Medical malpractice is facing a crisis in the US.

The medical malpractice insurance situation in the US has once more reached `crisis' proportions, with national insurance associations such as the Alliance of American Insurers (AAI) and the National Association of Independent Insurers (NAII) calling for legislative reform of medical malpractice both at the state and federal levels. It has happened before. In the mid-1980s, insurers began pulling out of writing the coverage in certain states where liberal jury verdicts were causing losses that far outpaced premium income.

But then, in the early 1990s, the equities market began its climb, and investment income became so attractive that insurers chased after premium dollars at the expense of underwriting judgment. Now that the investment market has fallen off, insurers are once more pulling back from writing this volatile line.

"There is clearly a capacity shortage in the medical malpractice arena and those companies that are staying in the market are looking for rate increases in the double digits and triple digits," said Matthew Coyle, director of Standard & Poor's Financial Services Ratings. "We're seeing a whipsaw effect from previous years where rates were low. Physicians are being the hardest hit, but hospitals are feeling the pinch as well. Bedpan mutuals might make up for some of the lost capacity, but they can't replace the large players that have left the market."

A `bedpan' mutual is a slang expression referring to physician-owned and hospital-owned mutual insurance companies that were set up during the last hard medical malpractice insurance market.

Jim Hurley, consulting actuary with Tillinghast-Towers Perrin, said that, according to rating agency AM Best, the entire medical malpractice insurance industry in the US represents some $8bn. "In the last 12-18 months, more than $1bn of capacity has been taken out of the marketplace," he said. "The major players that are out of the market are St Paul, Phico, Frontier and MIIX. Physicians and hospitals need to find capacity to replace that which has been lost and they will eventually have to turn to the medical mutuals, the excess and surplus lines industry, offshore captives or state-run joint underwriting associations."

Of those four medical malpractice markets, three have been taken out rather than pulling out voluntarily. Phico is a Delaware insurance company that is in liquidation. MIXX was a medical malpractice insurance market covering about 37% of New Jersey's doctors that has been ordered to stop selling new policies. Frontier is also in financial difficulty. Both Mr Coyle and Mr Hurley agreed that at the heart of the malpractice crisis is the tort-liability system in the US.

Once again, as in the last crisis period, attempts are being made to reform tort laws as they relate to medical malpractice.

Recently, the US House of Representatives passed a bill, patterned after California's medical malpractice reform law, that would limit damage awards in medical malpractice lawsuits. This is a top priority for doctors and business groups that argue such caps will help hold down health costs and prevent doctors from abandoning high-risk practices. The bill, also strongly sought by the American Medical Association, was passed by a 217-203 vote, with about 30 lawmakers crossing party lines in both directions. However, while malpractice reform has long had support in the House and from President Bush, it has consistently faced obstacles in the Senate. In July, the Senate defeated a narrower malpractice proposal offered as an amendment to an unrelated drug bill. Sponsored by Pennsylvania Republican James Greenwood, the House bill places no limits on economic damages but caps `pain and suffering' damages at $250,000. Punitive damages are also at $250,000 or twice the economic damages, whichever is greater. In addition, the legislation sets a sliding scale for attorneys' fees, and shields from litigation makers of medical devices and products approved by the Food and Drug Administration.

Changes are taking place at state level as well, according to Sarah White of the AAI. In Arizona, she said, the Medical Malpractice Subcommittee of the Arizona Director of Insurance's task force on commercial lines insurance has agreed to pursue a voluntary plan for providing medical malpractice liability insurance.

In Florida, Governor Jeb Bush created a Select Task Force on healthcare professional liability insurance to address the rising costs of insurance premiums there. The task force will make recommendations aimed at preventing availability and affordability problems. The task force consists of academics from several universities in Florida and they are expected to hear testimony from various interested parties. The task force will submit a recommendation or proposed legislation to the Governor, the President of the Senate and the Speaker of the House by 31 January next year. The report should include an examination of Florida premium costs and tort laws as compared to other states, an assessment of availability and affordability of insurance, and specific strategies to address the perceived crisis, said Ms White.

