Medical Malpractice: A Comprehensive Analysis 9780313003981, 9780865692794

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MEDICAL MALPRACTICE

MEDICAL MALPRACTICE A COMPREHENSIVE ANALYSIS Vasanthakumar N. Bhat

AUBURN HOUSE Westport, Connecticut • London

Library of Congress Cataloging-in-Publication Data Bhat, Vasanthakumar N. Medical malpractice : a comprehensive analysis / Vasanthakumar N. Bhat. p. cm. Includes bibliographical references and index. ISBN 0–86569–279–3 (alk. paper) 1. Physicians—Malpractice. 2. Insurance, Physicians’ liability. I. Title. RA1056.5.B475 2001 344.73'0411—dc21 00–052554 British Library Cataloguing in Publication Data is available. Copyright  2001 by Vasanthakumar N. Bhat All rights reserved. No portion of this book may be reproduced, by any process or technique, without the express written consent of the publisher. Library of Congress Catalog Card Number: 00–052554 ISBN: 0–86569–279–3 First published in 2001 Auburn House, 88 Post Road West, Westport, CT 06881 An imprint of Greenwood Publishing Group, Inc. www.greenwood.com Printed in the United States of America TM

The paper used in this book complies with the Permanent Paper Standard issued by the National Information Standards Organization (Z39.48–1984). 10 9 8 7 6 5 4 3 2 1

Contents Tables and Figures

vii

Preface

xi

1

Opening Statement

1

2

Malpractice Claims

31

3

Severity of Medical Malpractice Claims

73

4

Medical Malpractice Insurance Premiums

95

5

Dental Malpractice

113

6

Politics of Malpractice

139

7

Medical Malpractice and the Supply of Physicians

155

8

Malpractice and Defensive Medicine

177

9

Malpractice and Health Care Costs

203

Closing Statement

221

10

Appendix I

249

Appendix II

253

Selected Bibliography

263

Author Index

267

Subject Index

273

Tables and Figures TABLES 1.1 International Health Indicators, around 1990

4

1.2

State Health Indicators

2.1

Annual Professional Liability Claims per 1 Million Patient Visits by Specialty, 1986–1994

35

2.2

Descriptive Statistics of Malpractice Payment Related Factors

40

2.3

Regression Estimates of Statewide Malpractice Payment Frequencies per 1,000 Physicians

41

Simple Averages of Payment Frequencies per 1,000 Physicians for 1992 by Various Tort Reforms

43

Annual Professional Liability Claims per 10 Million Population by Specialty, 1985–1996

44

Regression Estimates of Payment Frequencies per 100,000 People

47

Impact of State Tort Reforms on Medical Malpractice Payment Frequencies

52

2.8

Logistic Regression Estimates of Payments per Physician

55

2.9

Logistic Regression Model for Probability of Payment as a Result of Judgment or Settlement

60

Multiple Regression Estimates of the Malpractice Payments

80

2.4 2.5 2.6 2.7

3.1

6

viii

3.2

3.3 3.4

Tables and Figures

Simple Averages of Mean Payment for Paid Claims and Total Payment per Physician for 1 September 1990 to 31 December 1998 by Tort Reforms Impact of State Tort Reforms on Medical Malpractice Payment per Paid Claim

82 86

Multiple Regression Estimates of Delay in Years from Occurrence to Payment Regression Estimates of Malpractice Insurance Premiums for Statewide Class 3 Doctor–Mature Claims-Made Rates Regression Estimates of Statewide Hospital Premiums per Bed Impact of State Tort Reforms on Medical Malpractice Insurance Premiums Mean and Standard Deviations of Median Combined Ratios for 1992–1996 along with Their Spearman Correlations with Medical Malpractice Insurance Premiums Impact of Tort Reforms on Dental Malpractice Payment Rates, Payments and Probability of Payment through Settlement Two-Stage Least Squares Model for the Supply and Demand of Dentists Socioeconomic Factors and Reforms Descriptive Statistics of Variables Logistic Regression Estimate of Senate Votes against Bill 136 Liability Overhaul and Frivolous Lawsuits Descriptive Statistics of Variables Three-Stage Least Squared Simultaneous Equation Model Multiple Regression Output with Percent of Births Attended by Midwives in 1989 as a Dependent Variable Malpractice Payments per 10,000 Births by Physicians and Midwives Parameters of Practice Patterns of Obstetricians–Gynecologists, 1983–1992 Generalized Estimating Equation Model for Total Cesarean Rates with State as a Subject and Correlation Structure Autoregressive

188

8.2

Two-Stage Least Squares Simultaneous Equation Model for Total Cesarean Rates and Ob-gyn Premiums

190

9.1

Indicators Relating to Physicians’ Practice in 1985 and 1995

211

9.2

The Spearman Rank Correlations between Malpractice Stringency Indicators and Costs of Various Procedures

214

4.1 4.2 4.3 4.4

5.1 5.2 6.1 6.2 6.3 7.1 7.2 7.3 7.4 7.5 8.1

91 102 105 106

108 120 131 143 151 152 164 165 168 169 171

Tables and Figures

9.3

ix

Two-Stage Least Squares Simultaneous Equations Model for Changes in per Capita Health Care Expenditures and Physicians’ Services Expenditures for 1980–1993

217

10.1

Summary of Studies on Adverse Events in Hospitalized Patients

230

10.2

Summary of Studies of the Litigation System

232

10.3

Impact of Tort Reforms

238

APPENDIX II A.

Tort Reforms in Effect in 1993

254

B.

Annual Payment Rate per 1,000 Physicians, State Rank, Mean and Median Payment for Paid Claims, Average Annual Payment per Physician, State Rank, % Verdict and Delay between Incident and Payment in Years from 1 September 1990 to 31 December 1998

257

Mean, Median, and 95th Percentile of Claim Payments (1 September 1990 to 30 September 1999) by Dentists

260

C.

FIGURES 1.1

Tort Reforms by State: Plot of First Two Principal Components

24

2.1

Annual Professional Liability Claims per 100 Physicians, by Specialty, 1985–1994

34

2.2

Malpractice Payments by Reasons: Plot of First Two Principal Components

48

2.3

Privileges Actions Reports per 1,000 Physicians and Percent of Hospitals Never Reported

67

3.1

Mean Malpractice Awards in 1998 Dollars

75

3.2

Number and Average Payment for Paid Claims Filed in 1991 by Mean Delay from Incident to Payment

92

5.1 5.2

5.3 6.1

Medical, Physician Services, and Dental CPI and Average Annual Changes, 1960–1998

115

Average Payments for Dental Claims Paid through Settlement and Verdict by Delay from Incident to Payment for Incidents in 1991

125

Malpractice Reports and Licensure and Privileges Reports against Dentists from 1 September 1990 to 31 December 1998

127

Dendrogram of States based on Similarity of Tort Reforms

145

x

Tables and Figures

7.1 7.2 7.3 8.1 8.2 9.1 9.2

Civilians per Physician 1996 and Payment Rates per 1,000 Physicians 1990–1998 Ob-gyns per 100,000 Civilians and Ob-gyn Malpractice Premiums in 1991

162

Increase in Malpractice Premiums for Practicing Obstetrics and Percent of Family Physicians Practicing Obstetrics Total and Primary Cesarean and VBAC

163 181

Percentage of Unnecessary Care and Percentage of Managed Care Penetration Consumer Price Index and Physician Net Income Per Capita Health Care Costs Growth 1980–1993 and Malpractice Premiums 1985

157

196 209 218

Preface There has been an ongoing medical malpractice crisis in the United States starting from around the 1840s. The targets of malpractice lawsuits in the 1840s were physicians with diplomas. Malpractice lawsuits are filed to recover the costs of injuries resulting from a treatment that deviates from the standard of care. Since quacks did not follow a standard of care, they practiced medicine with immunity from lawsuits, and since they did not have so-called deep pockets, it was not profitable for anyone to sue them. Physicians complained about quitting practicing medicine because of the liability system then as they continue to do today. However, there are significant changes in the circumstances. Licensure requirements have driven out quacks. Despite competition from nurse practitioners and physician assistants, physicians dominate the health care system. The big brother, managed care, is trying to impose its own control. Still, targets of malpractice lawsuits continue to be physicians. There is no consensus about the cause of the medical malpractice liability. Several factors are likely to be responsible. Physicians blame lawyers and the contingency fee system. Lawyers and consumer groups blame physicians for negligently causing too many injuries. Others blame insurance companies and health maintenance organizations (HMOs). According to physicians, we have too many lawsuits and we have a malpractice crisis on hand. According to lawyers and consumer groups, we have too few lawsuits and we have a malpractice crisis on hand. It really does not matter who is right. Politics will decide how the tort game will be played. Even though the physician liability system has been receiving a great deal of attention, about 1 in 7 Americans are without health insurance. It is

xii

Preface

especially tragic as 1 in 3 hospital beds are vacant every day and people work more than 1.7 months just to pay their health care costs for a year. The purpose of this book is to present a comprehensive overview of the medical malpractice system. This is done through analysis of recent data. As a result, every chapter includes some applications of statistical techniques. The objective is to examine the impact of the liability system on different aspects of the health care delivery system. The volume of literature makes it impossible to present all viewpoints. The medical malpractice system is one of the most heavily researched topics in health administration. A search of MEDLINEplus produced about 70,000 research papers. This does not even include articles published in social science and statistical journals. Therefore, my goal is to present an overview of the literature along with my observations about medical malpractice from statistical analysis. This book consists of ten chapters. In Chapter 1, I discuss some examples of medical malpractice, performance of the U.S. health care system, state health care indicators, and various tort reform measures proposed and implemented by states. In the subsequent chapters, I examine the impact of the medical liability system on various aspects of the health care delivery system. In Chapter 2, I examine the impact of tort reforms on the medical malpractice payment rates. I also analyze the physician disciplinary system consisting of licensure adverse actions and also hospital clinical privileges adverse actions. Chapter 3 is about the severity of medical malpractice claims. This chapter presents a statistical analysis of payments for claims and examines the impact of tort reforms on claim payments. In Chapter 4, I discuss physician and hospital malpractice insurance and examine the impact of tort reforms on malpractice insurance. Chapter 5 deals with dental malpractice. I analyze the impact of tort reforms on claim payment rates and malpractice payments, and the likelihood of settlement. The problem of licensure of dentists is also discussed in Chapter 5. Chapter 6 discusses politics of malpractice. Chapter 7 examines the impact of malpractice on physician supply. I particularly examine the supply of obstetricians and gynecologists and the percentage of births attended by nurse midwives. Chapter 8 is about pervasive defensive medicine. The impact of tort reforms and malpractice insurance on cesarean deliveries are analyzed in this chapter. In Chapter 9, the impact of malpractice liability on costs is discussed. I present an overview of the malpractice system and its impact on various aspects of health care in Chapter 10. This book should be useful to anyone who wants to do research on medical malpractice and students in law, medicine, and health administration. I present several tables involving statistical analysis in almost every chapter. For those who want to learn more about statistical analysis, a brief introduction along with references is presented in Appendix I. In Appendix II, I present statewide data on tort reforms, physician malpractice payments, and dental malpractice payments. I also present a brief bibliography of books and articles at the end of this book.

Preface

xiii

This book is a solo project. I collected data, analyzed them using SAS威 programming language, and interpreted results. I even photocopied all reference materials. Despite my efforts, I cannot rule out errors. Chapter 8 was prepared as a part of the summer research funded by the Lubin School of Business, Pace University. I wish to thank Auburn House for publishing this book. This is my third book published by Greenwood Publishing. I also wish to thank David Palmer, Senior Production Editor, for guiding this book project through to the bound-book stage. I welcome your comments about this book.

1

Opening Statement INTRODUCTION The health care delivery system in the United States can almost perform miracles. It involves some risk of harm to patients but often, the risk is very low. Most adverse outcomes can be corrected with additional medical expenses and time away from work. A few procedures, however, may cause adverse outcomes with significant losses to patients. Even when a patient recovers from a disease, significant side effects may remain. Despite long and intensive education and residency, there are significant variations in competency exhibited by physicians; some physicians are better than others. Consequently, treatments can lead to a variety of outcomes. A patient faced with an adverse outcome can be provided with several alternatives to compensate for his or her losses. If a physician is not held responsible for an adverse outcome, then a patient may either selfinsure or buy a commercial insurance to indemnify him or her for costs of adverse outcomes. Another alternative may be to hold the provider responsible for costs of adverse outcomes. A third alternative may be to hold the provider responsible for costs of an adverse outcome if it can be shown that the provider has caused the adverse outcome. A fourth alternative may be to allow the provider and the patient to enter into a contract to assign costs of adverse outcomes. Obviously, these alternatives can affect the cost of delivery depending on who bears the responsibility for the cost of adverse outcomes. In this chapter, I discuss some examples of medical malpractice. I compare the performance of U.S. health care systems with those of other countries and examine variations in health care parameters among states. I discuss medical

2

Medical Malpractice

malpractice debate and describe medical malpractice goals. A malpractice decision model with implications is presented. I also discuss responses to malpractice by physicians. Tort reform and other issues intended to reduce malpractice claims and payments are examined. The chapter closes with a brief description of the National Practitioner Data Bank. Medical mistake is an error to a health care professional who commits it. For a patient and his or her loved ones, it is a nightmare. For a lawyer, it is a source of significant income. For a politician, it is a cause to raise campaign dollars. Critics call our litigation system of resolving malpractice claims a gamble. Claims take too long to resolve, expenses are too high, and results are unpredictable. The medical malpractice system involves too many interested parties: physicians, hospitals, trial lawyers, legislatures, lobbyists, insurance companies, and patients. Medical malpractice claims are resolved based on tort laws. A tort includes a wrongful act or omission, not based on a contract, that results in injury to another person. Tort law provides mechanisms to compensate a person for losses that the person suffers as a result of medical malpractice. Losses could be economic and noneconomic. Medical bills and lost wages constitute economic losses and pain; suffering and loss of loved ones constitute noneconomic losses. According to the Personal Injury Valuation Handbook,1 more than 1 in 5 malpractice verdicts involve death. Severe brain damage and emotional distress each constitute 1 in 25 verdicts. Spinal nerve injuries, less severe brain damage, paralysis injuries, and visual impairments are other causes for medical malpractice verdicts. Some examples of malpractice claims are as follows:2,3 • A 55-year-old woman suffered from brain destruction because the laboratory failed to diagnose herpes simplex encephalitis on time. The hospital claims her brain was compromised by the time she came for the treatment. This case was settled with a payment of $2 million in February 1994 about 41⁄2 years after the incident. • A 42-year-old man admitted for sore throat was given antibiotics and pain medication known to cause labored breathing. When the man developed a breathing problem, he was given more medication. The nurse did not inform her supervisor or emergency physician about the condition of the patient. Because of the respiratory arrest, this man had severe hypoxic brain damage and went into a permanent coma. The man was paid $2.65 million in April 1994 for the incident that occurred in November 1989. • A 9-year-old boy was paid compensatory damage of $7.125 million because of brain swelling resulting in a coma. The boy was administered intravenous fluids containing sodium even though the boy’s father had told the physician that the boy had nephrogenic diabetes insipidus, a condition that made it difficult for his kidneys to handle sodium. • A 20-year-old man suffered a severe heart attack because of a drug administered during surgery done after an accident. The heart attack caused severe brain damage. The injured was awarded $3,325,000 in cash and $425,000 per year for 46 years. • A drug administered to induce labor caused a mother to give birth to a child with cerebral palsy, mental retardation, and blindness. The mother was awarded $1 million.

