Does Tort Reform Assist Physicians, reduce liabilities and control premiums?

January 24, 2012

This is a persistent question, debated widely even amongst physicians who you might assume all to be unilaterally in favor of tort reforms. Recently Med Scape Online News published this analysis. 

The Doctors’ Company works hard to have a voice in the state legislatures to advocate for effective tort reform. Some of this work is paying off.  Actually, there are many victories on this front.  When looking at the medical liability landscape, doctors will see some recent victories fending off tort reform challenges.

California's $250,000 noneconomic damages cap -- long a protected, almost sacred standard of tort reform,- was upheld by an appellate court in September 2011. West Virginia's cap also experienced a recent judicial ‘win’ for tort reform, declaring constitutional by the state's high court in June 2011.

These reforms are credited with keeping doctors who otherwise would have fled to a better liability climate have stayed put…While, again, the subject of a lot of debate….it is provable that liability premiums in tort reform states are typically lowered or at least stabilized.

The Doctors’ Company, represented by our agency, in many states, is very careful about expanding into states without reasonable reforms.  Regardless of the state into which we expand, we are careful about the unique physician’s risk, profile, practice history, claims and education. 

The Tort Reform battles will come and go,The Doctors’ Company and the expertise of helping physicians present and understand the malpractice insurance application process will, in the end help to control some of the losses.  The Supreme Courts, for their part are engaging these discussions.  Not all of the news is great,   In 2010, the Georgia Supreme Court found that state's $350,000 cap unconstitutional, and the Illinois Supreme Court did the same with the Illinois cap of $500,000. Legal challenges are being waged in Missouri, Indiana and elsewhere.

Two recent reports from the American Medical Association provide an even broader reality check on the scale of the challenge that physicians still face. This does not mean that these states are in crisis,

Rather, these states understand that there is a standard of effective tort reform; effective tort reforms are the topic of these legislative and judicial efforts. The Doctors’ Company, for their part (along with some other Physician Insurance Companies) are working hard uphold reforms. 

Even though the premiums have remained flat for the past seven to eight years,  there is a lot of evidence that the upward pressure on settlements and defense will begin to drain the capital that is present in the market.  The first study, issued in November 2011, found that the average expense to defend against a medical liability claim in 2010 was $47,158. That's a 63% increase from 2001.  About two in three claims against doctors were dropped, dismissed or withdrawn without payment in 2010, but expenses handling even those dead-end claims average $26,851.

Payments on claims have remained stable, but a small fraction account for a disproportionate share of those payments. Payouts of at least $1 million accounted for 34% of total payments, these payouts drive up the averages and cost the industry dearly.   This large number of high payouts underscores the need for caps on noneconomic damages to contain health care costs and premiums.

The second report, released in December 2011, analyzed premium information from 2004 to 2011 collected by the Medical Liability Monitor. Even with improvements in the market, the report shows that many states still have unacceptably high premiums. For example, premiums for obstetrician-gynecologists in some areas of New York hit $206,913 in 2011, a 41% increase from 2004.  Although, it is important to point out that the premiums in this high risk specialty are significantly lower in many other venues.

Overall stability of premiums, viewed as a generally positive sign, also was reflected in the data. On a national scale, 55% of premiums held steady in 2011, while 15% increased and 30% decreased. The trend of stable rates has held for seven  straight years.

Still, premiums vary widely depending on where a physician practices, with general surgeons paying as much as $191,000 in South Florida or as little as $11,000 in Minnesota, just about $ 19,000 in California.  

The AMA has long fought for tort reforms and continues to pursue solutions.  The Association is seeking reforms at the federal and state levels, and it supports testing new approaches, such as health courts. Meanwhile, the Litigation Center of the American Medical Association and the State Medical Societies is helping to defend challenges to state caps.

Indeed, it is the states where reforms have been made. Yet the prospect of delivering care under a sound medical liability system should not end at the state line. The two AMA reports and Monitor data present a view of the system that should compel the industry to continue working toward some federal level of reforms.