In Georgia, the state Chamber of Commerce recently formed a task force to address the issue of increasing medical malpractice premiums. Also, Lt Gov Mark Taylor named a Senate subcommittee to determine what effects a potential crisis could have on the state budget. Finally, the Medical Association of Georgia is planning a march on the Capitol on 15 November, the first day the bills can be pre-filed for the 2003 legislative session.

In Iowa, the insurance department recently held a hearing addressing potential medical malpractice issues in the state.

In Kentucky, the department of insurance held a public hearing on the availability and affordability of malpractice insurance. The purpose was to determine whether a competitive market exists in the state, whether medical malpractice insurance should be made a designated line and whether to establish a joint underwriting association.

In New Jersey, medical malpractice continues to be an issue, according to Ms White. The New Jersey Citizens United for Healthcare Access, supported by the Medical Society of New Jersey and the New Jersey Hospital Association, is holding a series of rallies throughout the state, urging lawmakers to resolve the professional liability crisis.

Ms White said that Mississippi is in the midst of a special session to deal with medical malpractice issues. Both the House and Senate have passed a bill that is now in concurrence committee. The versions of the bill differ dramatically and the bill that finally emerges from conference may not be as effective as hoped due to the need for compromise, she said. One of the issues causing problems is the question of a cap on non-economic damages.

The Nevada Governor Kenny Guinn recently signed a tort reform that caps non-economic damages at $350,000, provides several liability for non-economic damages, reduces the statute of limitations, creates a patient safety board and limits civil liability for trauma services in government and non-profit hospitals to $50,000.

The Ohio Senate Insurance, Commerce and Labor Committee has held a hearing on a bill that would provide caps on non-economic damages and a sliding scale for attorneys' fees, though it will not be addressed again until after the November 5 state elections.

In Texas, a group of Republican lawmakers held a press conference stressing the need for tort reform legislation in the next session. Among the proposals was a $250,000 cap on punitive damages and a statute of limitations for medical liability lawsuits. According to Ms White, the voluntary market assistance plan established in Washington is enjoying initial success. Of the 600 doctors that needed to find medical malpractice insurance coverage by 1 July, 98% had been successfully placed.

Pennsylvania is of particular interest in terms of medical malpractice reform. Governor Mark Schweiker, speaking recently before the state's Chamber of Business and Industry's annual dinner, warned that Pennsylvania was in danger of losing excellent physicians because of medical malpractice insurance availability problems. Recently, he signed a bill that the AAI said should go a long way toward improving the environment for writing medical malpractice insurance in the state. The bill, HB 1892, provides for tort reform, shortens the statute of limitations, provides possible privatisation of the MedCAT fund and implements patient safety requirements.

"Enactment of this bill is a good first step toward alleviating the medical malpractice crisis in Pennsylvania," said Neil Malady, Alliance Mid-Atlantic regional manager. "While not including all of the tort reform measures in the original House version, the bill does give some relief by shortening the state of repose and requiring periodic payment of future medical costs."

The original version's tort reform measures included provisions that banned joint and several liability for damages above $1m, capped non-economic damages and implemented venue reform, according to Ms White. In addition, aspects of the bill that strengthen the state's ability to investigate allegations of doctor misconduct or negligence will help improve future risks, she said.

The official AAI policy on medical malpractice is that it opposes short-term solutions to liability insurance availability problems because they do not address the underlying problems with the civil justice system. "Therefore, the Alliance advocates tort reform as the best means of eventually reducing claims costs and lawsuits," said Ms White. "Also, Alliance policy opposes formation of new JUAs (joint underwriting associations) or expansion of existing JUAs, since these mechanisms merely pool medical malpractice risks, do not address the underlying problem of rising claims costs and growing exposure of healthcare practitioners to suit."

The NAII has also taken on the issues that are perceived as part and parcel of the medical malpractice crisis. A combination of higher premiums, soaring jury awards and lower revenues is impeding patient access to care, said the NAII. "To turn around this crisis, frivolous lawsuits must be reduced, as well as exorbitant non-economic awards that address pain and suffering," it said in a position statement. "These measures will curtail the abuses in the tort liability system. Tort reform includes limitations on non-economic damages, meritless lawsuits and contingency fees."