Opening Statement

3

• After finding an infiltrate in the right upper lobe, a radiologist recommended a repeat chest X ray. However, neither X ray nor radiation was done. The 47-year-old patient died after a year. This case was settled for $500,000 for negligence involving delayed diagnosis of lung cancer and failure to perform radiation therapy. • When a firm breast lump was found in a 32-year-old woman, a physician did a normal mammogram and a negative core-needle biopsy. No excisional biopsy was done and there was a delay of 6 months in diagnosis of breast malignancy. Jury awarded $395,000.

Recovering damages for medical negligence involves a series of steps in court. To begin with, the lawyer for the injured person must establish the standard of care for which a provider is responsible. This is done through an expert witness. The lawyer for the injured should also establish that the injury causing the damage or loss was the result of the provider’s failure to adhere to the standard of care. If the injured can prove that the provider’s negligence resulted in the injury, then the injured is entitled to recover damages. How a judge or jury will decide the case is hard to predict and this uncertainty causes providers, insurers, and injured to settle the claim out of court. THE U.S. HEALTH CARE SYSTEM The United States spends more than a trillion dollars per year on health care. In absolute terms and as a percentage of gross domestic product, the United States spends more on health care than any other country in the world. These expenditures are financed by federal, state, and local governments; employers; and individuals. The population percentages covered by various health insurances in 1990 are as follows:4 Employer group insurance

61

Nongroup insurance

13

Medicare

13

Medicaid

10

Military and veteran care Uninsured

4 14

A majority of the population is covered by private health insurance. Most employees below the age of 65 and their dependents are covered through employerprovided health insurance. Since health insurance benefits are not subject to personal income and social security taxes, employees have an incentive to collect health coverage as a substitute for cash wages. According to the Employee Benefit Research Institute, health benefits as a proportion of total compensation rose from 2.4 percent in 1970 to 5.8 percent in 1989.5 Aged and disabled individuals are covered through Medicare administered by

4

Medical Malpractice

the federal government. The Medicare program consists of two parts: coverage under Part A includes in-patient hospital services, care at skilled nursing facilities, home health care, and hospice care; Part B includes physician and other ambulatory services. Payroll taxes, federal revenues, and premiums finance the Medicare program. Since health care costs are rising faster than payroll taxes, the Medicare Part A program is expected to run out of money in the beginning of this century. In addition, as population ages, there will be fewer workers paying payroll taxes per beneficiary. The U.S. Congress estimated 3 workers paying payroll taxes per beneficiary in 2000 and 1.9 by the year 2040. Medicaid, funded by the federal and state governments, covers only the poor and those who are aged, blind, disabled, pregnant, or the parent of a dependent child. Uninsured patients are not covered through any programs. Studies indicate that an uninsured person receives fewer health services than a person with insurance with comparable health status6 does. Health clinics and hospitals provide services to the uninsured. Recent cost containment policies have reduced accessibility of the uninsured to appropriate care. International Comparison Even though the United States spends the highest proportion of its gross domestic product on the health delivery system, it ranks poorly in a variety of health indicators. Table 1.1 shows health indicators for around 1990, for the United States, along with the maximum and minimum in 12 developed countries: Australia, Canada, France, Federal Republic of Germany, Italy, Japan,

Opening Statement

5

Netherlands, New Zealand, Norway, Spain, Sweden, and United Kingdom.7 There are significant differences in health indicators among developed countries. The United States leads all developed countries in infant, neonatal, postneonatal, and feto-infant mortality rates, and in motor vehicle deaths. State Heath Indicators There are significant health differences among states in the United States. Since health has many dimensions, no single health indicator can completely explain a population’s health. Table 1.2 shows the maximum and minimum state health indicators, along with those for the United States.8 MEDICAL MALPRACTICE DEBATE Holding physicians responsible for their treatment mistakes is not at all new. Medical providers were punished for their mistakes as early as in the second century B.C. According to the Babylonian legal code of Hammurabi, medical providers could be punished for the death or injury of a patient. For instance, a surgeon’s fingers were cut off if he caused death and a nurse had to sacrifice her breasts if she exchanged two infants by mistake.9 The first recorded malpractice lawsuit in the United States occurred in 1794 in Connecticut and involved Guthrie and Cross.10 Guthrie, a doctor, advertised his surgery skills. When something went wrong with Mrs. Cross’s breast, her husband called Guthrie. Guthrie diagnosed her as suffering from scrofula and surgically removed the breast. However, she hemorrhaged to death after the surgery. Even though Guthrie apologized to her husband, he sent a bill for fifteen pounds. Mr. Cross sued Guthrie for 1,000 pounds for “his costs and expense, and deprivation of the service and company of his wife.”11 The jury awarded him forty pounds (about $1,600 in current figures) for the loss of companionship and ordered him not to pay the bill. Physicians have faced medical malpractice liability for more than 200 years but malpractice became a public policy issue only recently. Using data from 1790 to 1955, Olsen12 argues that the medical malpractice “crisis” has existed since 1835. There were 217 malpractice cases in the U.S. Appellate Court in the period 1790 to 1900. From 1900 to 1955, malpractice cases in the U.S. Appellate Court rose to 1,712. Physicians won more than 1 in 2 malpractice cases during the period 1790 to 1955. Median awards in 1999 dollars rose from $7,425 in 1843–1849 to $478,483 in 1935–1955. According to Mohr,13 marketplace professionalism is a major factor for the advent of malpractice litigation around the 1840s. There were no laws specifying requirements to practice any profession and anyone could practice whatever profession he or she wished to. As a result, there was tremendous competition between physicians and other healers. The only way the public could hold a person responsible for his actions were through tort laws. However, malpractice

Opening Statement

7

litigation can exist only with an established practice and a healer cannot be sued for deviating from standards if no standards exist. Since only trained physicians had professional standards, they were sued and quacks were not. Quoting Burns, Spiegel and Kavaler14 cite five fundamental groupings of rationales for medical malpractice that evolved between 1845 and 1861. First, a physician “contracts with those who employ him that he has such skill, science, and information as will enable him properly and judiciously to perform the duties of his calling.” Second, “the principle is plain of uniform application, that when a person assumes the profession of physician and surgeon, he must, in its exercise, be held to employ a reasonable amount of care and skill. For anything short of that degree of skill in his practice, the law will hold him responsible for any injury which result from its absence. Third, a physician “undertakes that he will bring to the work a fair, reasonable and competent degree of care and skill in reference to the operation to be performed.” Fourth, “freedom from errors of judgement is never a part of a contract with a professional man.” And finally, physicians need not guarantee a cure. These principles led to increased malpractice lawsuits against better physicians. Since healers had no standard procedures, they could not be sued for medical malpractice and a physician expressed the following frustration as quoted in Spiegel and Kavaler:15 “It is better to be without a diploma; for then; besides having the sympathies of the community, the practitioner can say, ‘I make no pretensions, I offer no certificate of ability, and only gave my neighbour in his sufferings such aid as I could.’ ” According to Mohr,16 the pressures to innovate, uniform standards, malpractice liability insurance, contingent fees, the jury system, and the nature of tort pleading tended to sustain malpractice litigation. Although medical malpractice is founded on the standard principles of tort law, interest groups perceive medical malpractice differently depending on the way malpractice claims affect their financial, social, political, and professional interests. Differences in perception among politically perceptive interest groups have been significant obstacles in resolving malpractice problems. Articles supporting and opposing the medical malpractice system have appeared in newspapers and magazines. Most articles against the medical malpractice system were culled from the web pages of Health Care Liability Alliance (www.hcla.org). Opponents of malpractice cite malpractice cost as a cause of high health care costs. Opponents argue that the medical malpractice system modifies the doctor and patient relationship and creates an environment in which defensive strategies influence treatment decisions. Opponents also claim that damage awards are like winnings in a lottery and provide unscrupulous lawyers and patients incentives to sue the providers. The costs of defending malpractice lawsuits and damage awards are increasing the cost of medical treatment. The costs of defensive medicine are increasing medical costs and making medical care unaffordable. Rising malpractice costs are also forcing physicians to change their specialties and withdraw from performing risky medical procedures. For instance, according to a 1992 survey of the American College of Obstetricians and Gynecolo-

8

Medical Malpractice

gists (ACOG),17 12.3 percent of obstetrician-gynecologists nationally had quit obstetrics practice and 1 in 4 had reduced the amount of high-risk obstetric care as a result of the increased risk of malpractice. In addition, 4 out of 5 boardcertified physicians had at least one claim filed against them even after they went through a rigorous certification process. According to opponents of malpractice, this proves that malpractice claims are not just because of “bad doctors.” The opponents severely criticize the current malpractice system. The current system of compensating injured patients is time-consuming and expensive. Injured patients are getting smaller and smaller pieces of premium dollars. The injured person, on an average, gets only 43 cents of every dollar awarded. Quoting a Tillinghast survey, HCLA states that the United States has the world’s most expensive tort system, consuming 2.3 percent of gross domestic product. In addition, between 1933 and 1991, the tort cost increased almost 400-fold. According to the HCLA, the health care liability costs have four components: insurance premiums, defensive medicine, health product/service costs, and managed care costs. According to the HCLA fact sheet (www.hcla.org/fcost.htm), malpractice insurance premiums were about $9 billion in 1992; defensive medicine according to Lewin-VHI estimates was $25 billion; and health product service costs were $10.8 billion in 1990. Opponents of malpractice charge that malpractice lawsuits against physicians are hard to explain. There is no relationship between quality of care and malpractice claims against a physician. There is also no evidence of a deterrent effect of malpractice lawsuits in reducing negligent care. The liability system does not provide compensation to injured persons. Malpractice claims or payments may or may not be as a result of substandard care that has been provided by a facility or a practitioner. Still, malpractice claims and payments can have a devastating impact on physicians and facilities. The definition of negligence is vague and is hard to apply in individual cases.18 The unpredictability of awards impedes settlement. Most materials presented in support of the medical malpractice system are from the web pages of the Association of Trial Lawyers of America (www.atla.org). Newspapers and magazines are replete with stories about medical malpractice. An issue of People magazine contains stories about several people who died as the result of medical mistakes.19 Betsy A. Lehman, who wrote about health and medicine for the Boston Globe, died because of an overdose of anticancer drug. The cause of her death was discovered not by her physicians but by clerks doing a routine review of records.20 Another woman became “seriously and chronically debilitated from irreversible heart damage” at the same hospital as a result of an overdose of a chemotherapy drug.21 At Tampa’s University Community Hospital, a surgeon amputated the wrong leg of a 51-year-old man, and amputated the toe of a woman without her consent months later. At the same hospital, a therapist disconnected the ventilator of a 77-year-old man; this resulted in the man’s death.22 According to the Los Angeles Times, a boy died during a routine

Opening Statement

9

ear operation because the anesthesiologist fell asleep. Although he had fallen asleep during other surgeries, he was never adequately disciplined.23 The net medical malpractice premiums for the year 1995 were about $4.8 billion.24 According to a study by Tillinghast-Towers Perrin,25 total medical malpractice cost was $12.7 billion in 1994. Physicians were responsible for about 63 percent and hospitals 26 percent of these costs. The premiums and total malpractice costs represent only a miniscule part of the total health care cost of about $991.4 billion in 1995.26 According to the Tillinghast-Towers Perrin study, the tort system accounts for 2.5 percent of the U.S. gross domestic product. However, this does not include direct and indirect benefits of the tort system such as the systematic resolution of disputes, compensation for pain and suffering, and deterrent against unsafe practices and products. Although legislatures are often eager to pass laws to curtail medical malpractice costs, they constitute a mere 8 percent of the total 1994 cost of the U.S. tort system. Fees paid to the claimants’ attorneys accounted for about 16 percent of total tort costs. Slightly more than 20 percent of tort costs accounted for pain and suffering. If we were to extrapolate negligent deaths as a proportion of discharges estimated by the Harvard study of New York State hospitals, then physicians are killing about 80,000 patients a year.27 A few physicians account for a large percentage of medical malpractice expenses. For instance, in Cook County, less than 2 percent of all physicians accounted for 36 percent of medical malpractice expenses.28 Just 4 percent of physicians in Florida accounted for about 45 percent of malpractice claims paid in 1986. According to Dr. Arnold S. Relman, editor of the New England Journal of Medicine, “20,000 physicians, or 5% of the total, ‘for one reason or another probably ought not to be practicing medicine.’ They are either alcoholics, drug addicts, senile, criminals or simply incompetent physicians.”29 There is no litigation explosion as claimed by opponents of the malpractice system. According to an American Medical Association publication, the medical malpractice claim rates actually declined at an average annual rate of 8.9 percent during 1985–1990.30 According to an article in the Wall Street Journal, contract disputes involving businesses accounted for about 1 in 2 cases filed in the federal courts between 1985 and 1991.31 Medical malpractice tort cases represented only 4.9 percent of all tort cases filed in state courts in 75 large counties in 1992. Only 6.9 percent of medical malpractice claims go to trial.32 According to Localio et al., only 1 in 50 persons injured by physicians’ negligence file malpractice lawsuits.33 According to Danzon,34 malpractice compensation is neither consistent nor proportionate to losses. MEDICAL MALPRACTICE GOALS The purpose of medical malpractice is threefold:

