Are soaring US malpractice rates just a memory now?BMJ 2015; 350 doi: https://doi.org/10.1136/bmj.h394 (Published 27 January 2015) Cite this as: BMJ 2015;350:h394
- Leigh Page, freelance writer, Chicago, Illinois, USA
From 2000 to 2003, US physicians saw massive increases in their malpractice insurance premiums. Rates doubled in some cases. For neurosurgeons, premiums started topping $300 000 (£198 000; €258 000) a year—equal to the price of a new house.
Some doctors had to take out loans to pay their premiums. Many took to the streets, demonstrating for malpractice reform in state capitals. Some even participated in work stoppages.
Twelve years later, those anxious times are a distant memory for most US doctors. Except in certain areas, such as New York, premiums have generally been dropping since 2005, and malpractice insurance seems to be in the middle of the longest period of relatively stable or lowering rates in recent history. Have we entered a new era, in which premiums stay low and prices fluctuate very little?
This seems to be the case, according to Rob Francis, chief operating officer of The Doctors Company, a doctor owned malpractice carrier in Napa, Calif. Francis reported that the number of lawsuits handled by his company has fallen 40% since the crisis, and premiums have dropped similarly. He asserted that current prices have become “the new baseline,” meaning that premiums would stay around the current level, rather than jumping back to higher levels from the past.
The insurance market runs in cycles, so the current “soft market” characterised by low premiums would have to end, Francis said, but he doesn’t think it will happen for at least three more years. “We are probably into the middle of the soft market, or maybe past the middle,” he said. That would mean the soft market will last at least 13 years—previous soft markets have lasted 8-12 years.
Francis added that the soft market wouldn’t have to go out with a bang, as happened last time. Rates could rise gradually, without having to spike.
Clouds on the horizon
However, he did see clouds on the horizon that might alter this scenario. He has been seeing more payouts in excess of $10m, and too many of these could exhaust companies’ reserves. He also worries that new payment methods are putting pressure on doctors to cut unnecessary services, which could prompt more lawsuits.
Also, Francis said US malpractice carriers cannot rely as much as they did before on income from investments to keep premiums low. He added, however, that carriers have stored ample reserves over the past decade, and this would make it possible to stave off premium increases for several years.
Chad Karls, a principal and consulting actuary for Milliman, in Brookfield, Wisconsin, agrees that there’s been a dramatic change in the market. “Rates have dropped because there are far fewer claims today than there were a decade ago,” he said.
However, Karls is not so optimistic that there will not be a big rise. Carriers have jumped into new markets in the past few years to take advantage of lower claims rates, pushing premiums even lower, he said. “Competition may be keeping rates artificially low,” Karls explained. “Things would have to get very bad before carriers would take the plunge and raise rates,” but when that happens, rates could go up significantly, he said.
Both Francis and Karls warned that their predictions may be way off because the malpractice insurance cycle is notoriously hard to predict. Even past changes in the market are still not fully understood, making it hard to gain clear insights that could help predict the future.
Causes of crisis still debated
Causes of the crisis in 2000-03 are still debated. Robert Harbaugh, president of the American Academy of Neurological Surgeons (AANS), says it was mainly caused by higher payouts per claim. When attorneys filed claims and juries determined injuries, “the sky was the limit,” he said. For neurosurgeons, the average payment for closed suits rose from $386 624 in 1988-92 to $591 584 in 1998-2002, but payouts have subsided since then, he reported.
US neurosurgeons, who have both the highest payouts and highest premiums of any specialty, suffered heavily in the crisis. A survey by the AANS and allied organisations found that from 2000 to 2002, half of all neurosurgeons had premium increases of up to 50%, while 13% had increases of 50-100% and 19% had increases of more than 100%.1
Francis said the cost of claims rose precipitously around 2000, and carriers were too “thinly priced” to accommodate the change and had to raise prices. But an analysis by David Hyman at the University of Illinois and Charles Silver at the University of Texas asserted that the number of claims did not rise appreciably and was actually declining throughout the 1990s.2
A 2004 study by Kenneth Thorpe at Emory University pinned much of the blame for the crisis on the insurance industry.3 Thorpe found that carriers—overly optimistic because of a drop in claims in the 1990s—had lowered their reserves and become too dependent on investment income to cushion against market changes. Thorpe wrote that when income from investments fell 30% in 2002, reinsurers had to suddenly raise their rates or go out of business. Several carriers shut or left the market, including the St Paul Companies, the largest in the United States at the time. These changes forced 14% of US physicians to scramble to find a new carrier.
Francis said the cost of payouts began falling in 2004, although carriers held off reducing premiums for a few years because they weren’t convinced the drop would last and they needed to build up their depleted reserves. Since The Doctors Company started cutting premiums, total premiums have fallen every year, he said. There was some talk about an end of the soft market in 2012, he said, but it never materialised.
The drop in premiums has been phenomenal. From 2004 to 2013, rates fell 36% for internists and obstetrician-gynecologists and 30% for general surgeons in California, Illinois, and Tennessee, according to a study in JAMA.4 Not all physicians, however, benefited from the trend. In New York, where frequent and large payouts have been the norm for many years, premiums for the largest insurer actually rose 12% for obstetricians, 16% for internists, and 35% for general surgeons, the study reported.
Elsewhere rates are continuing to fall. In the latest nationwide survey, by Medical Liability Monitor in October 2014, premiums had fallen 1.7% for obstetricians, 1.6% for internists, and 1.3% for general surgeons.5 Even New York physicians are seeing some relief. In December, the Medical Liability Mutual Insurance Company declared a one-time “special dividend” for New York customers in 2015 because payouts had fallen.6
Causes of recovery also unclear
Just what caused the crisis to end seems just as murky as what caused it to start. An oft cited reason is malpractice reforms. Although many states had already enacted reforms before the crisis, a new crop was passed during the crisis.