The NAII pointed to a recent survey conducted by Wirthlin Worldwide for the Health Care Liability Alliance that shows the public "supports measures to turn the tide on the lawsuit lottery system." According to the survey, 78% of Americans say they are concerned about the impact rising liability costs have on the access to healthcare, and 73% support a law that caps pain and suffering awards. "With reform, medical care state-by-state will improve and malpractice insurance premiums will stabilise," said the NAII. "Without them, doctors will seek friendlier climate, businesses will locate elsewhere and citizens will pay more for all goods and services to subsidise state-run insurance pools that support a broken judicial system."

According to the most recent statistics available, the NAII contends that medical malpractice insurance is a profitable venture in only 14 states. "Between 1995-2000, liability costs skyrocketed and medical liability insurers' combined ratio jumped from 99.7% to 133.3%," it said. "Only 14 states reported combined ratios under 100% in 2000, which means only 14 states experienced an underwriting profit - Alaska, California, Colorado, Hawaii, Indiana, Iowa, Michigan, Minnesota, New Jersey, New York, South Dakota, Vermont and Wisconsin."

The NAII pointed to California as being a "pioneer of comprehensive tort reform." The law in that state:

  • limits recoveries for nebulous pain and suffering portions of settlements to $250,000;

  • allows periodic, rather than lump sum, payments of damages for future losses to ease the strain on insurers in the case of high settlements;

  • shortens statute of limitations to one-to-three years;

  • limits contingency attorneys' fees - an attorney is entitled to no more than 15% of any amount over $600,000;

  • discourages plaintiffs from double-dipping by suing a doctor for medical expenses, even though a health insurer has already paid the patient's bills and

  • encourages and facilitates arbitration.
  • The NAII maintains that it does not suggest revamping actual compensation for true malpractice. "That is what the concept of liability insurance is all about," it said. "We would not tamper with economic damages - such as lost income or wages, healthcare costs and replacing services the injured person can no longer perform. NAII supports control on spiralling costs for `pain and suffering' awards beyond actual financial losses. Non-economic damages include certain hardships, such as loss of companionship. Such subjective situations, in which money can never make the claimant whole again, are factors that drive up loss costs."

    Within the medical profession, there have always been certain categories of physicians that have been more at risk in terms of lawsuits. Obstetricians, for example, are high risk, as are neurosurgeons. Recently, the American Association of Neurological Surgeons (AANS) and the Congress of Neurological Surgeons, along with the American Medical Association and the Pennsylvania Society, gathered in Philadelphia to announce the results of a new national study concerning the impact of the professional liability crisis on patient care.

    According to the data, based on survey responses from over 700 neurosurgeons from 48 states and the District of Columbia, 25 states are in `severe' crisis and an additional 12 states are facing a `potential' medical liability crisis. During the news conference held in Philadelphia, it was revealed that neurosurgeons across the country have been experiencing professional liability rate increases. About half of those surveyed had increases of up to 50%, 13% have had between 50%-100% increases, and 19% have had over 100% increases in their malpractice insurance. "The impact that this crisis is having on patients cannot be understated," said Stephen M Papadopoulos, a practicing neurosurgeon from Phoenix, and president of the Congress of Neurological Surgeons. "Many neurosurgeons are no longer performing high-risk neurosurgical procedures in an attempt to lower their professional liability insurance costs and minimise their risk of suit. Based on this survey data, it seems that brain surgeons are no longer performing brain surgery."

    Because of increased liability risk, fewer neurosurgeons are covering hospital emergency rooms, and trauma hospitals are shutting their doors to neurotrauma, and diverting patients with serious health and spinal cord injuries to other locales, the survey showed.

    "What this means for the public is that our patients may be denied crucial neurological emergency medical treatment or they will have to travel greater distances, even to other states, to get the care they need," said Roberto C Heros, president of the AANS and co-chair of the Department of Neurosurgery at the University of Miami in Florida. "Critical life-saving time is lost while searching for an available emergency room," he said.

    At present, it is not certain whether relief in the medical malpractice situation will come from the federal government or on a long and arduous state-by-state basis. Medical malpractice has been an on-again, off-again crisis in the US for decades. Most experts believe that without true reform, even if the current crisis subsides as new capacity comes into the market - which it has in the past - the crisis will probably rear its ugly head again.

  • Phil Zinkewicz is a re / insurance journalist based in New York.