10

Medical Malpractice

1. To compensate the injured 2. To deter further injuries 3. To gain retribution

Compensation for medical injuries is a paramount goal of medical malpractice actions. Compensation should be timely, fair, and paid to all who qualify for it. To be timely, compensation should be paid expeditiously. To be fair, compensation should be proportional to the amount of loss. However, it is important to determine what injuries will be compensated. The system could compensate all injuries regardless of cause, or medically caused injuries only, or negligent medical injuries only. Using the concept of quality costs, malpractice costs can be divided into injury costs and prevention costs. Injuries are expensive. Costs of injuries can be categorized into four types: medical and nonmedical costs, morbidity costs, mortality costs, and costs of pain and suffering. Costs of hospitals, nursing homes, physician visits, physical therapy, ambulances, wheelchairs, appliances, and so on are examples of medical costs. Nonmedical costs include costs of home modification, rehabilitation, and so on. Morbidity costs include the value of goods and services a person would have produced if that person were not injured. Mortality costs are the net present value of the future earnings lost due to death. Mortality costs depend on the age of death, gender, and interest rate used to discount the future earnings. Present values of lifetime earnings by age for males using a discount rate of 6 percent in 1985 in 1985 dollars and in 1997 dollars adjusted using the consumer price index are as follows:35 Age

1985 $

1997 $

Under 1

208,631

311,201

10–14

374,790

559,050

25–29

568,546

847,134

50–54

294,646

439,022

65–69

101,085

150,617

75–79

8,789

13,095

Net present values of lifetime earnings are low at early ages, increase with age until they peak for the 25–29 age group, and then decrease. Injuries reduce the quality of life and cause pain and suffering. Although these cannot be measured in monetary terms, dollar values can be assigned to them subjectively. Money spent on reducing injuries can be categorized as prevention costs. Prevention costs include costs of additional training, additional tests, and so on. Typically, costs of injuries increase with the number of injuries. On the other hand, cost of prevention decreases with the number of injuries. Several policy makers have suggested that the goal of the malpractice system should be to reduce the sum

Opening Statement

11

total costs of prevention, costs of injuries, and costs of administering the compensation system.36 The medical malpractice system should act as a deterrent and reduce future injuries. A physician typically has more information about both the injury and prevention costs. If a patient and a physician were fully aware of the risks, and the costs of contracting between them were minimal, then the malpractice system would operate with the least cost of prevention and injuries. However, since physicians have more information about the risks, they are better able to make decisions about prevention costs and the frequency of injuries. That is why physicians should be held responsible for injuries. This also should deter physicians from causing injuries.

MEDICAL MALPRACTICE MODEL The medical malpractice system can be considered in terms of a series of decisions. To begin with, a sick person needs to decide whether he should seek medical help. The outcome of such help may be favorable or unfavorable. If the patient suffers injury, he has to decide whether the injury is due to negligence. Then the patient may need to decide whether to file a malpractice claim. Once the formal claim is filed, the parties engage in settlement negotiations. The physician and the patient must decide whether to settle the claim or to try it to verdict. The patient and his lawyer, and the physician and his insurance company make decisions that maximize their expected payoffs or utility. Some implications of this model include • Increasing the cost of litigation to the physician may increase the quality of care. The cost of litigation to the physician is increased through higher frequency of claims, larger verdicts, and higher probability of winning by the injured. • If the cost of filing suit is higher than the payment, the injured will not pursue the claim. Therefore, lower payment and lower probability of winning the suit will reduce the frequency of malpractice claims. • A suit will go to trial if the estimated payoffs of the injured and the physicians from going to trial are higher than the trial costs. Increased trial costs therefore increase the likelihood of settlement.

According to Bebchuk37 and Posner,38 an increase in award amounts increases claim frequency. However, according to Png,39 the impact is not clear. Three well-known studies estimate various probabilities of the model. Both of these studies are based on patient records. Since patient records constitute the major piece of evidence in any malpractice suit, physicians are likely to slant medical records so as to hide the incidence of medical injuries. Therefore, these studies of incidence of medical injuries should be viewed cautiously. According to these studies, the likelihoods of various outcomes are as follows:

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Medical Malpractice

Harvard Study40

CMA/NAIC Study41

Utah and Colorado Study42

Injured per admission

0.037

0.0465

0.029

Negligent injured per admission

0.010

0.0079

0.0085

Non-negligent injured per admission

0.027

0.0386

0.0205

Claims per negligent injured

0.132

0.1

0.03

Claims per admission

0.0013

0.0008

0.000255

Success rate per claim

—

0.4

—

Successful claims per admission

—

0.000316

—

RESPONSES TO MEDICAL MALPRACTICE Differing perceptions about the medical malpractice compensation system among various groups has led to a variety of proposed resolutions to the problems. Uncertainties about the claims and premiums have led physicians to blame lawyers for initiating spurious claims. Physicians consider the contingent fee arrangement between lawyers and patients to be an incentive to bring claims against physicians. The slow judicial system and juries are blamed for unreasonable outcomes of medical malpractice claims. By contrast, lawyers blame physicians for increased medical negligence. Physicians are faulted with lack of sensitivity toward patients. Resentments among patients about high physician incomes are also considered a factor in increased malpractice claims by unhappy patients. Medical malpractice can influence health care costs. Direct costs of malpractice include malpractice premiums paid by providers, out-of-pocket expenses, and time spent in defending malpractice suits. Malpractice premiums are of concern because higher premiums cause higher physician fees and thus directly influence access to care.43,44 Malpractice premiums, which had been rising steadily, have stabilized in recent years. The malpractice costs (in thousands) in recent years, along with percentage changes over 5 years are as follows:45 Year

Hospital

% Change

Physicians

1975 1980

% Change

Total Cost

$ 320

—

$ 898

181

1985

$1,635

1990

$2,028

1994

$2,754

% Change

$ 564

—

$ 1,147

—

$1,740

208

$ 3,407

97

82

$3,387

95

$ 6,528

92

24

$4,271

26

$ 8,542

31

36

$6,567

54

$12,699

49

These premiums account for less than 1 percent of total health care expenditure in the United States. However, these costs do not include costs incurred by self-

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insured providers, costs of in-house attorneys in a health care institution, and physicians’ time in defending suits. The indirect costs of the malpractice system and their impact on the health care system include costs of activities performed to reduce malpractice risks. Increased costs of diagnostic procedures, record keeping, and increased time spent with patients are some malpractice-related activities that can increase health care costs. However, such increased prevention activities can increase health care outcomes and reduce subsequent costs of health care. Although both direct and some indirect costs of the malpractice system may increase health care costs, they can act as a deterrent to negligence and can improve outcomes. However, such deterrences also can encourage physicians to overtreat patients, thus significantly increasing health care costs without substantial benefits. Rising malpractice premiums and damages have forced interest groups to respond to the malpractice compensation system. Following is a brief discussion of changes in provider behavior, tort reforms, malpractice compensation approaches, and insurance reforms. Changes in Provider Behavior The costs of defending malpractice claims and of liability insurance may influence the behavior of health care providers. Defensive Medicine. A medical malpractice lawsuit is not the only consequence of committing a medical error. A physician may be subjected to state licensing board disciplinary actions, as well as criminal charges and jail sentences. Punitive actions beyond medical malpractice lawsuits are on the rise. Articles in the media such as “The Prescription that Kills: Can Hospitals Reduce Their Mistakes?”46 and “Why Some Doctors May Be Hazardous to Your Health”47 have dramatically increased patients’ anxiety about doctors. One way physicians respond to medical malpractice suits is through defensive medicine. Deviations from appropriate medical practice to reduce risk of being sued represent defensive medicine. Defensive medicine is a significant burden on society because it increases costs of medical treatment without commensurate increases in benefits. Defensive medicine is beneficial if things a physician does to reduce the risk of malpractice litigation increase the quality of care. Beneficial defensive medicine practices include additional diagnostic tests, additional time for diagnosis, accurate information about treatment options, and extensive medical records. Harmful defensive medicine practices include not performing risky procedures, refusing patients, restricting treatment to low-risk patients, and retiring from medical practice. Defensive medicine is discussed in more detail in Chapter 8. Risk Management. The purpose of risk management is to reduce risks. Riskmanagement strategies originated in the insurance industry to reduce businessclaim losses. Rising malpractice claim losses prompted the health care industry to develop strategies to prevent avoidable medically related injuries to patients.

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According to the 1990 Joint Commission on Accreditation of Health Care Organizations (JCAHO), risk management consists of activities that are “intended to conserve financial resources from loss.”48 The risk-management function involves identification, evaluation, and reduction of risk of patient injury associated with care. The definition of risk management by the American Society for Healthcare Risk Management (ASHRM) includes risk identification, risk analysis, risk treatment, and risk evaluation. According to ASHRM, risk management is a discipline regulating insurance and quality control and comprising activities intended to minimize adverse impacts and loss of assets of a health care organization.49 According to the General Accounting Office, Alaska, Colorado, Florida, Kansas, Maryland, Massachusetts, New York, North Carolina, Rhode Island, and Washington have adopted risk-management reporting systems as of 1 January 1989.50 Hospitals, HMOs, and other providers practice risk management to reduce the number of adverse events and improve quality. Risk-management activities are typically addressed toward employees, including nurses. Since risk managers are not clinically trained, they often spend their time on existing and potential claims. Some analyze claims and develop strategies to reduce them. Some riskmanagement strategies include improved documentation and emphasis on written informed consent. A recent trend is to merge quality assurance activities and risk-management activities. Countersuits. One of the famous countersuits involves an Illinois woman who suffered an injury to her right hand while playing tennis. Radiography showed no fracture. However, 2 years later, the woman sued the radiologist for not properly diagnosing a fracture and imbedded bone chip. The radiologist countersued for filing the malpractice lawsuit willfully and wantonly without reasonable cause.51 However, the Supreme Courts of Illinois and the United States did not take any action on the appellate court’s decision to dismiss the countersuit. The countersuit movement started in the 1970s with Berlin v Nathan et al. and lasted for about a decade with approximately 500 countersuits. In retaliation to malpractice lawsuits, physicians filed countersuits against patients and their attorneys for what physicians considered to be frivolous malpractice lawsuits. Countersuits are filed for malicious prosecution, abuse of process, fraud and conspiracy, defamation of character and reputation, and so on.52 However, the probability of winning a countersuit is very low. The courts consider free access to courts to be paramount and want to provide this without fear of retaliation. Tort Reforms Patient injuries are the sources of medical malpractice suits. However, not all injuries caused by health care providers lead to malpractice actions. Only injuries resulting from a provider’s negligence constitute medical malpractice. According to King,53 negligence is a “conduct that falls below the standard established by law for the protection of others against unreasonable risk of harm.” In other

Opening Statement

15

words, physician performance is negligent if substandard performance causes injuries. Tort law provides remedy for injuries. Monetary awards are paid to a person to compensate for his injuries. These awards are also meant to deter subsequent negligence. If the malpractice system is stringent, it will be hard for legitimate victims to claim compensation. As a result, many victims of negligence will not receive compensation. At the same time, if the system is lenient, too many people will make claims and many undeserving persons will receive money. According to Danzon54 and Localio et al.,55 most medical injuries do not result in malpractice suits. Physician-patient relationships, patients’ dispositions, and the severity and cost of injuries are major determinants of malpractice claims. However, not all claims result in payments. According to a study by the General Accounting Office,56 90 percent of paid claims are settled before trial and the remaining cases are resolved through verdict. Critics of the medical malpractice system blame the system of settling medical malpractice disputes for high costs and unfairness. It takes a long time to settle, costs are ridiculously high, and payments are unpredictable. In addition, many deserving injuries never reach the courts. Several malpractice reforms therefore have been implemented to reduce claims and payments. Changes made to tort laws to reduce claims and payments are typically called reforms, even though they rarely involve any improvements and are always made to favor the physicians. Reforms to reduce claim frequency involve changes that restrict access to the courts and narrowing the criteria to determine physician negligence. Malpractice reforms that cap awards are aimed at reducing payments. Reforms that reduce access to the courts include reduction of statues of limitation, pretrial screening panels, restriction on attorney fees, penalties for frivolous suits, narrowing the standard for informed consent, limiting the use of res ipsa loquitur (Latin for “the thing speaks for itself,” and refers to incidences where it is assumed that an injury occurred because of negligence since injury cannot happen without somebody’s negligence) and altering the criteria for physician negligence. Reforms to reduce severity or payments include caps on awards, periodic payment of damages, collateral source offset, changes to joint and several liability, and restriction on ad damnum clauses. Tort reforms enacted to increase difficulty in recovering damages include expert witness requirements, modification of informed consent, professional standard of care reassertion, res ipsa loquitur restrictions, and statute of frauds for medical promises. Insurance reforms include patient compensation funds, joint underwriting associations, limits on cancellation of policies, mandates for liability coverage, and reporting requirements.57 Reforms That Reduce Access to Courts Reducing Statutes of Limitation. Most states impose time limits within which to file medical malpractice claims in order to reduce the number of suits filed.

