANALYSIS

Table of Contents

1 Introduction

2 False Claims Made By MAG, The AMA And The Insurance Industry

A) “Litigation Explosion”? FALSE.
B) Average Claim Payments In Georgia Are Substantially Increasing? FALSE.
C) The Number of Claims Paid In Georgia Is Substantially Increasing? FALSE.
D) Claims Paid Over a Million Dollars Are Skyrocketing? FALSE.
E) MAG Mutual Is Following A Nationwide Trend Of Increasing Claim Costs? FALSE.
F) Doctors Are Fleeing From Georgia? FALSE.

3 Insurers And The Medical Community Admit Tort Reform Doesn’t Reduce Premiums

4 The Reason Insurers And The Medical Community Admit Tort Reform Doesn’t Reduce Premiums Is Because History And The Hard Data Prove It

5 Insurers Admit Premiums Will Not Be Reduced In The Future

6 Aren’t Insurance Companies Having To Pay More In Claims Than They Are Able To Earn In Premiums And Therefore In Financial Trouble? NO And NO.

7 MAG Mutual – Nothing But Profits

8 The Insurance Cycle – Déjà Vu All Over Again

9 The Wall Street Journal – Insurers Provoked This “Crisis”

10 St. Paul And Other Exiting Insurers – Mismanagement And Fraud To Blame, Not Juries

11 Evidence In Georgia Shows The Journal Is Right

12 Malpractice Premiums Do Not Drive Up Health Costs

13 Malpractice Defendants Already Have Special Legal Protections in Georgia

14 Real Legislative Solutions

15 The Real Crisis – Medical Negligence

16 Conclusion

The Georgia Trial Lawyers Association
Protecting Georgia’s Patients and Families

Medical Malpractice: Situation Analysis

Introduction

Insurance rates have recently been rising considerably across the country. The increases are not unique to the medical malpractice market. Instead, all insurance rates, including premiums for automobile, homeowner’s, health, and legal and medical malpractice insurance have been increasing. As shown below, auto insurance premiums increased 8.4% from 2000 to 2001.[1] Homeowner’s insurance premiums increased 8% from 2000 to 2001.[2] Also, health insurance premiums increased 11% during that same time period.[3] It has been reported that legal malpractice premiums are rising by 25% or more irrespective of whether a lawyer has had a claim.[4]

The American Medical Association, the Medical Association of Georgia, the Georgia Hospital Association, MAG Mutual Insurance Company and other insurance companies, seeking to take advantage of this national insurance problem, contend that the rising premiums will force hospitals to limit services or close their doors and will force doctors to leave their practices in Georgia or stop practicing in “high risk” areas. They claim that the cause of this “crisis” is an explosion in litigation in Georgia and the only way to keep medical malpractice premiums down is to impose severe restrictions on the legal rights of injured patients and families.

A close and objective evaluation and analysis of Georgia’s tort system, and most critically, of medical malpractice claims, confirms there is indisputably not a “tort crisis” in Georgia. Instead, the hard facts prove the alleged tort crisis that MAG, MAG Mutual and the others are seeking to create is based on nothing but innuendo, halftruths and significant distortions of data that bear no relevance to the state of affairs in Georgia.

Virtually every objective, empirical study refutes any contention there is a tort crisis in Georgia. In 2000, Professors Thomas Eaton and Suzette Talarico of the University of Georgia authored the most exhaustive study ever done on the court system in Georgia. Consistent with numerous similar studies around the country, they concluded that there is no tort crisis in Georgia and that “this growing body of research indicates that the tort system in operation is much different from the one portrayed in the popular and political rhetoric of tort reform and there is no evidence of an explosion in tort filings, and there are few signs of run-a-way juries.” [5]

Those seeking to make drastic changes to longstanding law in Georgia bear the burden of proving that cutting off the rights of Georgia citizens catastrophically injured as a result of medical malpractice is warranted. They have utterly failed to carry that burden because the facts directly contradict their claims. Nonetheless, because the stakes are so high, GTLA submits the information and data contained within these materials in order to provide verifiable information to those interested in learning the truth and to absolutely refute any assertion that a “medical malpractice crisis” exists in this state.

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False Claims Made By MAG, The AMA
And The Insurance Industry

 The claims being made about a “litigation explosion,” doctors “fleeing” Georgia and “tort reform’s” effectiveness in controlling rates or attracting doctors are all false. 

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The truth is that patients almost never sue their doctor -- even when they are harmed by their doctor’s negligence.  A comprehensive study performed by Harvard and cited approvingly by the Bush administration noted that of all patients harmed by negligence, only 1.53% filed a claim.[6]  This means that 98.47% of patients harmed by their doctors’ negligence do not seek to hold the doctor accountable.

Of all the lawsuits filed in Georgia, only about 5-7% of those cases are personal injury cases.[7]  And, of that 5-7%, only 4-5% of those cases involve medical malpractice claims.[8]  Thus, medical malpractice claims make up somewhere between .2% and .35% of all the civil lawsuits filed in Georgia.[9]  In fact, other than family law disputes, the overwhelming majority of lawsuits filed in our state involve business litigation and the overwhelming majority of plaintiffs filing lawsuits are businesses.  That includes some of the same businesses now screaming for tort reform.

