In the first two months of the year, physicians staged highly publicized walkouts in West Virginia and New Jersey over sharply rising premiums for malpractice insurance. The American Medical Association claims we have a “medical liability crisis” on our hands, and the solution is legislation limiting the amount of money juries can give malpractice victims. President Bush, ever eager to do the bidding of the nation’s upper classes, announced during his State of the Union address that malpractice suits are “one of the prime causes” of medical inflation and that he would ask Congress to enact “medical liability reform.”
For the third time in the past three decades, the insurance industry has provoked a debate about the malpractice system by dramatically raising liability premiums. The first crisis occurred in the mid-’70s, the second in the mid-’80s. Both followed the same pattern: The AMA and its conservative political allies blamed the premium increases on greedy patients, greedy lawyers and gullible juries; the media duly reported the AMA’s diagnosis and downplayed evidence that undermined the “lawsuits are to blame” thesis; and politicians passed laws making it harder for malpractice victims to win compensation for their injuries. The current debate looks to be more of the same. But before Congress and state legislatures give in to the AMA’s demands, they should familiarize themselves with a few little-known facts.
First, the nation’s malpractice system is definitely not a “prime cause” of health care inflation. That statement will surprise most Americans. According to polling data, a majority of Americans think malpractice litigation is a leading cause of health care inflation. However, that reflects the omnipresence of AMA and insurance industry propaganda, not reality. The total cost of malpractice litigation comes to no more than 2 to 3 percent of the total national health care bill. (About half of this is attributable to the premiums doctors and hospitals pay; the other half is the cost of “defensive medicine,” the unnecessary services doctors order to protect themselves against lawsuits.)
Even the most fervent critics of malpractice lawsuits don’t allege that all of the costs associated with malpractice litigation can be eliminated with “reform.” They argue that only a small fraction of the 2 to 3 percent in total costs can be eliminated. How small? Ten years ago, when the AMA and another president named Bush were promoting malpractice “reform,” an AMA-backed coalition called the National Medical Liability Reform Coalition estimated their proposal would save $4 billion if it were in effect by 1994. That’s a lot of money, but it’s peanuts compared to total spending on health care. Assuming, for the sake of argument, that $4 billion was an accurate measure of the cost of frivolous lawsuits and excessive jury awards in 1994, that amount was still just four-tenths of 1 percent of the $940 billion the United States spent on health care that year.
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The second fact Congress must understand is that a prime cause of high malpractice premiums is the high rate of malpractice. Although enormous sums have been spent promoting the notion that liability premiums are too high (they may well be) and lawyers and greedy patients are to blame, much less has been spent determining how widespread malpractice is.
The number of studies measuring the prevalence of malpractice is no more than half a dozen. The best known of these is the Harvard Medical Practice Study, which examined the records of patients hospitalized in New York in 1984 and was published as a series of articles in The New England Journal of Medicine in 1991. The study found that 4 percent of patients suffered an “adverse event” while hospitalized, and that one-fourth of these injuries were caused by negligence. In other words, 1 percent of hospitalized patients were harmed by malpractice.
These results were recently confirmed by a study of patients hospitalized in Utah and Colorado in 1992. The study, which appeared in The Indiana Law Review in 2000, found that 3 percent of patients had suffered an adverse event, and 30 percent of these cases—or 1 percent of patients—resulted from malpractice. Based on these findings, one can estimate that around 1 million Americans per year suffer adverse events while hospitalized, about 300,000 of them caused by negligence. (Keep in mind that these figures reflect only malpractice in in-patient hospital settings. No rigorous research has been conducted on malpractice outside of hospitals.)
The two studies differed on the percentage of malpractice victims who died from their injuries. The Harvard study said 25 percent died, but the Colorado-Utah study found that 9 percent died. Either figure represents an unacceptably high death toll. The annual death total nationwide, if the Colorado-Utah study is right, is more than 25,000; the Harvard results would raise that number to 75,000. To put these numbers in context, consider that 30,000 Americans die annually from gunshot injuries, and 43,000 die each year from traffic accidents.