16

Medical Malpractice

Since people forget and witnesses leave or die, it is essential to have time limits to file claims from the date of injury. However, people do not always discover the injury as soon as it occurs. Therefore, time limitations are imposed from the date of discovery rather than occurrence of injury and courts are given discretion to decide when the “injury” was discovered to determine time limits. Most states have different and often extended time limits for minors. Pretrial Screening Panels. A number of states have established screening panels to limit a malpractice claimant’s access to courts. These panels, consisting of lawyers, physicians, and laypersons, evaluate the merits of a claim. The purpose of pretrial screening panels is to encourage early settlements of deserving cases and to discourage weak cases. Some panels evaluate only liability, whereas others render opinions about damages. Evidence collection is often nonadversarial, oaths are not required of witnesses, and cross-examinations are rarely done. Decisions of screening panels are often advisory and cannot be used as evidence in the subsequent trials. Panels do not prevent a claimant from going ahead with his or her suit, but some states are trying to influence juries by allowing the introduction of the panel’s opinions to the jury. The attractiveness of screening panels is their informality and speedier decision making. Their drawbacks include an additional layer of litigation, lack of powers to punish guilty parties, and undue influence on the jury even though decisions are arrived at without formal rules. Most states have either mandatory or voluntary pretrial screening panels. Pretrial screening panels have been held unconstitutional in several states as they infringe on the constitutional guarantees of right to trial or access to courts. Some states require parties to meet for a settlement conference before trial. Limits on Attorney Fees. According to the Physician Insurers Association of America, the average cost of defending a malpractice action has risen from about $9,300 (in 1995 dollars) in 1985 to more than $19,436 in 1995.58 About 7 in 10 claims result in no payment. Attorneys take most medical malpractice law cases on a contingency basis. Medical malpractice cases cost several thousand dollars. Without an attorney’s representation, malpractice victims may be denied justice. Since most malpractice victims do not have the resources to hire an attorney on an hourly basis, attorneys take a portion of malpractice payments as his or her fee. In other words, attorneys offer their services in exchange for a piece of the malpractice payment. Since financial incentive in the form of the contingency fee plays a significant role in a lawyer’s decision whether to file a claim, fee restrictions can significantly curtail the number of malpractice suits. In addition, the contingency fee makes the playing field level by providing much needed legal help to the injured. The contingency fee also makes the system efficient and expeditious. When a lawyer loses a malpractice lawsuit, “it is as if he or she made a bad loan.”59 Therefore, restrictions on attorney fees will curtail legitimate lawsuits, will reduce quality of counsel, will result in increase of tort lawsuits in other areas, and will concentrate on high damage claims. Critics charge that the contingency fee system provides incentives for attorneys to file nonmeritorious cases and attorneys’ charges are too high. However, ac-

Opening Statement

17

cording to a report on medical malpractice prepared for the U.S. Department of Health, Education and Welfare,60 the contingency fee system works as a system for screening negligent injuries. “There does not appear to be any gross discrepancy between the effective hourly fee earned by plaintiff lawyers under the contingent fee arrangement and the normal hourly fee charged by defense attorneys in medical malpractice cases on the average.” The report also finds that lawyers reject seven out of eight medical malpractice cases they screen. A recent study by Kritzer61 concludes that there is no evidence to indicate that anyone can eventually find a lawyer on a contingency basis for a potential lawsuit. According to Grove and Ferrara,62 only about 12 out of 323 calls regarding a possible claim of medical negligence was evaluated by them. Reasons for rejection of 96 percent of calls were as follows: 23 percent were permanently disabled but not serious enough to justify expense of litigation, 22 percent had a preexisting condition making it difficult to prove negligence, 12 percent involved cases in which statutes of limitation had expired, 11 percent of cases were incoherent, 9 percent of injuries were not permanent, 9 percent of injuries did not involve negligence, 6 percent did not follow medical treatment requirements, and 4 percent lied. According to a study of people who called lawyers about medical malpractice, poor relationships with the physicians before an injury (53 percent), television advertisements (73 percent), advice of health care providers to seek legal counsel (27 percent), and financial concerns are some of the factors that motivated them to call lawyers. Only 1 in 30 calls to lawyers resulted in a lawsuit.63 Such screening by lawyers effectively weeds out nonmeritorious claims. Unfortunately, reforms restricting lawyers’ fees severely restrict victims’ access to courts as lawyers will take only cases with potentials for high returns. According to Sloan et al.,64 about 80 percent of the cases taken by attorneys are on the basis of contingency. Therefore, curtailment of attorneys’ fees will severely reduce injured patient’s ability to recover damages. The curtailment of attorneys’ fees is also blatantly unfair because there are no such restrictions on what defendants’ attorneys can collect. The Physician Insurers Association of America estimates that in 1995, defendants’ attorneys received $4.7 billion from medical malpractice carriers. By contrast, plaintiffs’ attorneys received $6 billion (this figure assumes an extremely high estimate of one-half of total indemnity losses of $12 billion), which includes costs of expert witnesses and court cases.65 Since malpractice premiums are tax-deductible expenses, the net amount paid as attorney fees by physicians is much less. Penalty for Frivolous Suits. If a malpractice lawsuit is frivolous, fraudulent, or in bad faith, courts at least in 15 states can award court costs and legal fees to the defendant. This is different from the “English Rule,” in which a loser pays the winner’s attorney fees and costs whether the lawsuit has merit or not. Only one state had enacted the “English Rule.” However, this rule was rescinded since only wealthy losers paid the court and attorney costs.66 Restricting Standards for Informed Consent. The patient’s consent is required before a physician can start a treatment. Although patients have sued alleging that they would not have agreed to the treatment had they known the

18

Medical Malpractice

risks of treatment, informed consent is a not a significant issue in current liability suits. According to the Physician Insurance Association of America quoted in an OTA report,67 informed consent–related malpractice claims were only 2 percent of total claims. Changing the Criteria to Evaluate Physician Negligence. The appropriateness of the care is determined by expert testimony. As a result, outcomes of a malpractice lawsuit depend on the experts. Since there is no objective standard against which to compare the quality of care, malpractice outcomes are extremely unpredictable. Reforms That Reduce Malpractice Awards Liability Caps. Liability caps may place a maximum on the amount of damages that can be obtained through a medical malpractice claim. Some states put limits on the aggregate amount; others limit the individual components of the claim. Proponents of liability caps argue that jury awards for pain and suffering can be highly variable without limit on the liability and, as a result, insurers are forced to charge higher premiums. Opponents argue that such caps punish seriously injured patients. Some states have restricted punitive damages either by placing caps on them or completely prohibiting them. Some have increased standards for punitive damages from “preponderance of the evidence” to the “clear and convincing” standard. Advocates of punitive damages argue that they are needed to reduce unacceptable outcomes and opponents argue that some of the recent awards have been mind boggling. According to published statistics, punitive damages were awarded in 4 percent of cases involving compensatory damage in 1990, 2 percent in 1991 and 1992, 3 percent in 1994, and 2 percent in 1995 and 1996.68 Collateral Source Rule. Collateral source rule doctrine prevents a defendant from bringing evidence about benefits that a plaintiff may receive for the injury. Such benefits typically include pension plans, welfare payments, disability insurance payments, and so on. Collateral source rule proponents argue that collateral source rule reduces confusion, helps to compensate the injured adequately, gives the negligent the burden of loss, and encourages the plaintiff to be prudent. Opponents claim that collateral source rule pays the injured twice for the same injury, and the jury is intelligent enough to come up with compensation. Ad Damnum Clause. The amount of damages sought by the plaintiff is indicated in the ad damnum clause. The amount is often required to establish the jurisdiction of the courts. Since the large amounts sought can create publicity, many physicians have criticized this clause as harmful. Several states have enacted statutes eliminating this clause or preventing the jury from being informed of the amount sought. Periodic Payments of Damages. Periodic payments of future damages for medical care, loss of income, and pain and suffering can significantly reduce

Opening Statement

19

malpractice payments. Early death of the injured party, future reduction in health care costs, and other contingencies can help to reduce future damage payments. Periodic payments also keep the defendant from paying out a large amount of money in a lump sum. If periodic payments are beneficial for plaintiffs, as claimed by the advocates of periodic payments, it would not be necessary to enforce them through statutes. Periodic payments involve a risk of insolvency of the defendant. Limiting Joint and Several Liability. When more than one person causes a single injury, each individual can be held responsible for 100 percent of the damages. Even though the injured can recover only total damages, the injured can recover from whomever he or she wishes. Obviously, the injured will go after whoever has more money. When one of the defendants cannot pay his or her share of the damages, other defendants, not the injured, suffer. Proponents of joint and several liability claim that this rule ensures that an injured is fully compensated for losses. Joint and several liability is useful in states where some parties are immune from liability because of their status as a nonprofit, religious, or government organization. Opponents argue that this rule unnecessarily puts inordinate burdens on defendants with “deep pockets,” such as governments and corporations. Approaches to Malpractice Compensation Alternative Dispute Resolution. The purpose of alternative dispute resolution is to bring the parties together, to focus on the issues in the dispute, to elicit from parties their settlement needs, and to resolve the problem informally. Mediation involves individual or group intervention to elicit each party’s positions and develop compromises. Claims paid out using alternative dispute resolution are typically lower than those using jury trial. Alternative dispute resolution processes are often confidential and costs involved are lower. However, plaintiffs’ lawyers often feel that the odds of winning settlements are slightly lower. Alternative dispute resolution processes are often nonbinding and voluntary. Since settlement decisions are typically made by the insurance company rather than the physician, such decisions are made based on settlement and trial costs. Arbitration. In an arbitration process, a third person or panel hears both parties and renders a decision outside the courtroom. Arbitration can be binding or nonbinding. In mediation, a third party intervenes to try to resolve the differences through persuasion. In arbitration, a third party hears both sides and gives a decision. The panel is usually selected by both parties. Several states have enacted statutes dealing with arbitration for medical malpractice claims. These statutes deal with rights of revocation of the arbitration agreement, disclosure requirements to be included in the agreement, and rights of the liability insurer. Participation in arbitration is voluntary. However, some HMOs demand that subscribers use arbitration to resolve any claims. Proponents of arbitration claim that arbitration is faster, costs less, and is more predictable and equitable. Op-

20

Medical Malpractice

ponents argue that arbitration encourages nuisance claims and protects those at fault, because proceedings are held in secret. Alabama, Alaska, California, Colorado, Florida, Georgia, Illinois, Louisiana, Michigan, New York, Ohio, South Dakota, Utah, Vermont, and Virginia have enacted statutes governing arbitration specifically for medical malpractice dispute resolution. Most states have threemember arbitration panels.69 Although 15 states have arbitration provisions in their statutes, only the Michigan statute contains procedures to make patients aware of the arbitration alternative and methods to implement requirements. As a result, more participants have used the arbitration provision in Michigan than in any other state. Roughly 4.5 percent, about 882 claims of an estimated 20,000 claims, were settled though arbitration in Michigan between 1975 and March 1991.70 The American Medical Association/Specialty Society Medical Liability Project. Another model, proposed by the American Medical Association and 31 other specialty societies, is to give medical licensing boards authority to hear and resolve medical malpractice claims. The board would consist of seven members with no more than three health professionals. In addition, it describes in detail the claim resolution process. It also proposes a cap on damages and a new definition for standard of care. Free legal services are offered to plaintiffs whose claim is judged to have merit. The claims would be decided either by a single physician investigator or a hearing officer depending on the stage of resolution. Since claims are easier to file in this system, more claims are likely to be filed by patients. Because the process is not as rigorous as a court trial, physicians are likely to feel comfortable with the process. However, involvement of a medical licensing board in the decision making will make physicians uncomfortable with the process. No-Fault Systems. No-fault programs reimburse people for specific injuries resulting from treatment. In a no-fault system, proof of negligence is not necessary. An injured person needs to prove only that he or she sustained injury that is compensated through the no-fault program. The injured cannot pursue the claim in a court for increased compensation. Automatic access to compensation is the major attraction of this approach. The administrative nature of this system also reduces costs. However, the no-fault approach does not deter providers from committing the same mistakes again. Virginia and Florida have nofault programs to resolve birth-related injury claims. According to a study by Sloan et al.,71 payments to injured persons rose and those to lawyers were reduced. However, only a small percentage of birth-related neurological injuries qualified for payment. According to Gallup,72 the no-fault compensation system for birth-related neurological injuries in Virginia rewards obstetricians by reducing their malpractice premiums, helps children to get compensation even when there is no negligence, and benefits society by reducing expensive litigation costs, but also reduces the amount of compensation a child can get. Another type of limited no-fault approach involves the definition of adverse events that do not occur when good care is provided.73, 74 This payment system,

Opening Statement

21

based on accelerated compensation events (ACEs) identifies adverse events systematically and events that resulted in malpractice claims in the traditional system. ACEs have been developed for obstetrics and other surgical specialties. ACEs can also be used for risk-management and quality improvement purposes. Standards of Care. Maine, Minnesota, Florida, and Vermont have passed laws to make clinical practice guidelines for malpractice litigation. Maine has established standards of care to improve patient care and reduce malpractice litigation. It has formulated standards in anesthesiology, emergency medicine, obstetrics and gynecology, and radiology. The widest use of guidelines is in obstetrics. Since it is cheaper to use guidelines than an expert witness, plaintiffs use guidelines more often than defense attorneys do. Plaintiffs won 17 out of 23 cases and defense 6 out of 9 cases using practice guidelines.75 If physicians treat patients according to standards, then there may be no legal basis for disputes. However, the courts have yet to rule on the constitutionality of standards. Medical uncertainty makes it difficult to write explicit guidelines. However, guidelines can improve the quality of care by defining appropriate care. Scheduling of Damages. The purpose of the scheduling of damages is to establish damage amounts for specified injuries. Bovberg et al.,76 Danzon,77 and the American Bar Association78 have proposed methods to establish damages for malpractice injuries. These schedules take into account the patient’s age, the severity of injury, and other personal factors. Past jury verdicts could also be used as a guide to determine schedules. Mandated Alternative Dispute Resolution in Lieu of Trial. In this alternative, the injured person must go through an alternative dispute resolution system, instead of a trial, to resolve a problem and the compensation awarded will be about the same as in a jury verdict. Judicial review of the decision will ensure whether the decision is supported by the evidence and is consistent with the law. Administrative Fault-Based Approaches State Administrative Agency. In this approach, an administrative agency of the state, instead of the courts, will adjudicate malpractice disputes. The decisions of the agency will be final and binding on both parties. Judicial review will be limited to evaluating sufficiency of evidence and consistency with the law. Scheduling of damages may also be implemented. Enterprise Liability. Instead of holding a physician responsible for malpractice, the concept of enterprise liability holds hospitals and providers responsible for malpractice. The goal is to relieve the physician of the hassle of defending malpractice lawsuits and streamline the malpractice system. Enterprise liability reduces malpractice lawsuits involving multiple defendants, thereby reducing costs. Although a physician will not be named in the suit as a defendant, he or she will be a major witness. Therefore, enterprise liability does not remove the hassle of defending a malpractice lawsuit from a physician. In addition, a patient