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Average Claim Payments In Georgia Are Substantially Increasing?  FALSE.

The report of a one million dollar average award being reported by the media and used by MAG, GHA and the insurers is simply wrong.  As stated in a recent Wall Street Journal article, this data is collected unscientifically, tends to include only large verdicts, and does not include defense verdicts, non-jury trial verdicts, verdict reductions, settlements or verdicts overturned on appeal.[10]  Nonetheless, the JVR publications relied upon by the insurers to prove a malpractice crisis exists in Georgia actually confirms the exact opposite:

The truth is that according to JVR’s own publications, the median medical malpractice verdict in Georgia for the years 1995 to 2001 was significantly less than the countrywide medians for the same years.  It was reported this year Georgia’s median was less than one half the national average.[11] 

Data from the National Practitioner Data Bank reflects the further truth that the median size of medical malpractice claims in Georgia (in excess of $25,000) has remained essentially level over the past four to five years in stark contrast to the 34% increase in the median paid claims for the rest of the country.[12] 

According to data received from MAG Mutual, its average payout to victims of medical negligence in Georgia as of May 2002 was only $269,015, down by close to $100,000 per claim since 1999. 

 And, when adjusted for inflation, b>the average payout by MAG has gone DOWN by over 5% since 1991![13]

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The Number Of Claims Paid In Georgia Is Substantially Increasing?  FALSE.

According to the National Practitioner Data Bank’s closed claims database, the truth is that: the number of medical malpractice claims paid in Georgia has gone /u>DOWN since 1999 while the rest of the country has increased.[14]

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Claims Paid Over A Million Dollars Are Skyrocketing?  FALSE.

 The truth is that MAG paid only 8 one million dollar plus claims in 1992.  That number only increased to 12 one million dollar plus claims a decade later in 2001, despite a substantial increase in the number of doctors insured over the past ten years.

Given the fact MAG now insures over seventy percent of doctors in Georgia, million dollar claims paid per doctor and per claim have decreased over the past ten years.

 MAG’s data also reflects the number of million dollar claims actually decreased from 1999 to 2001.

Also important is the fact that from 1987 through the present the total average payout on all one million dollar plus claims has not greatly exceeded one million dollars.

Those cases undoubtedly involved catastrophic outcomes with economic damages in the six to seven figure ranges.  Where are the runaway verdicts?  Where are the high settlements generated by huge non-economic exposure?  They simply do not exist!

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MAG Mutual Is Following A Nationwide TrendOf Suffering Increased Claim Costs?  FALSE.

The bogus claims of a litigation explosion are further disproved by MAG Mutual’s own physician publication The MAGnet that in 2001 boasted:“… we reduced the average cost of each claim regardless of a significant nationwide increase in claim severity.”[15] 

One must question why the insurance and health care industries are continuing to use statistics that are widely recognized to be incorrect or which do not apply to Georgia while they either hide their own numbers or distort their own data.

The truth is that there simply is no explosion in either the number or size of claims being paid in Georgia!

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Doctors Are Fleeing From Georgia?  FALSE.

Any assertion that the lack of tort reform measures will cause doctors to leave Georgia is specious. One recent study found that, “despite anecdotal reports that favorable state tort environments with strict … tort and insurance reforms attract and retain physicians, no evidence suggests that states with strong … reforms have done so.”16]

 Most importantly, the truth is that Georgia does not have a shortage of doctors.   In fact: there were 78% more doctors per capita practicing in Georgia in 1999 than there were in 1975.[17] 

 There is strong evidence that Georgia is attracting more and more doctors as opposed to less.  In a recent Forbes article, it was noted that a physician from Philadelphia had moved to Georgia in order to reduce his premium costs.  The article stated: “Dr. John Angstadt, 44, started looking to move out of suburban Philadelphia when his insurance increased from $14,000 in 1994 to $66,000 last November.  In December, he joined a large practice in Savannah, GA. where he now pays just $16,000 for insurance.  Now, instead of worrying about rising costs and lawsuits, he can practice medicine.”[18] 

Any claim that we do not have enough doctors in Georgia or that they are fleeing as a result of insurance premiums is pure fiction!

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Insurers And The Medical Community Admit Tort Reform Doesn’t Reduce Premiums

Stricter tort laws will not result in lower malpractice premiums.  The fact that “tort reforms” do not work has been demonstrated in states like California and admitted to by the insurance industry.  The American Insurance Association (AIA) said that lawmakers who enact “tort reform” should not expect insurance rates to drop.  Specifically, a March 13, 2002, AIA press release leads with an astounding pronouncement: “[T]he insurance industry never promised that tort reform would achieve specific premium savings.”