The third and most important fact Congress should get straight is that the vast majority of malpractice victims don’t sue. According to the Harvard study, just 1.5 percent of the patients identified as a victim of malpractice filed a lawsuit. In the Colorado-Utah study, only 2.5 percent of malpractice victims did so. (The authors of these studies didn’t report how many of the 2 percent actually won compensation for their injuries.) This conclusion is consistent with an earlier study of hospitalized California patients, which reported that the number of adverse events caused by physician negligence was 10 times the number of malpractice claims filed against doctors, and that only 4 percent of the malpractice victims received compensation. As the authors of the Harvard study put it: “There is no basis for the charge that the amount of malpractice litigation is excessive. On the contrary, there seems to be a major ‘deficit’ of litigation.”
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These three facts—malpractice suits constitute a tiny fraction of all health care costs, malpractice is widespread, and just 2 percent of malpractice victims sue—get very little attention from the media. By contrast, the media have lavished attention on the argument that the rising cost of liability insurance in some states was caused exclusively by litigious patients and irresponsibly generous juries. “Everybody is suing, it seems like,” says the president.
Total, inflation-adjusted payouts by malpractice insurers for jury awards and settlements did rise by about 20 percent from 1999 to 2001 (after holding steady from 1992 to 1999). Does this prove that lawsuits are the problem? By no means. First of all, data from the first nine months of 2002 indicate a drop in payouts to the 1999 level. Second, a surge in the amount and severity of malpractice may well have contributed to the apparently temporary increase in payouts.
Third, according to critics ranging from Public Citizen to the Wall Street Journal, bad business decisions by liability insurers played a significant role in the recent increase in premiums. The Journal concluded that malpractice insurance was a “very lucrative specialty” in the mid-’90s, but became less so when the stock market declined and insurers kept their premiums artificially low for a few years trying to steal market share from each other. According to this thesis, the recent premium increases were due in large part to the insurance industry’s need to recoup losses caused by the tumbling stock market and industry price wars. The CEO of a “leading malpractice insurer in California” even told the Journal: “I don’t like to hear insurance-company executives say it’s the tort system—it’s self-inflicted.”
The Bush-AMA proposal to cap jury awards for “pain and suffering” at $250,000 would do nothing to address the real issues. Widespread malpractice is the fundamental problem. The most effective way to reduce malpractice costs would be to reduce the rate of bad outcomes from medical treatment. That will require action on numerous fronts, including restoring the cuts in hospital nursing staffs that occurred during the ’80s and ’90s under the onslaught of managed care, giving patients the right to sue HMOs, computerizing the prescribing of drugs, and a much greater effort by the medical profession to retrain, or remove the licenses of, bad doctors.
For the third time in the past three decades, the insurance industry has provoked a debate about the malpractice system by dramatically raising liability premiums. The first crisis occurred in the mid-’70s, the second in the mid-’80s. Both followed the same pattern: The AMA and its conservative political allies blamed the premium increases on greedy patients, greedy lawyers and gullible juries; the media duly reported the AMA’s diagnosis and downplayed evidence that undermined the “lawsuits are to blame” thesis; and politicians passed laws making it harder for malpractice victims to win compensation for their injuries. The current debate looks to be more of the same. But before Congress and state legislatures give in to the AMA’s demands, they should familiarize themselves with a few little-known facts.
First, the nation’s malpractice system is definitely not a “prime cause” of health care inflation. That statement will surprise most Americans. According to polling data, a majority of Americans think malpractice litigation is a leading cause of health care inflation. However, that reflects the omnipresence of AMA and insurance industry propaganda, not reality. The total cost of malpractice litigation comes to no more than 2 to 3 percent of the total national health care bill. (About half of this is attributable to the premiums doctors and hospitals pay; the other half is the cost of “defensive medicine,” the unnecessary services doctors order to protect themselves against lawsuits.)
Even the most fervent critics of malpractice lawsuits don’t allege that all of the costs associated with malpractice litigation can be eliminated with “reform.” They argue that only a small fraction of the 2 to 3 percent in total costs can be eliminated. How small? Ten years ago, when the AMA and another president named Bush were promoting malpractice “reform,” an AMA-backed coalition called the National Medical Liability Reform Coalition estimated their proposal would save $4 billion if it were in effect by 1994. That’s a lot of money, but it’s peanuts compared to total spending on health care. Assuming, for the sake of argument, that $4 billion was an accurate measure of the cost of frivolous lawsuits and excessive jury awards in 1994, that amount was still just four-tenths of 1 percent of the $940 billion the United States spent on health care that year.
————–
The second fact Congress must understand is that a prime cause of high malpractice premiums is the high rate of malpractice. Although enormous sums have been spent promoting the notion that liability premiums are too high (they may well be) and lawyers and greedy patients are to blame, much less has been spent determining how widespread malpractice is.