22

Medical Malpractice

feels psychologically better as he or she is suing the institution and not the physician. If there are too many lawsuits against an institution due to a physician, he or she will be subject to disciplinary action, including termination. This will result in an increased use of defensive medicine by physicians. Since an enterprise assumes the liability for malpractice of its employees, it is more likely to increase its oversight of its physicians. This will improve the quality of care. Sage et al.,79 for example, have suggested that health plans bear the responsibility for liability. Managed care may encourage the enterprise liability system in the future. Specified Events Approaches. Fault-based systems are expensive because they involve finding negligence by providers. As a result, many compensable injuries go uncompensated or undercompensated. In a specified events approach, a list of avoidable adverse outcomes of medical care is identified. This list assumes that if a provider follows certain standard procedures, adverse events specified in the list are unlikely to occur. However, if any of the adverse events identified in the list occur, the injured is compensated. The major drawback of this approach is the difficulty of coming up with a list of avoidable adverse outcomes, because there are significant variations in the outcomes of medical treatment and medicine is not an exact science. Medical adversity insurance (MAI), developed by Havighurst and Tancredi,80 is an example of specified event approaches. MAI involves compilation of a list of compensable outcomes from a treatment, a malpractice insurance system that charges providers based on their past claims experience, and an adjudication system for injuries falling outside the compensable outcomes. In the MAI system, compensable injuries are compensated simply by filing a claim and injuries not in the list are recovered though traditional litigation. Advantages of MAI include prompt compensation for compensable injuries, deterrence (as premiums are based on past claims), and high predictability. Drawbacks include the lack of case-by-case review and difficulty in identifying compensable injuries that can change over time. There is also a likelihood of the provider backing away from high-risk treatments. Another specified event approach is elective no-fault. A health care provider will buy insurance coverage for a list of adverse outcomes. The injured person will be compensated by the insurance company for covered adverse outcomes, irrespective of the fault. The policy will describe the types of injuries and types of losses covered. Injuries not covered will be compensated through the traditional litigation system. Advantages of elective no-fault include easy access, more predictable compensation, and shorter delays. Disadvantages include a lack of uniformity in types of injuries and losses covered by different physicians, a large deductible that does not cover meritorious claims of small amounts, and premiums that are not based on past claims and that therefore reduce deterrence.81 Malpractice through Contract. Contracts between patients and providers are used as a basis to adjudicate disputes involving malpractice. The standard of

Opening Statement

23

care and the extent of liability will be defined in the contract. Medical practice guidelines could be used to define the standard of care. The contract may also specify that disputes will be settled through arbitration and other alternative dispute resolution (ADR) methods. A variety of dispute resolution processes can be implemented through contracts.82 Ross-Loos and Kaiser Permanente mandate that subscribers resolve their malpractice disputes through arbitration and that noneconomic losses recoverable cannot exceed $250,000.83

STATEWIDE TORT REFORMS A summary of tort reforms in force in the states around 1993 is presented in Appendix II.84 The number 1 indicates that reform is in force and 0 that it is not. However, reforms enacted are not exactly the same. For example, even though states with caps on damages have different caps, the figure shows a 1 against states with caps. Therefore, the figure should be used with caution. I also include tort reforms relating to ad damnum clauses, frivolous lawsuit penalties, and joint and several liability rules.85 I analyze states by the number of tort reforms. Pennsylvania, Vermont, Virginia, North Carolina, and Nevada have the fewest number of reforms, and Idaho, California, Michigan, New York, and Utah have the largest number of reforms. To give a summary of tort reforms, I perform the principal component analysis. The first component accounts for about 21.1 percent of variations and the second for 16.2 percent. Based on the first component, Pennsylvania, Wisconsin, Vermont, Nebraska, and South Carolina have the weakest reforms, and Illinois, Alaska, Colorado, Ohio, and Utah have the strongest reforms. I have plotted the first and second principal components in Figure 1.1.

DATA SOURCES The National Practitioner Data Bank public use file (April 30, 1997 and September 30, 1999) is the primary source of data relating to malpractice payments. National Practitioner Data Bank annual reports are other sources of data relating to malpractice payment frequencies and payments. Most demographics data are from Statistical Abstracts of the United States.86 Other sources of data include Health Care State Rankings87 and Socioeconomic Characteristics of Medical Practice.88

NATIONAL PRACTITIONER DATA BANK To improve the quality of medical care, the U.S. Congress has enacted a number of laws. According to Section 402 of the Health Care Quality Improvement Act of 1986 (Title IV of Public Law 99–660), the U.S. Congress finds:

Opening Statement

25

(1) The increasing occurence of medical malpractice and the need to improve the quality of medical care have become nationwide problems that warrant greater efforts than those that can be undertaken by any individual State; (2) There is a national need to restrict the ability of incompetent practitioners to move from State to State without disclosure or discovery of the practitioner’s previous damaging or incompetent performance; (3) This nationwide problem can be remedied through effective professional peer review; (4) The threat of private money damage liability under Federal laws, including treble damage liability under Federal antitrust law, unreasonably discourages physicians and dentists from participating in effective professional peer review; and (5) There is an overriding national need to provide incentive and protection for physicians engaging in effective professional peer review.

In addition to providing immunity from liability for damages arising out of the good faith peer review process, the Health Care Quality Improvement Act of 1986 establishes a data bank to collect information relating to professional conduct and competence, licensure status, and the malpractice claims experience of physicians. The act requires state medical boards to report to the National Practitioner Data Bank disciplinary actions, the revocation or surrrender of a license, or any other actions that restrict a physician from practicing in the state. Insurance carriers and self-insures are required to report any malpractice payments to the National Practitioner Data Bank. Hospitals must report to the state board any denial, revocation, or other actions that adversely affect the clinical privileges of a physician. A group medical practice, HMO, or professional society that has a formal peer review process should report to the state board any adverse findings that affect the membership of a physician. The National Practitioner Data Bank started collecting data from September 1990. Since there are no penalties for not reporting, reporting of peer review results and privileges has been lax. CONCLUSIONS Although the United States spends more money on health care, in absolute terms as well as in proportion of gross domestic product, than any other country in the world, most Americans do not feel that they get their money’s worth from their health care dollars. In addition, the United States does not excel in several health care outcomes compared to other developed countries. Health care status of people in different states varies significantly. Rising health care costs have drawn policy makers’ attention to medical malpractice. Since litigation is expensive, the medical malpractice system is perceived negatively. In addition, many feel that the fear of litigation is driving up costs of medical care because of “defensive medicine.” However, some feel that litigation increases carefulness and reduces avoidable adverse outcomes and also that courts dispense justice to

26

Medical Malpractice

vulnerable patients and provide vital checks on the improper use of powers by physicians, hospitals, and insurance companies. NOTES 1. Jury Verdict Research, Inc., Personal Injury Valuation Handbook: Current Award Trends in Personal Injuries (Solon, OH: Author, 1997), 11. 2. Ibid., 180–1, 182–3, 189, 152–3, 173–4. 3. Professional Liability Newsletter 27, no. 10 (January 1998): 1. http://www.calliability.com/sample-issue.html. 4. U.S. Congress, House of Representatives, Overview of Entitlement Programs, 1991 Green book (Washington, D.C.: U.S. Government Printing Office, 1991). 5. Employee Benefit Research Institute, Issue Brief, no. 118 (Washington, D.C.: Author, September 1991). 6. H. Freeman, “Americans Report on Their Access to Health Care,” Health Affairs 6(1) (spring 1987): 7–18. 7. U.S. Congress, Office of Technology Assessment, International Health Statistics: What the Numbers Mean for the United States—Background Paper. OTA-BP-H-116 (Washington, D.C.: U.S. Government Printing Office, November 1993). 8. Reliastar, The ReliaStar State Health Rankings: Results, Methodology, and Discussion, 1997 ed. (Minneapolis, Minn.: ReliaStar Financial Corp., 1997). 9. Marshall B. Kapp, Our Hands Are Tied: Legal Tensions and Medical Ethics (Westport, Conn.: Auburn House, 1998), 142. 10. Frank J. Edwards, Medical Malpractice: Solving the Crisis (New York: Henry Holt and Company, 1989), 15–16. 11. Allen D. Spiegel and Florence Kavaler, “America’s First Medical Malpractice Crisis, 1835–1865,” Journal of Community Health 22, no. 4 (August 1997): 288. 12. Reed Neil Olsen, “The Reform of Medical Malpractice Law: Historical Perspectives,” American Journal of Economics and Sociology 55(3) (1996): 257–75. 13. James C. Mohr, “American Medical Malpractice Litigation in Historical Perspective,” Journal of the American Medical Association 283(13) (2000): 1734–7. 14. Spiegel and Kavaler, “America’s First Medical Malpractice Crisis,” 290. 15. Ibid., 301. 16. Mohr, “American medical malpractice litigation.” 17. The American College of Obstetricians and Gynecologists, Professional Liability and Its Effects: Report of a 1992 Survey of ACOG’s Membership (Washington, D.C.: October 1992). 18. Patricia Danzon, Medical Malpractice: Theory, Evidence, and Public Policy (Cambridge: Harvard University Press, 1985). 19. “Dying by Mistake,” People 18 December 1995, 40–47. 20. Richard A. Knox, “Doctor’s Orders Killed Cancer Patient,” Boston Globe, 23 March 1995, sec. 1, p. 1. 21. Lawrence K. Altman, “Big Doses of Chemotherapy Drug Killed Patient, Hurt 2nd,” New York Times, 24 March 1995, A18. 22. “Florida Doctor Errs Anew, Taking Toe Without Asking,” New York Times, 19 July 1995, A10. 23. B. Siegel, “Medicine’s Fatal Code of Silence,” Los Angeles Times, A1, 24 August 1995.

Opening Statement

27

24. Insurance Information Institute, 1997 Property/Casualty Insurance Facts (Washington, D.C.: Author, 1997), 13. 25. Ibid., 56. 26. Katharine R. Levit, Helen C. Lazenby, Bradley R. Braden, and the National Health Accounts Team, “National Health Spending Trends in 1996,” Health Affairs 17(1) (January–February 1998): 38. 27. B. Rice, “Do Doctors Kill 80,000 Patients a Year?” Medical Economics, 21 November 1994, 46–56. 28. Natalie Miller et al., Medical Malpractice: Crisis of Litigation or Crisis of Negligence? (Health Resources, Inc., 18 March 1987). 29. Richard Greene, “Quackus Tyrannus,” Forbes, 5 October 1987, 67. 30. Marlin L. Gonzales, “Medical Professional Liability Claims and Premiums, 1985– 1990,” in Socioeconomic Characteristics of Medical Practice, 23 (Chicago: American Medical Association, 1992). 31. Milo Geyelin, “Suits by Firms Exceed Those by Individuals,” Wall Street Journal, 3 December 1993, B1. 32. Steven K. Smith, Carol J. Defrances, Patrick A. Langan, and John Goerdt, Civil Justice Survey of State Courts, 1992: Tort Cases in Large Countries (Washington, D.C.: Bureau of Justice Statistics, April 1995), NCJ-153177, 2–3. 33. A. R. Localio, A. G. Lawthers, T.A. Brennan, N. M. Laird, L. E. Herbert, L. M. Peterson, J. P. Newhouse, P. C. Weiler, and H. H. Hiatt, “Relation between Malpractice Claims and Adverse Events due to Negligence: Results of the Harvard Medical Practice Study III,” New England Journal of Medicine, 325(4) (25 July 1991): 245–251. 34. Danzon, Medical Malpractice. 35. Dorothy P. Rice, Ellen J. MacKenzie and Associates, Cost of Injury in the United States: A Report to Congress 1989 (San Francisco, CA: Institute of Health and Aging, University of California and Injury Prevention Center, The Johns Hopkins University, 1989), 224. 36. Guido Calabresi, The Cost of Accidents (New Haven, Conn.: Yale University Press, 1970). 37. L. Bebchuck, “Litigation and Settlement under Imperfect Information,” Rand Journal of Economics 15(3) (1984): 404–15. 38. R. Posner, Economic Analysis of Law (Boston: Little, Brown, 1986). 39. I. Png, “Litigation, Liability, and Incentives for Care,” Journal of Public Economics 34(1): 61–85. 40. P. C. Weiler, H. H. Hiatt, J. P. Newhouse, W. G. Johnson, T. A. Brennan, and L. L. Leape, A Measure of Malpractice: Medical Injury, Malpractice Litigation, and Patient Compensation (Cambridge: Harvard University Press, 1993). 41. Danzon, Medical Malpractice. 42. D. M. Studdert, E. J. Thomas, H. R. Burstin, B.I.W. Zbar, E. J. Orav, T. A. Brennan, “Negligent Care and Malpractice Claiming Behavior in Utah and Colorado,” Med Care 38(3) (March 2000): 250–60. 43. Frank A. Sloan, “Effects of Malpractice Insurance on Physicians’ Fees,” Journal of Human Resources 17 (fall 1982): 533. 44. Patricia M. Danzon, Mark V. Pauly, and Raynard S. Kingston, “The Effects of Malpractice Litigation on Physicians’ Fees and Incomes,” AEA Papers and Proceedings 80 (May 1990): 122.