 Donald J. Zuck, Chief Executive of Scpie Holdings, Inc., a leading malpractice insurer in California, told the Wall Street Journal: “I don’t like to hear insurance-company executives say it’s the tort system – it’s self-inflicted.”19] 

In the current debate, no insurance spokesperson will agree to premium reductions if damages caps are instituted.  Indeed, they acknowledge damages caps won’t reduce premiums.  American Tort Reform Association (ATRA) President Sherman Joyce told Liability Week that: “we wouldn’t tell you or anyone that the reason to pass tort reform would be to reduce insurance rates.”[20]

And, according to Victor Schwartz, General Counsel of ATRA:“many tort reform advocates do not contend that restricting litigation will lower insurance rates, and I’ve never said that in 30 years.”[21]

The Center for Justice & Democracy recently completed an exhaustive study of the relationship between “tort reform” and malpractice premiums.  They concluded that “tort reform” has historically had no impact on insurance rates.[22] 

Locally, John Henry, CEO of Emory Hospitals, including Emory University Hospital and Crawford Long Hospital told the Atlanta Business Chronicle that: “what is happening to us is more than just malpractice insurance.  Directors’ and officers’ liability insurance has gone through the roof, insurance on buildings has gone up.  There does not seem to be any direct relationship between claims and premium increases; it seems more related to Sept. 11 and the need for insurance companies to generate profits for shareholders.”[23]

According to the Wall Street Journal, “[s]ome doctors are beginning to acknowledge that the conventional focus on jury awards deflects attention from the insurance industry’s behavior. The American College of Obstetricians and Gynecologists, for the first time is conceding that carrier’s business practices have contributed to the current problem, says Alice Kirkman, a spokesperson for the professional group:“[W]e are admitting it’s much more of a complex problem than we have previously talked about,’ she says.”[24]

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The Reason Insurers And The Medical Community Admit Tort Reform Doesn’t Reduce Premiums is Because History and The Hard Data Prove It

Placing additional restrictions on the rights of victims of medical negligence, which is the solution offered by MAG, the hospitals and the insurance industry, will not work to lower insurance premiums – they have failed in the past and will fail again in the future.  A July 2002 study by the National Academy of State Health Policy (funded by the Robert Wood Johnson Foundation) found that “[t]he move toward more restrictive tort reform does not address the complexity of the problem.  Previous rounds of tort reform that followed the malpractice insurance crisis of the 1970s and 1980s have not succeeded in preventing periodic and dramatic rises in insurance premiums.”[25]

Despite the overwhelming proof to the contrary, insurers and the medical community claim that capping damages will attract doctors and keep down malpractice costs.  However, according to the American Medical Association:

States without caps on damages have 4.4% more physicians per capita than those states that do have caps on damages.26]

Also, the average malpractice premium for doctors of internal medicine is 2.2% higher in states that cap damages than in states that do not cap damages[27] 

In fact, according to data from the American Medical Association, California, which has the most restrictive medical malpractice caps in the country, saw its malpractice premiums b>rise 37% between 1988 and 1998.[28]  During the same period, MAG Mutual’s premium levels went down over 40%.

In 2001, California’s actual average premium per physician of $27,570 far exceeded Georgia’s average of $19,248.00[29] As of 2002, the average liability premiums averaged across all specialties are 25% higher in California than in Georgia.[30]  Likewise, premiums for ob/gyns are 25% higher in California than in Georgia.[31] 

Clearly, California is not the model Georgia should follow.  Even the passage of California’s much heralded tort reform law of 1975, MICRA, did not result in a reduction of malpractice premiums.  When the litigation over the constitutionality of those provisions was finalized several years later and California’s medical community still did not begin receiving any relief from escalating liability insurance premiums, the citizens of that state passed Proposition 103.  That public initiative eliminated the insurance industry’s exemption from antitrust laws, it mandated rollbacks in insurance rates and it required insurance companies to get pre-approval of any rate hikes from the state’s insurance department.  Only then did California’s medical community begin to enjoy some stabilization of its insurance premiums.  Thus, if reducing malpractice insurance premiums is the measuring stick to judge the efficacy of tort reform, California’s MICRA has been a complete and utter failure. 

Critically, no state has ever experienced a reduction in medical malpractice insurance rates as a result of the passage of tort reform! 

As of 2001, 4 of the 5 states that had the most expensive medical malpractice insurance premiums also had the same “tort reform” provisions the medical and insurance industries want to pass in Georgia.[32] 

Half of the 25 most expensive states for buying medical malpractice insurance have the same or similar laws and half of the 25 least expensive states have the same or similar laws.[33]

There simply is no correlation between tort reform and reduced malpractice premiums.

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Insurers Admit Premiums Will Not Be Reduced In The Future

Most telling is the fact MAG Mutual’s representatives have consistently stated that even with the passage of their tort reform proposals, including severe caps on damages recoverable by a victim of medical malpractice, they cannot guarantee a premium reduction at any point in time in the future.  Other states that have recently passed draconian tort reform measures have learned after the fact a very hard lesson – insurers will never reduce premiums as a result of tort reform measures.  While a handful of states have passed some significant limitations on the rights of victims of medical malpractice, NONE of them have seen medical malpractice insurance premiums lowered. 