Limits on non-economic damages are considered to have been the most effective reform. These payments complement economic damages, which are usually based on future income and thus only favour wealthier plaintiffs. The majority of malpractice lawsuits rely on payments for non-economic damages, including a patient’s “pain and suffering.”
More than half of states—including California and Texas—have capped non-economic damages, with limits varying from $250 000 to $750 000. Studies have shown that caps not only reduce the amount of each payout but also can cut the number of lawsuits filed.7 Since attorneys can’t earn as much money under the caps, they have to be more selective in taking on cases.
However about a dozen states—including Florida, Georgia, and Illinois—have overturned caps or haven’t passed them at all because, according to the constitutions of those states, they would violate a plaintiff’s right to a fair trial. And there hasn’t been a strong connection between numbers of lawsuits and malpractice reforms—even caps on non-economic damages, according to David Belk, an internist in Alameda, California, who has studied the incidence of malpractice lawsuits.
Analysing statistics from the National Practitioner Data Bank, Belk has found that caps in Louisiana and Michigan, for example, have led to relatively little change in premiums, while there has been a substantial drop in lawsuits in some states that don’t have caps, such as Minnesota.
The reason why caps in Louisiana and Michigan were not effective may be that they are relatively high. There is evidence that caps of $500 000 or more have little effect on malpractice claims.8 On the other hand, low caps, set at $250 000, may make it impossible for some patients with legitimate cases to find an attorney. A 2009 study by the American Bar Association found that many Texas attorneys reduced the number of malpractice cases they took after the state enacted a $250 000 cap in 2003.9 ProPublica, an independent group of investigative journalists, has identified hundreds of cases of patient harm that had not been pursued because an attorney couldn’t be found.10
Harbaugh and others believe pretrial screening panels for malpractice lawsuits are a more effective way to reduce frivolous suits without quashing legitimate cases. But few states have such panels, and in New Hampshire, where they were introduced a few years ago, they’re hardly used because both sides have to agree to use them. In 2013, only two cases went before New Hampshire’s panels.11
Possible causes besides reforms
Belk and others have looked beyond malpractice reforms to find an explanation for the drop-off in lawsuits. For instance, it could be that doctors were so alarmed by the last crisis that they have redoubled efforts to guard against bad outcomes and to dissuade patients from filing frivolous suits. Doctors who have good relations with their patients are thought to have lower risks of being sued, he said.
Indeed, since the crisis, more physicians have signed up for risk management programs offered by carriers, according to Francis and other insurance executives. Physicians can reduce their premiums by several percentage points by taking online courses.
Belk thinks physicians also rely more on practice guidelines that are based on scientific evidence, and he pointed to new courses in medical schools that teach physicians how to build relationships with patients and avoid lawsuits. Belk was still in training during the last crisis and sees himself as part of a new generation of physicians who are better trained to deal with malpractice risks.
Harbaugh, however, disputes these possibilities. In neurosurgery, at least, practice standards have not survived critical review, he asserted. “Some standards of care for neurosurgery are used in most academic medical centres,” he said, “but when they are critically reviewed, there isn’t any irrefutable evidence that they really made a difference to outcomes.” He added that data on lawsuits filed against neurosurgeons do not suggest that younger colleagues are less likely to be sued.
A change in public attitudes toward doctors might also have influenced the drop in lawsuits, Belk said. Comparing Marcus Welby, MD, a US television show that aired in the early ’70s, with House, which aired in the 2000s, Belk thinks Americans have developed a less idealized view of the profession. “Patients now realize that the doctor isn’t responsible for every outcome,” he maintains.
Karls also thinks public views have changed for the better. When doctors warned during the crisis that lawsuits were forcing them to abandon high risk procedures and driving them to other states, he thinks many Americans took them seriously. Karls cited Time magazine’s June 2003 cover story, “The Doctor is Out,” as a watershed moment for the public.
Evidence of the shift in public opinion came in November 2014, when California voters overwhelmingly rejected a ballot measure, backed by plaintiffs’ attorneys, that would have raised the state’s cap on non-economic damages from $250 000 to $1.1m. It was an upset victory for doctors. Six months earlier, a Milliman actuary predicted the measure would pass, saying it would usher in a new era of higher caps across the country.12 The California vote makes that less likely.
Low rates and relatively mild variations have become the new norm, even though the reasons are far from certain, said Greg Roslund, an emergency physician in Dallas who has written on malpractice insurance rates.
“To swing back to the old premium levels, there would have to be some kind of new force, like raising the cap on non-economic damages,” he said. “I don’t see that happening.”
Roslund is a strong believer in the cap on non-economic damages. He took his residency in Illinois, which currently has no cap and relatively high premiums. He is pleased to have settled in Texas, where rates have fallen 75% since the state enacted its cap.
“I would love to see the whole country do what Texas did,” he said, pointing to legislation that has languished in the US Congress for years, calling for a national cap on non-economic damages. But Roslund conceded that all the good news about low insurance premiums means federal legislation may have little chance of passing. Doctors aren’t hurting enough these days, as far as malpractice premiums are concerned.
Cite this as: BMJ 2015;350:h394
Competing interests: I have read and understood BMJ policy on declaration of interests and have no relevant interests to declare.
Provenance and peer review: Commissioned; not externally peer reviewed.