28

Medical Malpractice

45. Tillinghast-Towers Perrin, Tort Cost Trends: An International Perspective, 1995, http://www.hcla.org/tortno.html. 46. G. Cowley, D. Rosenberg, and M. Brant, “The Prescription That Kills: Can Hospitals Reduce Their Mistakes?” Newsweek, 17 July 1995, 54. 47. B. Gavzer, “When Doctors Are the Problem: Why Some Doctors May Be Hazardous to Your Health,” Parade, 14 April 1996, 4–6. 48. Joint Commission on Accreditation of Healthcare Organizations, Accreditation Manual for Hospitals (Chicago: Author, 1990), 11. 49. American Society for Healthcare Risk Management, Definition of Healthcare Risk Management (Chicago: Author, 1982). 50. U.S. General Accounting Office, Health Care: Initiatives in Hospital Risk Management (Washington, D.C.: Author, 1989), 20. 51. Leonard Berlin, “Countersuing Plaintiffs and Their Attorneys Who Have Sued for Malpractice,” AJR 168 (May 1997): 1153–6. 52. Ibid., 115. 53. J. H. King, The Law of Medical Malpractice, 2nd ed. (St. Paul, Minn.: West Publishing Company, 1986). 54. Danzon, Medical Malpractice. 55. Localio, Lawthers, Brennan, et al., “Relation between Malpractice Claims and Adverse Events Due to Negligence.” 56. General Accounting Office, Medical Malpractice: Six State Case Studies Show Claims and Insurance Costs Still Rise Despite Reforms, GAO/HRD-87–21 (Washington, D.C.: Author, December 1986), 17. 57. Eleanor D. Kinney, “Malpractice Reform in the 1990s: Past Disappointments, Future Success?” Journal of Health Politics, Policy and Law 20, no. 1 (Spring 1995): 99–135. 58. The Physician Insurers Association of America, Medical Malpractice Claim Expenses: Annual Increases Outpacing Indemnity Growth (Rockville, Md.: Author, 1997). 59. Testimony of Robert C. Baker, President, American Board of Trial Advocates, before the Subcommittee on Economic and Commercial Law, Committee on the Judiciary, U.S. House of Representative, 22 June 1994. 60. Stephen K. Dietz, C. Bruce Baird, and Lawrence Berul, “The Medical Malpractice Legal System,” in Appendix to the Report of the Secretary’s Commission on Medical Malpractice, DHEW Publications OS:73–89 (Washington, D.C.: U.S. Department of Health, Education and Welfare, 16 January 1973). 61. Herbert M. Kritzer, “Holding Back the Floodtide: The Role of Contingent Fee Lawyers,” Wisconsin Lawyer 70, no. 3 (March 1997), http://www.wisbar.org/wislawmag/ archive/march97/flood.html). 62. Elizabeth Grove and Michael A. Ferrara, Correspondence, New England Journal of Medicine, 336(23) (5 June 1997):1680. 63. L. I. Huycke and M. M. Huycke, “Characteristics of Potential Plaintiffs in Malpractice Litigation,” Annals of Internal Medicine 120(9) (1 May 1994):792–8. 64. F. A. Sloan, P. B. Githens, E. W. Clayton, G. B. Hickson, D. A. Gentile, and D. A. Partlett, Suing for Medical Malpractice (Chicago: University of Chicago Press, 1993). 65. The Physician Insurers Association of America, Medical Malpractice Claim Expenses. 66. R. R. Bovbjerg, “Legislation on Medical Malpractice: Further Developments and a Preliminary Report Card,” University of Davis Law Review 22(1989):499–556.

Opening Statement

29

67. U.S. Congress, Office of Technology Assessment, Impact of Legal Reforms on Medical Malpractice Costs, OTA-BP-H-119 (Washington, D.C.: U.S. Government Printing Office, 1993), 51. 68. LRP Publications, Trends in Health Care Provider Liability 1996 (Horsham, Pa.: Author, 1997). 69. U.S. General Accounting Office, Medical Malpractice: Alternatives to Litigation, GAO/HRD-92-28 (Washington, D.C.: Author, 1992), 3. 70. U.S. General Accounting Office, Medical Malpractice, 5. 71. Frank A. Sloan, Kathryn Whetten-Goldstein, Emily M. Stout, Stephen S. Entman, and Gerald B. Hickson, “No-fault System of Compensation for Obstetric Injury: Winners and Losers,” Obstetrics and Gynecology 91(3) (March 1998). 72. Cynthia L. Gallup, “Can No-fault Compensation of Impaired Infants Alleviate the Malpractice Crisis in Obstetrics?” Journal of Health Politics, Policy and Law 14, no. 4 (winter 1989):691–705. 73. L. Tancredi and R. Bovberg, “Rethinking Responsibility for Patient Injury: Accelerated Compensated Events, a Malpractice and Quality Reform Ripe for a Test,” Law and Contemporary Problems 54(2) (1991):147–77. 74. R. Bovberg, L. Tancredi, and D. Gaylin, “Obstetrics and Malpractice: Evidence on the Perfomance of a Selective No-Fault System,” Journal of the American Medical Association 265(21) (1991):2836–43. 75. Hearing before the Subcommittee on Economic and Commercial Law of the Committee on the Judiciary, House of Representatives, 103rd Congress, Second Session on H.R. 3600, 22 June 1994, Serial no. 61 (Washington, D.C.: U.S. Government Printing Office, 1994), 28. 76. R. Bovberg, F. Sloan, and J. Blumstein, “Valuing and Life and Limb in Tort: Scheduling ‘Pain and Suffering,’ ” Northwestern University Law Review 83(4) (1989): 908–76. 77. Danzon, Medical Malpractice. 78. American Bar Association, Designated Compensable Event System: A Feasibility Study (Chicago: American Bar Association, 1979). 79. W. Sage, K. Hastings, and R. Berenson, “Enterprise Liability for Medical Malpractice and Health Care Quality Improvement,” American Journal of Law and Medicine 20 (1994):1–28. 80. C. Havighurst and L. Tancredi, “Medical Adversity Insurance—A No Fault Approach to Medical Malpractice and Quality Assurance,” Milbank Memorial Fund Quarterly: Health and Society 51, no. 2 (spring 1973). 81. J. O’Connell, Ending Insult to Injury: No Fault Insurance for Products and Services (Urbana: University of Illinois Press, 1975). 82. C. Havinghurst, “Private Reform of Tort-Law Dogma: Market Opportunities and Legal Obstacles,” Law and Contemporary Problems 49(2) (1986):143–72. 83. U.S. General Accounting Office, Medical Malpractice, 4. 84. U.S. Congress, Office of Technology Assessment, Impact of Legal Reforms on Medical Malpractice Costs. 51. 85. AMA Tort Reform Compendium (Chicago: American Medical Association, 1989), 132–4. 86. U.S. Census Bureau, Statistical Abstracts of the United States, various issues (Washington, D.C.: U.S. Government Printing Office).

30

Medical Malpractice

87. Health Care State Rankings, various issues (Lawrence, Kans.: Morgan Quitno Corporation). 88. Socioeconomic Characteristics of Medical Practice, various issues (Chicago: Center for Health Policy Research, American Medical Association).

2

Malpractice Claims INTRODUCTION Malpractice costs are directly related to the claims paid frequencies and the payment amounts. When a patient undergoes medical treatment, an adverse outcome can occur. One in three patients admitted to university hospitals are estimated to have suffered an illness, complication, or injury during medical treatment. One fourth of these adverse outcomes were considered serious.1,2 Often adverse outcomes can be treated. However, some adverse outcomes, such as death or permanent injury, are irreversible. Outcomes can be categorized into preventable and unpreventable. Preventable outcomes could be the result of negligence of a care provider. According to a California study, 4.5 percent of all hospital discharges resulted in adverse outcomes, with 17 percent of them caused by negligence.3 According to a study done by the Harvard Medical Practice in 1984, 3.7 percent of all hospital discharges resulted in adverse outcomes.4 Surgery is a major cause of adverse events. The Harvard study found that 48 percent of all adverse events occurred in patients undergoing surgery. However, only one in six surgical adverse events was due to negligence as compared to one in three for nonsurgical adverse events. Three fourths of all adverse events due to diagnosis errors were due to negligence. Despite the talk about an explosive increase in malpractice lawsuits, only 10 percent of those injured due to negligence actually file lawsuits. The frequency of malpractice lawsuits against a physician depends on several factors. News stories and attitude toward litigation could increase the frequency of claims. New technological developments, although they improve the delivery

32

Medical Malpractice

of health care, can increase the chances for adverse outcomes. Higher expectations of new technologies may increase the likelihood of filing malpractice lawsuits when adverse outcomes are encountered. Tort reforms, improved patient-doctor relationships, increased use of defensive medicine, and emphasis on risk management are likely to reduce frequencies of malpractice lawsuits. Malpractice litigation is a costly and tedious process. Most malpractice lawsuits are resolved before they go to trial. According to a study by the U.S. General Accounting Office, 38 percent of all malpractice claims are settled even before a legal suit is filed. Another 51 percent are settled after the filing of the suit and before trial. Only about one in ten went to trial.5 In this chapter, I analyze malpractice payment frequencies by states, regions, malpractice reasons, and specialties. I then perform univariate and multivariate analyses of payment frequencies to examine the impacts of tort reforms. The disposition of malpractice claims is then examined. Physician discipline and licensure issues are also discussed. MALPRACTICE LAWSUITS TREND The number of medical malpractice payments and their rates per 1,000 physicians between September 1, 1990 and December 1, 1998 are respectively 118,608 and 20.75 per 1,000 physician per year. Their breakdown for each year is as follows:6 1991

13,826

23.87

1992

15,109

23.97

1993

14,590

24.32

1994

15,318

23.97

1995

14,084

21.12

1996

15,451

22.34

1997

15,112

20.90

1998

14,406

21.18

Number of payments by malpractice reasons by physicians between September 1, 1990 and December 31, 1997 is as follows: Diagnosis related Anesthesia related Surgery related Medication related IV and blood products related

37,044

27.4%

4,251

3.1

32,490

24.0

8,272

6.1

616

0.5

Obstetrics related

9,585

7.1

Treatment related

37,799

27.9

Malpractice Claims

Monitoring related Equipment or product related Miscellaneous All reports

33

1,806

1.3

627

0.5

2,835

2.1

135,325

100

Errors in diagnosis, surgery, and treatment dominate payments. According to Jury Verdict Research Inc., death cases make up 22 percent of the verdicts, followed by severe brain damage, emotional distress, spinal nerve injuries, mild to moderate brain damage, paralysis injuries, and visual impairment. Overall, recovery rate in medical malpractice was about 31 percent in 1996. In misdiagnosis, recovery rate is 28 percent, in surgical negligence, 31 percent, and in childbirth negligence, 35 percent.7

Variations among Specialties Claim frequency has been rising since the 1960s. The number of claims filed per physician doubled during the period, 1966–1974, followed by a reduction in claims. Claims per physician declined during 1985–1988 and then increased and stabilized at around 9 per 100 physicians per year. Although there is no data about the total number of claims filed, the annual survey conducted by the American Medical Association is a valuable source of consistent data. Aggregate claims give a good indication of overall claim rates, but substantial variations among specialties exist. Surgery, obstetrics and gynecology, and radiology have high claim rates. Obstetrics and gynecology have rates twice those for an average physician. Surgery has 50 percent more claims than for an average physician. Annual professional liability claim per 100 physicians by specialty is given in Figure 2.1. Another indicator of malpractice claims is the proportion of physicians subjected to professional liability claims. According to a 1996 Socioeconomic Monitoring System core survey, 41.9 percent of physicians were subjected to at least one claim during their career as of 1996.8 Among specialties, obstetricians and gynecologists had the highest percentage (68.6), with at least one claim during their career, as of 1996. Psychiatrists, with 25.8, had the lowest percentage. Since the numbers of physicians are growing at a much faster rate than the population, the number of physicians per capita has been rising. As a result, a physician is taking care of fewer patients. Therefore, claim rates per physician should fall over time. We therefore compute claim rates per 1 million patient visits using the data on the mean number of weeks practiced per year and total patient visits per week. The claim rates per 1 million visits are presented in Table 2.1. Obstetrics and gynecology has the highest claims per 1 million visits, followed by surgery. General and family practice, internal medicine, and pediatrics have low rates. The percentage changes in annual professional liability

Malpractice Claims

35

claims per 100 physicians and claims per 1 million visits during 1986–1994 by specialty are as follows: ⫺11.8

⫺16.1

Internal medicine

3.6

9.7

Surgery

7.0

15.8

General/family practice

Pediatrics Obstetrics/gynecology

⫺2.9

2.2

47.7

66.5

The claim rates per 1 million visits have grown much faster than claim rates per 100 physicians for all specialty groups during 1986–1994. Geographical Variations Geographical variations in malpractice claim rates are substantial. Middle Atlantic, east north central, east south central, and west south central states have much higher claim rates than the national average. New England, west north central, south Atlantic, and mountain states have lower claim rates than the national average. The claim rates by census division as a proportion of the U.S. rate of 9 claims per 100 physicians for 1996 are as follows: New England

0.42

Middle Atlantic

1.14

East north central

1.49

West north central

0.73

South Atlantic

0.57

East south central

1.08

West south central

1.32

Mountain

0.76

Pacific

1.13

36

Medical Malpractice

Claim payment rates per 1,000 physicians vary dramatically among states. The lowest 5 and highest 5 states by the annualized rates per 1,000 physicians from 1 September 1990 to 31 December 1997 are as follows:9 Lowest 5 Alabama

7.23

Hawaii

9.48

Maryland

10.99

South Carolina

11.24

Massachusetts

11.34

Highest 5 Wyoming

35.06

West Virginia

37.40

Pennsylvania

37.45

Montana

39.88

Michigan

43.45

Based on the first component of the principal component analysis of tort reforms presented in Chapter 1, Utah, Ohio, Colorado, Alaska, and Illinois have the most reforms and Pennsylvania, Wisconsin, Vermont, Nebraska, and South Carolina have the least reforms. With the exception of Pennsylvania, states with the least or the most reforms are not found among the top 5 or the bottom 5 in malpractice payment rates. Variations by Physician Characteristics I analyzed a randomly selected 150 board-certified obstetrician-gynecologists using the Massachusetts Doc-find system. Claim history of 10 years of any physician practicing in Massachusetts can be accessed by the last name using the system. Based on my analysis, the probability of number of claims during 1990–1999 by the year of birth are as follows: Year of birth

0 claims

1 claim

1900–1919

1.00

0

0

0

0

1920–1929

0.28

0.45

0.18

0

0.09

11

1930–1939

0.48

0.13

0.26

0.13

0

31

1940–1949

0.49

0.34

0.11

0.057

0

35

1950–1959

0.25

0.25

0

0

0

57

1960–1966

1.00

0

0

0

0

11

Physicians

94

35

2 claims

14

3 claims

6

5 claims

Physicians 5

1

150

Malpractice Claims

37

An analysis of claims by whether a physician did his or her residency in Massachusetts or outside the state did not reveal any statistically significant difference. Probability of number of claims during 1990–1999 by in-state and out-of-state residencies is as follows: 0