In Mississippi, where a contentious medical malpractice “tort reform” battle was waged during the summer of 2002, Medical Assurance Co. of Mississippi notified doctors that it would raise its rates by 45 percent in 2003 “regardless of the special session outcome” since “tort reform” does “not provide a magical ‘silver-bullet’ that will immediately affect medical malpractice insurance rates.”[34]

; b>In New Jersey, at a meeting of the New Jersey Assembly Joint Committees of Banking & Insurance and Health & Human Services on Medical Malpractice, Assemblyman Paul D’Amato asked Patricia Costanta, chairman and CEO of the MIIX Group of Insurance Companies, whether the company was promising its doctors that they would not raise premiums and would in fact reduce them, if the state passed tort reform.  Her response: “No, we’re not telling them that.”[35]

In Nevada, lawmakers were subjected to a nasty campaign by insurers and organized medicine during the summer of 2002, including the deliberate closing of trauma centers, in order to strong-arm the legislature into enacting severe caps on medical malpractice compensation.  Insurance groups fought any attempt to add a provision to guarantee lower rates should the legislation pass.  Within weeks of the law’s enactment, the insurance industry proclaimed that they would not reduce insurance rates.[36]

Insurers now say that they are “waiting to see” if caps will be upheld constitutionally, as many state constitutions prohibit caps since they directly interfere with the right to a jury trial, the right to a remedy, equal protection and/or separation of powers.

Such excuses are nothing more than a convenient cover for one undeniable fact: Insurers have never lowered rates as a consequence of “tort reform” because such measures are based on an untrue premise: that the legal system, rather than the underwriting practices of the insurance industry, is responsible for gyrations in the cost and availability of insurance. That is true now and was true during the attempt by insurers to take advantage of the last hard market cycle in the 1980s.

• Florida – Following enactment of extensive “tort reforms” in Florida in 1986, Aetna and St. Paul Marine Insurance Company said they would not reduce rates. In fact, filings by 104 insurers in Florida showed that out of 277 filings, 175, or 63 percent, showed no savings from “tort reform” while none showed savings of more than 10 percent. [37]

• In fact, after Florida passed its 1986 reforms, St. Paul conducted a study on all of its 1983 and 1984 claims to determine what effect the passed tort reform measures [including a cap on non-economic damages, elimination of joint and several liability, a change in the collateral rule and mandatory structured settlements on losses above $250,000] would have had on those claims if the law had already been in effect.  Here was St. Paul’s conclusion:

“The tort law changes effective July 1, 1986 in Florida will, hopefully, have a positive impact on loss costs for occurrences after that date.  However, to forecast the effect is highly speculative.  Our evaluation of prior losses showed little or no savings under key provisions of the law and our analysis of other provisions show no expected savings.  Our best estimate is no effect from the tort changes.”[38]

Washington – In 1986, the state of Washington enacted what was considered at the time “u>one of the most comprehensive [tort] reform bills yet.”  However, after the law passed, Washington State Physicians Insurance Association, which had testified that the law would reduce premiums by 25% to 30%, asked for a rate hike.[39]

Connecticut – In 1986, Connecticut enacted major “tort reforms.”  But by 1987, one state lawmaker was noting, “The insurance industry now says those measures will have no effect on insurance rates.  We have been disappointed by the response of the insurance industry.  The reforms we passed should have led to rate reductions because we made it more difficult to recover, or set limits on recovery.  But this hasn’t happened.”a href="#_ftn40" name="_ftnref40" >[40]

Why have insurers routinely asked for premium hikes after they have been successful getting “tort reforms” passed, and why has there not been a backlash by legislators, medical lobbies and other policy holders?

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Aren’t Insurance Companies Having To Pay More In Claims Than They Are Able To Earn In Premiums And Therefore In Financial Trouble?

NO and NO.  Another red herring thrown out by the insurance industry and particularly MAG and MAG Mutual is a supposed $1.54 nationwide combined loss ratio.  They state as a matter of fact that the figure means that insurers are paying out $1.54 for every $1.00 in premium they take in.  That is false and an outright intentional distortion.  A loss ratio is “insurance speak” for losses they predict they will have to pay in the future.  It is reassessed every year.  Historically, it has been extremely inaccurate.  Moreover, an insurer’s combined loss ratio can be well over a dollar in the medical malpractice industry with the insurer still making a healthy profit, in part because it does not take into account their ability to turn premium dollars into long-term investment income.  MAG Mutual historically has grossly overstated its loss ratios but nonetheless it has consistently made huge amounts of money.  The chart below shows how MAG Mutual’s premiums have exceeded its paid claims (because the typical medical malpractice claim takes a number of years to close, the amount of paid claims increases on an annual basis until all claims from any given year are closed):

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MAG Mutual – Nothing But Profits

One need only look at the premium to loss comparison in the chart above to determine how MAG made a profit every year in the 1990’s and has continued to do so since 2000.

Even if medical malpractice insurance companies spend more than they make in premiums, they can be, and usually are, still profitable because they are able to take the premiums they earn, invest them in the financial markets and hold those premium and investment dollars for many years before they ever have to pay them out for a claim.  This “float” enables medical malpractice insurance companies to pay out considerably more money than they earn in premiums and still do quite well. 