The number of studies measuring the prevalence of malpractice is no more than half a dozen. The best known of these is the Harvard Medical Practice Study, which examined the records of patients hospitalized in New York in 1984 and was published as a series of articles in The New England Journal of Medicine in 1991. The study found that 4 percent of patients suffered an “adverse event” while hospitalized, and that one-fourth of these injuries were caused by negligence. In other words, 1 percent of hospitalized patients were harmed by malpractice.
These results were recently confirmed by a study of patients hospitalized in Utah and Colorado in 1992. The study, which appeared in The Indiana Law Review in 2000, found that 3 percent of patients had suffered an adverse event, and 30 percent of these cases—or 1 percent of patients—resulted from malpractice. Based on these findings, one can estimate that around 1 million Americans per year suffer adverse events while hospitalized, about 300,000 of them caused by negligence. (Keep in mind that these figures reflect only malpractice in in-patient hospital settings. No rigorous research has been conducted on malpractice outside of hospitals.)
The two studies differed on the percentage of malpractice victims who died from their injuries. The Harvard study said 25 percent died, but the Colorado-Utah study found that 9 percent died. Either figure represents an unacceptably high death toll. The annual death total nationwide, if the Colorado-Utah study is right, is more than 25,000; the Harvard results would raise that number to 75,000. To put these numbers in context, consider that 30,000 Americans die annually from gunshot injuries, and 43,000 die each year from traffic accidents.
The third and most important fact Congress should get straight is that the vast majority of malpractice victims don’t sue. According to the Harvard study, just 1.5 percent of the patients identified as a victim of malpractice filed a lawsuit. In the Colorado-Utah study, only 2.5 percent of malpractice victims did so. (The authors of these studies didn’t report how many of the 2 percent actually won compensation for their injuries.) This conclusion is consistent with an earlier study of hospitalized California patients, which reported that the number of adverse events caused by physician negligence was 10 times the number of malpractice claims filed against doctors, and that only 4 percent of the malpractice victims received compensation. As the authors of the Harvard study put it: “There is no basis for the charge that the amount of malpractice litigation is excessive. On the contrary, there seems to be a major ‘deficit’ of litigation.”
————–
These three facts—malpractice suits constitute a tiny fraction of all health care costs, malpractice is widespread, and just 2 percent of malpractice victims sue—get very little attention from the media. By contrast, the media have lavished attention on the argument that the rising cost of liability insurance in some states was caused exclusively by litigious patients and irresponsibly generous juries. “Everybody is suing, it seems like,” says the president.
Total, inflation-adjusted payouts by malpractice insurers for jury awards and settlements did rise by about 20 percent from 1999 to 2001 (after holding steady from 1992 to 1999). Does this prove that lawsuits are the problem? By no means. First of all, data from the first nine months of 2002 indicate a drop in payouts to the 1999 level. Second, a surge in the amount and severity of malpractice may well have contributed to the apparently temporary increase in payouts.
Third, according to critics ranging from Public Citizen to the Wall Street Journal, bad business decisions by liability insurers played a significant role in the recent increase in premiums. The Journal concluded that malpractice insurance was a “very lucrative specialty” in the mid-’90s, but became less so when the stock market declined and insurers kept their premiums artificially low for a few years trying to steal market share from each other. According to this thesis, the recent premium increases were due in large part to the insurance industry’s need to recoup losses caused by the tumbling stock market and industry price wars. The CEO of a “leading malpractice insurer in California” even told the Journal: “I don’t like to hear insurance-company executives say it’s the tort system—it’s self-inflicted.”
The Bush-AMA proposal to cap jury awards for “pain and suffering” at $250,000 would do nothing to address the real issues. Widespread malpractice is the fundamental problem. The most effective way to reduce malpractice costs would be to reduce the rate of bad outcomes from medical treatment. That will require action on numerous fronts, including restoring the cuts in hospital nursing staffs that occurred during the ’80s and ’90s under the onslaught of managed care, giving patients the right to sue HMOs, computerizing the prescribing of drugs, and a much greater effort by the medical profession to retrain, or remove the licenses of, bad doctors.
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Kip Sullivan sits on the steering committee of the Minnesota Universal Health Care Coalition. He is the author of The Health Care Mess, available at authorhouse.com.