1

2

3

5

Physicians

In-state

0.62

.22

.1

.04

0.01

89

Out-of-state

0.64

.25

.08

.03

0

61

An analysis of claims by gender does find statistically significant results. Female obstetrician-gynecologists have a lower likelihood of claims. Probabilities of number of claims by gender are as follows: 0

1

2

3

5

Physicians

Female

0.77

0.22

0.015

0

0

65

Male

0.52

0.25

0.15

0.1

0.01

85

A multiple regression analysis with the number of claims as a dependent variable and age, residency, and gender indicates that female physicians are less likely and older physicians are more likely to have a larger number of claims. This is consistent with the conclusion of Taragin et al.10 that male physicians are three times as likely to be in a high-claims category as female physicians. I also analyze by categories of payments. Categories of payments are indicated as below average, average, and above average depending on the payment amounts. Below

Average

Above

Total

Out-of-state

0.29

0.49

0.22

55

In-state

0.32

0.48

0.20

31

Categories of payments by gender are as follows: Below

Average

Above

Total

Female

0.31

0.56

0.13

16

Male

0.30

0.47

0.23

70

There is not much difference in categories of payments based on in-state and out-of-state residencies and gender.11 IMPACT OF TORT REFORMS I analyze the impact of tort reforms on the frequency of malpractice payments. However, the conclusions derived from this analysis can be generalized only

38

Medical Malpractice

for paid claims and not for all claims. Since the paid claims do not represent random claims, it is incorrect to generalize the analysis to the population of claims in the earlier stage.12 I use statewide claim payment frequency rates for 1991 to 1995. Tort reform measures for each state are 1 if they have implemented the reform and 0 otherwise. Univariate analysis is presented first, followed by multivariate analysis. Univariate Analysis The Spearman rank correlations between frequency of payments and various factors for the year 1994, along with the level of significance in brackets are as follows: Mean payment

⫺0.242

(0.09)*

Median payment

0.082

(0.57)

Delay

0.022

(0.88)

⫺0.018

(0.90)

Lawyers per physicians

0.022

(0.88)

Surgeries per physician

0.308

(0.03)**

0.087

(0.55)

Trial lawyers per 1,000 people

Proportion of surgeons among physicians Managed care penetration

⫺0.24

(0.10)*

Per capita income

⫺0.20

(0.17)

Population proportion above 65 Proportion of metropolitan population in 1992 Population proportion below poverty level

0.043

(0.77)

⫺0.14

(0.32)

0.21

(0.15)

*Significant at the 0.1 level. **Significant at the 0.05 level.

There are statistically significant relationships between the frequency and mean payment, surgeries per physician, and managed care penetration. The relationship between frequency and mean payment is not consistent with Bebchuk13 and Posner,14 who postulate that an increase in payment amounts will increase claim frequency. The frequency of malpractice claims paid is directly related to the surgeries per physician, indicating that surgery is a major cause for malpractice claims. Multivariate Analysis Several empirical studies have been done to examine the impacts of malpractice tort reforms adopted in the 1970s and 1980s. Most studies use multiple linear regression analysis with some function of malpractice payments per phy-

Malpractice Claims

39

sician as a dependent variable and tort reform measures, along with other demographic variables, as independent variables. Tort reform enactments in a particular state are represented by a dummy variable with 1 for enactment and 0 otherwise. One of the earliest studies on the impact of tort reforms on malpractice claim frequency was done by Feldman.15 This study analyzes impacts of contingency fees on claim frequency. Zuckerman et al.16 analyzed the impact of various tort reforms on the frequency of claims paid per physician for different companies in each state. Their dependent variable is a logistic transformation of claims per physician in each state. Data is from various insurance companies for the period 1974 to 1986. In addition to tort reform variables, independent variables include real income per capita, urbanization, percentage mobile population, AFDC recipients per 1,000 population, surgeries per 1,000 population, physicians per 1,000 population, percentage of elderly, attorneys per 1,000 population, and unemployment rate. Danzon17 analyzes claims data from insurance companies for the period from 1975 to 1984. The unit of data is that of states. The independent variables, in addition to dummy variables representing tort reforms, are time, exposure, prior exposure, percentage urban, percentage migrant, unemployment rate, income per capita, attorneys per capita, and dummy variables representing California, Illinois, Maryland, New Jersey, New York, and Arizona. Total claims filed and logistic transformation of claims per physician are dependent variables. Since states with high frequencies are likely to implement tort reforms and tort reforms are included among independent variables, two stage least squares estimates are also derived. The instruments variables used in the first-stage estimating equation for laws include total claim frequency, paid claim frequency, severity per paid claim, number of claims paid more than $100,000, attorneys per capita, and physicians per capita. All independent variables are for the year 1975. Sloan et al.18 analyze the impact of tort reforms on the probability that a claim will be paid. The independent variables include age of the injured, gender, place of occurrence, principal allegation, severity of injury, medical expenses incurred, and so on. Data is from the National Association of Insurance Commissioners and the General Accounting Office. I examine the impact of various tort reform measures and factors using multivariate statistical methods, using payment rate per 1,000 physicians of each state for the period 1991–1995. Data is from the National Practitioner Data Bank (NPDB) Public Use File.19 Multiple regression analysis is performed with two specifications. In the second specification, all variables except dummy variables are expressed in logarithm. Since claim rates typically follow Poisson distribution, I also used Generalized Estimation Equation Methodology (GEE) introduced by Liang and Zeger.20 Descriptive statistics of variables are given in Table 2.2. The regression parameters are presented in Table 2.3. The dependent variable is statewide payment rate per 1,000 physicians. I use 46 states and 5 years from 1991 to 1995 as

40

Medical Malpractice

cross-sectional and time series levels. To control for statewide variations, I include lawyers in 1990 per physicians in 1993, surgeons per physicians for 1993, per capita income for 1993, surgical operations per physicians for 1993, proportion of metro-population in 1992, mean delay from occurrence to payments for 1 September 1990 to 31 December 1995, managed care penetration in 1993, population above 65 in 1994, and population below poverty level in 1990. I also include four dummy variables to account for the years 1991, 1992, 1993, and 1994. In all three specifications, lawyers per physicians are positively associated with the payment rates per physicians with a level of significance of 0.01. This is consistent with the conventional wisdom that an increased number of lawyers in comparison to physicians can induce increased liability payments. In all three specifications, surgical operations per physician is positively related to claim payments, indicating that a significant number of malpractice payments result from surgical operations. In all three specifications, mean payment is negatively related to payment rates. If winning in trials is made more difficult, fewer claims will be filed and only those that will pay higher amounts will be filed; as a result, states with fewer claims per physicians are likely to have higher mean payment. However, Bebchuck21 and Posner22 argue otherwise and Png23 states that the effect of mean payment amount on payment rates is ambiguous. The proportion of metro population is positively related to the payment rates in MREG1 and MREG2 specifications. This may be because there are more lawyers per capita in metropolitan areas than in nonmetropolitan areas. Delay is positively related to payment rates; typically indicating higher payments. This may be because states with longer delays have higher mean payments and therefore have higher frequency of payment rates. The proportion of population above age 65 is positively related to the payment rates in all three specifications. This contradicts several studies that indicate that people over 65 are less likely to file malpractice claims.24 Population below poverty level is positively related to payment rates in GEE specification. However, this conclusion is in contradiction to the finding that the poor are less likely to file malpractice claims.25 Impacts of tort reform measures are mixed. I discuss only statistically signif-

42

Medical Malpractice

icant results. According to the regression output, caps on economic and noneconomic damages are likely to reduce malpractice payment rates. As the amount an injured person can get from a claim is reduced, there is less incentive to file a malpractice claim. This leads to lower claim payment rates. Discretionary periodic payment of awards also reduces payment rates. Sliding-scale attorney fees and court-approved or -determined attorney fees reduce an attorneys’ incentives to file claims; lead this to reduced payment rates. Most tort reforms relating to the ad damnum clause prevent a plaintiff’s attorney from stating the amount of damages, in order to reduce publicity concerning the lawsuit that would result from claiming huge damages. Mandatory and discretionary collateral source offsets increase payment rates. Contrary to conventional wisdom, a cap on noneconomic damages increases payment frequencies. The impact of patient compensation funds on payment rates is ambiguous. Statutes of limitation, mandatory and voluntary screening panels, and the joint and several liability rule increase payment rates. The impact of arbitration provisions on payment rates is ambiguous. Frivolous lawsuit penalties, according to MREG1 specification, are likely to increase payment rates even though this conclusion is inconsistent with conventional wisdom. In Table 2.4, we present simple averages of claim rates for states with reforms and those with no reforms. Results are similar to those of Table 2.3. States with

Malpractice Claims

43

caps on economic and noneconomic damages, discretionary periodic payment of awards, sliding-scale attorney fees, court-approved or -determined attorney fees, and ad damnum clauses have lower payment rates than states without these conditions. In addition, states with discretionary collateral source offsets and voluntary pretrial screening panels also have lower average payment rates when compared to averages of states without these tort reforms. I also examine the determinants of payment rates per 100,000 population. Table 2.5 shows claim rates per 10 million population by specialty. Since the number of physicians in certain specialties is small, changes in number of claims can dramatically affect the claims rates. Therefore, percentage changes in claim rates should be evaluated with caution. The percentage changes in annual professional liability claims per 100 physicians and claims per 10 million population during 1986–1994 by specialty are as follows: ⫺12.0

⫺15.0

Internal medicine

3.6

19.0

Surgery

7.0

⫺10.0

⫺2.9

⫺45.0

47.7

16.0

⫺0.09

76.0

General and family practice

Pediatrics Obstetrics and gynecology Radiology

Malpractice Claims

45

⫺17.8

Psychiatry Anesthesiology Pathology

⫺35.0

9.2

32.0

105.2

606.0

The percentage changes in claim rates per 100 physicians are significantly different from claim rates per 10 million population. The top 6 and bottom 6 states in terms of malpractice payments per 100,000 populations for 1994 are as follows: Bottom 6 South Carolina

0.945

Alabama

1.034

Alaska

1.789

Wisconsin

2.074

Hawaii

2.365

Maine

2.529

Top 6 New York

9.758

Michigan

9.613

Pennsylvania

8.826

Wyoming

8.612

West Virginia

7.102

Montana

6.964

Pennsylvania is among the top five states with the least reforms. None of the other nine states is among the five states with the most reforms or the five states with the least reforms. Obviously, variations in claims rate per population are significantly different in different states. The Spearman correlation between the claims rate per 10,000 population and various factors for 1994 and claims per physicians and various factors for 1994 are as follows: Malpractice claims per physician Mean payment Delay Lawyers per physician

0.877 ⫺0.171

(0.00)*** (0.27)

⫺0.242

(0.09)*

0.479

(0.00)***

0.022

(0.88)

0.334

(0.03)***

0.022

(0.88)

Operations per physician

⫺0.195

(0.20)

0.308

(0.03)*

Proportion of surgeons among physicians

⫺0.160

(0.30)

0.087

(0.55)

Managed care penetration

0.217

(0.16)

⫺0.24

(0.10)

Per Capita Income

0.262

(0.08)*

⫺0.20

(0.17)

46

Medical Malpractice

Population proportion above 65

⫺0.041

Proportion of metropolitan population in 1992 Population proportion below poverty level

0.36 ⫺0.086

(0.79) (0.02)*** (0.5)

0.043

(0.77)

⫺0.14

(0.32)

0.21

(0.15)

*Significant at the .10 level. **Significant at the .05 level. ***Significant at the .01 level.

States with high malpractice claims per physician also have high malpractice claims per population. However, relationships of claims per physician with other variables are not similar to the relationships between claims per population and other variables. Multivariate analysis between claims per 10,000 population and various tort reform measures are presented in Table 2.6. Two specifications are presented. In MREG2, all variables except dummy variables are expressed in logarithms. In both specifications, lawyers per physicians, surgical operations per physicians, mean delay, and population above 65 are positively and mean payments are negatively associated with payment rates. Proportions of metro population are positively associated with payments rates according to specification MREG1. Caps on noneconomic and economic damages tend to reduce payment frequencies. Discretionary periodic payment, sliding attorney fees, and court-approved attorney fees tend to reduce claim payment rates. A patient compensation fund has a negative impact on payment rates. Mandatory periodic payments of award reduces payment rates according to MREG2. Contrary to conventional wisdom, mandatory and discretionary collateral source offset increase payment rates. Caps on noneconomic damages, statutes of limitation, and joint and several liability also increase the payment rates. Voluntary pretrial screening panels, although established to reduce nonmeritorious claims, actually increase payment frequencies. ANALYSIS BY REASONS Statewide claims per 1,000 physicians are analyzed by various causes. The highest and lowest five states by various causes are as follows: Highest 5 states

Lowest 5 states

Diagnosis related

MI, NV, PA, MT, WY

AL, HI, TN, SC, CT

Anesthesia related

NV, UT, NY, MT, NJ

MA, AK, AR, ME, MN

Surgery related

NV, PA, WV, WY, MT

AL, SC, MA, HI, MD

Medication related

MI, NM, WV, VT, LA

WY, AK, AL, MA, SD

Blood products

AK, WV, GA, LA, MI

KY, OR, CT, VA, MA

Obstetrics related

MI, KS, NY, IL, WY

AL, OR, HI, AK, SC

Treatment related

MI, WV, TX, NV, KS

AL, SC, OR, HI, AK

Malpractice Claims

47

Monitoring related

PA, MI, KS, RI, TX

VA, WI, MN, AL, OR

Equipment related

AK, MS, IA, PA, CO

MA, OH, MN, VA, AR

We estimate the Spearman rank correlations among payment rates per physician for states by various causes. All correlations except one between obstetrics and equipment are statistically significant at the 5 percent level. In order to get an

48

Medical Malpractice

aggregate picture of malpractice causes, we calculate the principal component of these statewide variables. Principal component 1 accounted for about 53.6 percent of the variations in data and component 2 for about 15.9 percent. Their weights are given below: PRIN1