MAG Mutual is a model of how a medical malpractice insurer can succeed in Georgia.  MAG Mutual reports in a recent publication that it is in such good financial shape that:

It paid $30 million in dividends back to its policyholders from 1994-2000[41]

In July 2001, MAG Mutual reported that it had over $558 million in assets, $176 million in policyholder surplus, and an “A” rating by A. M. Best[42] 

A legitimate question is why MAG has felt obligated to increase physician premiums instead of using its massive surplus to maintain level premiums or more moderately increase them. 

The truth is malpractice insurance is one of the most profitable lines of insurance in the industry. The National Association of Insurance Commissioners (NAIC) reports that medical malpractice insurers were the third most profitable of all insurers nationwide.[43] Profits from medical malpractice coverage were almost double the property and casualty insurance industry average in 1999 with malpractice garnering a 14.2% profit, and property and casualty lines making 8.2%.[44]

In Georgia, malpractice insurers were more profitable than any other line of insurance except for a few commercial and private auto lines.[45]  When different auto lines are combined, the NAIC reports that malpractice insurance was the most profitable definable line of insurance in Georgia from 1991-2000, the latest dates for which figures have been released.[46]

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The Insurance Cycle – Déjà Vu All Over Again

This is the third time in the past three decades the insurance and medical industries have sought to profit from an economic downturn that in part has caused a temporary increase in insurance premiums.  In the mid-1970’s and most recently in the mid-1980’s, during the country’s last liability insurance “crisis,” state legislatures across the country were asked to pass laws restricting the rights of innocent citizens to be compensated for their injuries.

Major national and Georgia publications appropriately concluded that the alleged “crisis” in the 1980’s was what it had been in the 1970’s – part of an insurance cycle which was self-inflicted by the insurance industry and which was not driven by out of control claims:

Business Week published an article entitled “The Explosion In Liability Lawsuits Is Nothing But A Myth.”[47] 

A Consumer Reports article entitled “The Manufactured Crisis – Liability insurance companies have created a crisis and dumped it on you” noted, “[a] more objective analysis suggests the “crisis” is of the insurance companies own making.”[48]  It quoted a Washington State Task Force as concluding that the premium escalations were the result “mostly of poor management practices by the [insurance] companies.”[49] 

In Georgia, the business and finance magazine Georgia Trend asked, b>“Would the insurance crisis go away if Georgia passed tort reform?” Its response: “Almost certainly the answer is no.”[50]

Similarly, in the late 1980’s, an Attorneys General Report “An Analysis of The Causes of the Current Crisis of Unavailability and Unaffordability of Liability Insurance,” pointed the finger back at the industry, not the civil justice system.  The report concluded that:

The facts do not bear out the allegations of an “explosion in litigation or in claim size, nor do they bear out the allegations of a financial disaster suffered by property/casualty insurers today.”  It went on to state, “… the available data indicate the causes of, and therefore the solutions to, the current crisis lie with the insurance industry itself.” [51]     

MAG and others attempted the same scare tactics in Georgia in the 1980’s

“According to a survey taken by the Medical Association of Georgia, 35% of Georgia’s obstetrics practitioners will stop delivering babies because malpractice insurance premiums have soared.  And, almost 80% of all doctors will cut out some services as a defensive measure against lawsuits.[52]

Interestingly, despite the passage of some tort reform measures in Georgia in 1987, including repeal of the collateral source rule, claims exposure did not dramatically decrease.  Instead, claims remained essentially stable or merely increased with inflation, population growth, advancing medical technology and an increase in the number of doctors practicing in Georgia.  Eventually, a few years after the mid-1980’s insurance crisis, the insurance cycle flattened out, rates stabilized and availability improved everywhere. 

Despite the ruling of the Georgia Supreme Court striking down the collateral source statute as unconstitutional in 1991[53] insurers in Georgia and MAG Mutual in particular went on to make unprecedented profits in the 1990’s – despite a purported increase in claim amounts. Most critically, not only did physicians not flee the state, stop delivering babies or cease reading mammograms, but throughout the 1990’s, malpractice premiums in Georgia were slashed to unprecedented lows. By 2000, Georgia’s obstetricians’ rates had plummeted nearly 30% from their 1992 levels.  Today, even amidst the current alleged crisis, OB rates are still below what insurers charged in Georgia over a decade ago. 

Again, where is the crisis?

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The Wall Street Journal – Insurers Provoked This “Crisis”

The current problems in the medical malpractice insurance market are a direct result of the cyclical nature of the insurance industry, the lack of strong non-profit insurance companies, the insurance price wars of the mid-1990s, the slumping stock market and the downturn in interest rates.  As such, it is an exact repeat of the last two insurance “crises” of the mid-1980s and mid-1970s.  These “crises” have absolutely nothing to do with the legal system, lawyers or juries.  Rather, they are created by the insurance industry’s own practices and the insurance underwriting cycle and are affecting all lines of insurance across the country.

A confluence of events completely unrelated to the court system is responsible for the present rise of malpractice premiums:

First, b>malpractice insurers slashed premiums throughout the 1990s and used questionable accounting and business practices to justify their profitability.[54] 

Insurers continued slashing premiums even though they “knew rates were inadequate in 1995 to 2000" to cover claims according to Bob Sanders, an actuary with Milliman USA, a Seattle consultancy serving insurance companies.[55]

Now, b>insurance companies must raise their premiums dramatically to make up for the artificially low premiums charged throughout the 1990s. 

Second, the stock market has tanked.  Throughout the 1990s insurers were able to remain highly profitable because their gains in the stock market offset their artificially low premiums.  According to theu> Wall Street Journal, “when the bull market stalled in 2000, investment gains that had patched over inadequate premium rates disappeared.”[56] 

Finally, the national tragedy of September 11, 2001 cost reinsurers billions of dollars with Lloyd’s of London alone losing approximately $8 billion[57]  Reinsurers were then required to raise premiums on insurance companies, thus leading to premium increases across the board.

The result has not been a surprise to insurance observers. According to the International Risk Management Institute (IRMI):

“What is happening to the market for medical malpractice insurance in 2001 is a direct result of trends and events present since the mid to late 1990s.  Throughout the 1990s, and reaching a peak around 1997 and 1998, insurers were on a quest for market share, that is, they were driven more by the amount of premium they could book rather than the adequacy of premiums to pay losses.  In large part this emphasis on market share was driven by a desire to accumulate large amounts of capital with which to turn into investment income.”[58]

Added IRMI:“Clearly a business cannot continue operating in that fashion indefinitely.  Indeed, this has been the case for such long time writers of professional liability insurance as Frontier, Reliance, and P.I.E. Mutual.  These companies, who suffered through several years of weakening performance, have been liquidated or are otherwise inactive.”[59]

This has not been lost on the Members of Congress; ten of whom recently directed the US General Accounting Office to investigate the role insurers played in the recent spike in medical malpractice insurance prices.[60]  Therefore, any “solution” to the medical malpractice availability and affordability problem that does not specifically address the practices of the insurance industry is doomed to failure.

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St. Paul And Other Exiting Insurers – Mismanagement And Fraud To Blame, Not Juries

Why have St. Paul Co. and smaller companies exited the medical malpractice insurance market?  In 2001, one of the country’s largest medical malpractice insurance companies, St. Paul, pulled out of the medical malpractice insurance market, creating significant supply and demand problems in many states.

According to a June 24, 2002, Wall Street Journal front-page investigative article, St. Paul, with 20% share of the national market, pulled out after mismanaging their underwriting and reserves.[61]  In the 1980s, the company set aside too much money for malpractice claims.  So, using a tricky accounting method, in the 1990s the company “released” $1.1 billion in reserves, which flowed through its income statements and appeared like big profits. Seeing these profits, many new, smaller carriers came into the market. Everyone started slashing prices to attract customers.  From 1995 to 2000, rates fell so low that they became inadequate to cover malpractice claims.  Many companies collapsed as a result. St. Paul eventually pulled out, creating huge supply and demand problems for doctors in many states.[62]

St. Paul – Years of Mismanagement and Other Problems

Even after getting out of the medical malpractice business, St. Paul’s problems continued to demonstrate that poor business practices, not medical malpractice insurance, have really been at the heart of the company’s downfall. In May 2002, the company was placed on credit watch with negative implications and in July 2002, St. Paul had its ratings lowered again by Standard and Poor’s due to its handling of asbestos and other environmental claims.

Nevada.  In May 2002, the Nevada Attorney General’s office filed an administrative complaint against St. Paul in connection with its decision to pull out of the medical malpractice market. The complaint cites St. Paul for alleged unlawful business practices, unauthorized policy modifications, payment of commissions to unlicensed agents, unlawful policy cancellations and nonrenewals and failure to return unearned premium payments.63]

West Virginia.  A group of Charleston surgeons have sued St. Paul for “grossly poor management” that led St. Paul to drop malpractice coverage.[64]

Other Fraud.

Reliance.  In June 2002, the Pennsylvania Insurance Commissioner filed suit against directors of the defunct Reliance Insurance Co., alleging breach of fiduciary duty and negligence. From 1998 through the first half of 2000, the company’s directors allowed more than half a billion dollars in dividend and other payments to be paid to holding companies of which Reliance directors were major shareholders.

Phico.  In 2001, Pennsylvania regulators filed a civil fraud suit against the Pennsylvania Hospital Insurance Co., or Phico, which filed for bankruptcy in December. The company’s board was allegedly misled on the adequacy of Phico’s premium rates and funds set aside to pay claims.  “On the way to becoming the nation’s seventh-largest malpractice insurer, the company had suffered mounting losses on policies for medical offices and nursing homes as far away as Miami.”[65]

How can insurers continue to blame lawsuits and juries for the lack of affordable medical malpractice insurance in some states, when the evidence suggests that mismanagement and fraud are to blame for so many medical malpractice insurers leaving the market?

These factors have caused the dramatic increases in physician’s premiums.  They have nothing to do with the tort system!

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Evidence In Georgia Shows
The Journal Is Right

In the 1990s, insurers in Georgia, including MAG Mutual, followed the national pattern and kept rates artificially low, as they tried to undercut other insurers and write as many policies as possible so that this capital could be turned into investment income.  In Georgia, MAG’s own internal data shows malpractice premiums actually dropped more than 40% from 1988 to 2000.

As Georgia’s Insurance Commissioner, John Oxendine, recently alluded to at a seminar when he discussed the malpractice premium increases in Georgia, the fact is MAG did too good of a job in chasing off the competition.  In addition, St. Paul, the second largest insurer of doctors in Georgia, withdrew from the national medical malpractice market.  This occurred for reasons completely unrelated to Georgia, but instead due to gross mismanagement and St. Paul’s ill-fated acquisition of American Continental/MMI, which unexpectedly increased its reserve requirements overnight by hundreds of millions of dollars. 

Thus, Georgia has been left with too few carriers.  MAG’s marketing techniques, along with questionable business practices by insurers, forced many companies and other established insurers to either leave the market or adopt these irresponsible practices.  Once insurers' investment income began to slump, improper claims management and under priced coverage forced them to raise rates considerably and to restrict coverage or leave the market.  The insurance companies would not be in this position had they simply priced their product appropriately and not been so hungry for investment income.[66] 

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Malpractice Premiums Do Not Drive Up Healthcare Costs

Malpractice premiums are not driving up healthcare costs.

Medical costs rose 13 times faster than malpractice premiums from 1988-1998[67]  

Medical malpractice costs are at an all-time low as a percentage of national health care expenditures - .55% of total health care costs.[68]

Based on the small share of the total healthcare budget, even if all medical malpractice cases were eliminated, the cost “savings” would only be about one-half of one percent of every dollar spent on health care.

These facts show that medical malpractice insurance is truly an amazing value, particularly when one considers that medical negligence is the 8th leading cause of death in the U.S. and that medical errors cost the U.S. economy between $17 billion and $29 billion each year.[69]

Additionally, “defensive medicine” is not a key factor in driving up health care costs.  In 1994, the Office of Technology Assessment (OTA) was asked initially by proponents of sweeping malpractice tort restrictions to study the issue. OTA found, among other things, that only “a relatively small proportion of all diagnostic procedures – certainly less than 8 percent – are likely to be caused primarily by conscious concern about malpractice liability risk.” OTA found that most physicians who order “aggressive diagnostic procedures ... do so primarily because they believe such procedures are medically indicated, not primarily because of concerns about liability.”  The effects of traditional tort reforms – particularly caps on damages and amendments to the collateral source rule – on defensive medicine “are likely to be small.”[70]

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Malpractice Defendants Already Have Special Legal Protections In Georgia

Georgia law already has some of the strongest legal protections just for doctors and hospitals. 

In Georgia, a victim of malpractice must have another doctor swear under oath that the physician or hospital committed malpractice before he or she can file a lawsuit for medical malpractice.[71]

In a medical malpractice trial, the jury is told from the beginning of their deliberations to presume that the doctor provided appropriate care.[72] 

If the jury makes a questionable decision in favor of a victim of malpractice, the judge can reduce the verdict or even order a new trial for the doctor or the hospital.[73] 

Even if the jury returns what the defense perceives is a “runaway verdict” for an injured patient, the insurance company for the doctor or hospital virtually always settles the case for an amount that is already covered by the doctor’s or hospital’s insurance policy limits.

In reality, jurors are extremely sympathetic to physicians and unlikely to award damages to an injured person:

In cases MAG has taken to trial since 1982, the defendant healthcare provider has won in 82% of the cases – even though the jury hears expert physician testimony establishing that the doctor committed negligence that caused the plaintiff’s injuries.[74] 

In 2001, MAG Mutual made NO indemnity payment in 83% of the claims it closed.

In 2001, MAG won 81 percent of the cases it took to trial.[75] 

Why should doctors and hospitals be held any less accountable for the harm they cause than the rest of us?

Additional tort restrictions on the legal rights of patients would only punish those Georgians who have been injured by medical errors and need help to recover and would not provide physicians or hospitals relief from rising premiums.

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Real Legislative Solutions

At the same time doctors and hospitals are being squeezed by their malpractice insurers, they are also facing reduced reimbursement rates from Medicaid, Medicare and HMOs.  Any effective solutions to the medical malpractice insurance affordability and availability problem must address these factors.  The Legislature should:

Explore the creation and promotion of new doctor and hospital owned insurance vehicles – physician and hospital group mutuals, trusts, captives and risk retention groups.  In March of 2002, Joe Parker, President of the Georgia Hospital Association was quoted in the Atlanta Business Chronicle as saying that within the next few weeks the GHA would roll out a medical malpractice captive product which in the long run would save hospitals money and would allow them to recoup any money not spent.  To date, GTLA is unaware of any such concept actually being implemented or created.  Such insurance options would give physicians and hospitals more control over premiums, risk management and litigation decision-making.  Insurance industry experts have said that these can be created with relative ease and without as much capital as one might expect.  Notwithstanding MAG Mutual’s conduct of late, experience shows that doctor owned companies can withstand the predatory practices of the insurance industry and the drastic cycles of the insurance market.

Create a market assistance plan whereby the state would act as a broker to place those physicians and hospitals that cannot find coverage.

Require stricter and more detailed filing requirements by malpractice insurers to gauge when they are under pricing and to forecast the need for moderate increases in premiums before an economic downturn. 

Implement tax incentives and breaks for insurance carriers to attract more carriers to be domiciled in this state.  Georgia’s premium tax is the third highest in the nation.  It has caused at least eight insurance companies to move their domicile to states other than Georgia.

Consider raising Medicaid, Medicare and HMO reimbursement rates, especially for rural healthcare providers and for ‘high risk’ specialties.

Require closer oversight by the Department of Insurance in connection with the raising or lowering of premiums.

Vest the Insurance Commissioner with authority to place limitations on how premiums can be set with the manipulation of credits and debits.   

Give real teeth to “prompt pay” laws.

Reduce the incidence of malpractice by all means possible including passing legislation increasing nurse to patient ratios, making mandatory the reporting of medical errors and narrowing or eliminating peer review.

Focus on civil justice changes that result in the more efficient and timely resolution of malpractice cases and the reduction of frivolous claims and defenses.  

Eliminate the insurance industry’s exemption from antitrust laws so as to preclude them from engaging in anti-competitive conduct that fixes prices and prevents physicians and hospitals from having any equality in bargaining power.

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The Real Crisis – Medical Negligence

As stated above, the cost of medical malpractice premiums are essentially one half of one percent of the total cost of health care.  We should be focusing instead on the cost of medical negligence on our citizens and our health care system.

Medical errors kill as many as 98,000 Americans every year and seriously injure another 1,000,000 per year.  This makes medical errors the 8th leading cause of death in the U.S., higher than AIDS, automobile accidents and breast cancer.[76]

Extrapolated to Georgia’s population, that same study shows that nearly 2,800 Georgians die annually as a result of medical errors.  This correlates to more than 7 Georgians dying from malpractice every single day.  And another 77 Georgians are seriously injured by medical mistakes every day.

75,000 hospital patients were killed in 2000 by preventable infections, making it the fourth leading cause of death for Americans.  “Infection rates are soaring nationally, exacerbated by hospital cutbacks and carelessness by doctors and nurses.”[77]

Hospital patients are 36% more likely to get an infection now than they were in the 1970s. [78]

Medical errors cost the economy $29 billion every year in excess medical expenses and lost productivity.[79]  

One out of every 200 people admitted to a hospital dies because of a hospital mistake.[80]

Only one out of every eight patients who are killed or seriously injured by medical negligence ever files a lawsuit.[81]

Physicians have operated on the wrong body part or the wrong patient at least 108 times over the last two years.  These mistakes “are completely preventable and should never happen.”[82]

A recent study by the Harvard School of Public Health reported that more than one third of practicing physicians and 40% of the public have experienced a medical error – defined as a mistake that results in death, disability or requiring additional treatment.  18% of physicians and 24% of the public said the mistake caused “serious health consequences.”[83]

In light of these sad and sobering facts, now is not the time to make life more difficult for those who have become victims of medical malpractice.  It is vitally important to the safety of all Georgia families that those people who have been injured by a medical error should be able to receive compensation for their injuries and assistance in their recovery.  It is equally important that health care consumers are able to access the track records of physicians and hospitals so they can make informed decisions when choosing a health care provider.  Consumer information is an area that needs significant improvement.

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Conclusion

Placing arbitrary limits on the 7th Amendment rights of our citizens, especially those who have placed their trust and often their lives in the hands of a medical care provider, only to be harmed by that provider, will have real life, devastating effects on real life people.  A cap on “non-economic” damages would cruelly impact those devastated by acts of malpractice while failing to achieve any correction of the premium problem. Before considering drastic and unnecessary changes to the civil justice system, consider the following real examples of actual claims involving Georgia citizens and the impact of an arbitrary cap on damages:

The survivors of a 26-year-old, low-wage-earning mother, whose death was caused by a botched cesarean section, who would have almost no economic damages to recover.  Her husband was left with no spouse and the baby girl has no mother.  Tort “reformers” would limit this family’s rights to recovering $250,000.

The case of the death of a 21-year-old college student, whose bacterial meningitis was misdiagnosed, would involve very little economic damages.  His parents were left to agonize over the unfulfilled dreams of a life they had created but the tort reformers would value their loss at nothing more than $250,000.

The tort reformers also would limit to $250,000 the value of the loss of an elderly woman, whose life expectancy was “only another 10 years” according to an insurance company’s actuarial experts. She was subjected to the excruciatingly painful effects of a decubitus ulcer that was allowed to develop, exposing the woman’s tailbone and hipbone to life-threatening bacteria from the feces she was forced to lay in for days at the nursing home before she ultimately died of neglect and starvation.

This is the third time in the last three decades that the insurance industry has created this medical malpractice insurance “crisis.”  Each time the powerful insurance companies demand that lawmakers enact tort “reform” as the only solution to fix the problem.  But, as we have seen, tort “reform” is not the answer, it only increases insurance company profits and punishes those who have been wrongfully injured.  It is time for everyone to recognize that this problem is not only happening in all lines of insurance, but is also occurring throughout the world and the same old “fix” of blaming lawsuits is not the real answer.  Now is the time for us to begin looking for new solutions and to start looking into the true root of the problem – insurance industry practices by both the liability and health insurance sectors.  Only through insurance reform can the next insurance rate hike cycle be avoided.

References