PRIN2

Diagnosis

0.4252

⫺0.0317

Anesthesia

0.3195

⫺0.1601

Medication

0.3537

⫺0.0494

Surgery

0.3591

⫺0.0438

Blood products

0.1652

0.6548

Obstetrics

0.3665

⫺0.1936

Treatment

0.4277

⫺0.1447

Monitor

0.3193

⫺0.1079

Equipment

0.1285

0.6857

Principal component 1 has very low weights for blood products and equipment and equal weights for the other variables, so it can be considered a proxy for physician-caused errors. In principal component 2, blood and equipment have high values. Therefore, they can be considered a proxy for equipment-related malpractice claims. Both of these components are plotted in Figure 2.2. States in proximity can be thought to have similar causes for malpractice payments. The states in the first quadrant—West Virginia, Pennsylvania, and so on—have high physician- and equipment-related payment rates. The states in the third

Malpractice Claims

49

quadrant, such as South Dakota and North Dakota, have low physician- and equipment-related payment rates. The states in the fourth quadrant, such as Montana and Nevada, have high physician-related payment rates and low equipment-related payment rates. Similarly, the states in the second quadrant, such as Georgia and Wisconsin, have high equipment-related payment rates and low physician-related payment rates. The states with high and low equipmentrelated payment rates may reflect the extent of use of equipment in the health care delivery system in these states. ANALYSIS BY PAYMENTS PER PHYSICIANS A variety of strategies can be adopted to alter physicians’ behavior in order to cut malpractice claims. Merit rating involves charging malpractice insurance premiums based on past malpractice claims. Increased training, supervision, high deductibles or coinsurance, restriction on medical procedures that can be done, and so on, can be used to reduce malpractice claims. Although merit rating remains an effective method to deter future claims, 13 out 14 insurance companies that tried some type of experience rating abandoned it.26 Rolph27 and Nye and Hofflander28 assume that each physician’s claims rate follows a Poisson distribution with an expected value that can be characterized by a gamma distribution of the relevant population of physicians. Based on the analysis, they argue that malpractice premiums should be experience rated. Ellis et al.29 also corroborates the conclusions of the previous researchers about the usefulness of experience rating. However, they point out that experience rating of physicians based on past claims is an imperfect approach and can increase the premiums of a few physicians dramatically. Bobvjerg and Petronis30 find that small paid claims were better predictors than unpaid claims, large paid claims were better predictors of small claims, and multiple paid claims were better predictors than single paid claims of subsequent medical malpractice claims. Jensen et al.31 found that a prior litigation record increases the likelihood of malpractice payment and increases the amount paid through settlement as opposed to trial or arbitration. The number of payments per physician gives an indication of the likelihood of a physician being sued more than once. Data from Table 1 and 2 of Socioeconomic Characteristics of Medical Practice 1996,32 show the average numbers of claims per physician who has been sued in 1985 and 1994 are as follows: 1985

1994

All physicians

1.15

1.19

General or family practice

1.04

1.05

Internal medicine

1.15

1.16

Surgery

1.24

1.31

Pediatrics

1.09

1.08

50

Medical Malpractice

Obstetrics and gynecology

1.29

1.37

Radiology

1.14

1.21

Psychiatry

1.34

1.37

Anesthesiology

1.00

1.00

Pathology

1.00

1.00

Surgery and obstetrics and gynecology have the highest average claims per physician who has been sued. The average number of claims per physician sued was higher in 1994 than in 1985. The proportion of malpractice reasons for various frequencies of payments per physicians from 1 September 1990 to 30 April 1997 are as follows: Malpractice reason

1

2

3

4

⬎5

All

Diagnosis related

36

33

28

25

15.2

27.4%

Anesthesia related Surgery related

4 23

2.7 29

1.8

1.4

0.7

3.1

34.4

37.4

40.5

24.0

Medication related

7

5.8

4.8

4.1

8.8

6.1

IV and blood products

0.5

0.5

0.25

0.2

1.1

0.5

Obstetrics related

7

Treatment related Monitoring related

10

12.3

13.4

12.5

7.1

19

16.7

15.8

16

13.2

27.9

1

1

0.9

0.7

1.4

1.3

Equipment or product

0.4

0.4

0.3

0.3

0.3

0.5

Miscellaneous

1.5

1.1

1.3

1.5

6.3

2.1

52,594

23,017

9,386

4,099

6,079

Total

135,325

It is obvious that multiple claims per physician are mostly in surgery and obstetrics. The average age of physicians for various claim frequencies are as follows: Claims/physician

Average Age

1

46.93

2

47.77

3

48.14

4

48.71

5

48.32

There is a slight increase in the age of physicians subjected to higher frequencies of claims. However, studies have shown that age and other factors cannot identify physicians tending to have malpractice claims. Age distributions for claim frequencies per physician are as follows:

Malpractice Claims

51

Number of Claims

Age Group 40–50

50–60

⬎ 60

0.33

0.22

0.16

0.35

0.26

0.14

0.21

0.36

0.27

0.15

0.18

0.37

0.29

0.15

0.01

0.18

0.36

0.29

0.16

0.00

0.14

0.50

0.24

0.12

0.01

0.25

0.35

0.24

0.15

20–30

30–40

1

0.01

0.28

2

0.01

0.24

3

0.01

4

0.01

5 6 All

The NPDB Public Use file contains age of physicians by age groups as 20– 29, 30–39, and so on, and data on the number of physicians are grouped by age as under 35, 35–44, and so on. I therefore interpolate the number of the physicians for various age groups. The rate of malpractice claims per 1,000 physicians is as follows: Age group

Claims from 1 September 1990 to 30 April 1997

Number of physicians in patient care in 1992

Annual rates per 1,000 physicians

⬍ 35

11,893

51,468

35.5

35–44

26,672

136,689

30.02

45–54

26,195

94,932

42.45

55–64

15,870

64,002

38.15

⬎ 65

6,998

42,273

25.5

According to Schwartz and Mendelson,33 a higher proportion of physicians in neurosurgery, plastic surgery, obstetrics and gynecology, orthopedic surgery, family practice, and otolaryngology are likely to lose their malpractice insurance. Higher fractions of physicians in age groups 45–54, 55–64, and 35–44, in order, are likely to lose their malpractice insurance. Board-certified physicians are overrepresented among physicians who have lost their malpractice insurance. With the exception of plastic surgery, there is not much difference between foreign medical graduates and U.S. physicians in terms of proportion of physicians losing their malpractice insurance. A summary of research studies34,35,36 on the impact of state tort reforms on medical malpractice payment rates is presented in Table 2.7. It is obvious that the impact is mixed. Multivariate Analysis of Payments per Physician To discover whether there are differences in payment characteristics between claims of physicians with one claim and claims of physicians with more than

52

53

54

Medical Malpractice

one claim, I performed a logistic analysis. The dependent variable is whether the payment pertains to physicians with one claim or more than one claim. Independent variables include tort reform variables, state demographic variables, age group of physicians, malpractice reasons, and whether the physician has an adverse report in the period from 1 September 1990 to 30 April 1997. In order to account for differences among states, I used per capita income and proportion of metropolitan population in each state. Age of the physician is represented by four dummy variables. These variables take a value of 1 if a physician falls in that age category and zero otherwise. Four age categories are considered: 20–30, 30–40, 40–50, and 50 and above. Malpractice reasons also impact claim frequency. I use nine variables to represent malpractice reasons. Malpractice reasons considered in this paper are diagnosis, anesthesia, surgery, medication, IV and blood products, obstetrics, treatment, monitoring, and equipment. The variables take a value of 1 if a particular reason caused the claim and 0 otherwise. I also include variables representing whether a physician has been disciplined. If there is an adverse report against a physician, the dummy takes a value of 1, and 0 otherwise. Analysis of Results Parameter estimates of a logistic regression analysis are presented in Table 2.8. The dependent variable is whether a physician had one claim or more than one claim. The parameters presented are with respect to the probability of a physician having more than one claim. Therefore, positive signs indicate that the variable increases the probability of having more than one claim and negative signs indicate the opposite. Physicians in states with high per capita income are likely to have more than one payment. However, the proportion of metro-population in a state negatively affects the likelihood of a physician having more than one payment during the period 1 September 1990 to 30 April 1997. Physicians in age-groups 20–30 and 30–40 are less likely to have more than one payment. Physicians in age-groups 40–50 and 50 and above are likely to have more than one payment. Physicians involved in surgery and obstetrics and gynecology are more likely, and those involved in anesthesiology are less likely, to have more than one payment. States enacted tort reforms to reduce claim frequency. Therefore, the parameters representing tort reforms should have negative signs. The collateral source rule prohibits deduction from damages awarded of amounts recovered from other sources such as health insurance or government benefits. Therefore, states that modified the collateral source rule should discourage malpractice lawsuits. According to the logistic regression outputs, mandatory collateral source modifications increase the probability of having more than one payment. Caps on economic and noneconomic damages also discourage malpractice suits.

56

Medical Malpractice

Court-approved or -determined legal fees and arbitration provisions also reduce the likelihood of a physician having more than one payment. Patient compensation funds established by states typically pay malpractice awards above certain limits. This is because whenever a payment exceeds the limit for the patient compensation fund to pay, two malpractice payments are generated—one from the insurance carrier and the other from the fund. Mandatory periodic payments of awards also increase the probability of having more than one malpractice payment per physician. Typically, periodic payments of awards are mandatory only when payments exceed certain limits. Because such reforms impact only large payments, their influence on the frequency number of awards is limited. Statutes that limit time for filing claims are expected to reduce the frequency number of claims per physician. However, a positive sign indicates that the impact is contrary to the conventional wisdom. Mandatory screening increases the probability of having more than one claim per physician. Caps on legal fees should reduce the frequency number of malpractice claims. The analysis shows that both sliding scale and maximum limit increase the probability of having more than one claim but the reform involving courtapproved fees reduces this probability. Contrary to conventional wisdom, both frivolous lawsuit penalties and joint and several liabilities increase the likelihood of having more than one payment for a physician. In summary, the impact of various tort reforms on the frequency number of malpractice payments per physician is mixed. Mandatory collateral source modifications, caps on damages, court-approved legal fees, and arbitration provision reduce the probability of having more than one claim per physician. By contrast, tort reforms involving a patient compensation fund, mandatory periodic payments of awards, statutes of limitation, mandatory screening panels, sliding and maximum legal fees, frivolous lawsuit penalties, and a joint and several liability rule increase the probability of having more than one claim per physician. States with higher proportions of metro population have physicians with lower frequency of claims. However, per capita income increases the probability of having more than one claim per physician. This is consistent with the notion that people with higher incomes are more likely to file malpractice claims than people with lower incomes are. The impact of age group on the claim frequency is consistent with the conventional wisdom. Physicians in age-group 20–40 are less likely to have more than one claim. The analysis indicates that physicians in age-group 40–60 have a higher frequency of claims. Typically, physicians in age-group 40–60 have established practices and are likely to treat a larger number of patients. Analysis based on malpractice reasons indicates that surgery and obstetrics are more likely to result in a higher frequency of claims. Anesthesia is likely to have a lower number of claims according to the logistic regression output. The analysis indicates that physicians with adverse reports are likely to have a higher frequency of claims. Therefore, it is important for states to have an effective licensure and privileges action reporting system.

Malpractice Claims

57

Tort reforms, specialty, age group, and adverse actions reports have an impact on the frequency of claims per physician. If we assume that malpractice claims occur randomly, frequency distribution must follow Poisson. Actual frequency number of claims and Poisson distributed frequency of claims for the same mean claim rate for the period 1 September 1990 to 30 April 1997 are as follows: Number

Actual

Random

Difference

0

545,252

530,198

15,054

1

50,716

75,394

⫺24,678

2

10,744

5,361

5,383

3

2,872

254

2,681

4

915

9

906

718

1

717

611,217

611,217

0

⬎5 Total

From the preceding table, it is obvious that claim frequencies greater than 1 significantly differ from Poisson frequencies, indicating that not all claims are random. However, differences between Poisson distributed claim frequencies and actual claim frequencies are about 9,687 physicians, or about 1.58 percent of total physicians. In other words, about 1 to 2 percent of physicians have claim rates that deviate from Poisson distributed claim frequencies. Premiums based on experience rating will be substantially high for this group of physicians. Experience rating does deter malpractice claims. However, extremely skewed distributions of claims as well as claims payments are likely to increase premiums significantly for a few physicians. Since only a few physicians are likely to be affected by the experience rating, such high rates are likely to drive them out of practice. Therefore, increasing deductibles to deter repeat claims may be a better alternative. Only 7 out of 23 malpractice insurers used experience rating and surcharges for physicians according to experience rating policies of selected malpractice insurers presented in a study by the Institute of Medicine.37 Other forms of policy initiatives include improved continuous training programs, periodic review of eligibility for licensure, and periodic evaluations of malpractice history. A physician who loses malpractice insurance or is faced with higher premiums can stop practicing medicine, continue practicing without insurance, buy insurance from a joint underwriting association, pay higher premiums, or avoid risky medical practices. THE DISPOSITION OF MALPRACTICE LAWSUITS In this section, I examine the impact of tort reforms on how lawsuits are decided. According to the Civil Justice Survey of State Courts, medical malpractice tort cases are settled as follows:38

58

Medical Malpractice

Trial verdict

6.9

Agreed settlement (including voluntary dismissal) Summary judgment

69.4 3.3

Default judgment

0.8

Dismissed

12.9

Arbitration award

1.4

Transfer

3.5

Other disposition

1.8

It is obvious that a mere 1 in 16 cases are decided by jury or bench trial. In this chapter, for the purpose of analysis, I divide cases into those disposed through judgments and those settled before judgment. Most of the cases are settled. The mean delay in years in malpractice payments from 1 September 1990 to 31 December 1996 by malpractice reasons is as follows: Obstetrics related

6.57

Medication related

5.24

Monitoring related

5.16

Miscellaneous

5.16

Diagnosis related

4.94

All payments

4.73

IV and blood products related

4.79

Treatment related

4.40

Surgery related

4.29

Equipment or product related

3.71

Anesthesia related

3.59

Obstetrics-related and medication-related claims take the longest time for payment and equipment- or product-related and anesthesia-related claims take the least time for payment. According to Weiler et al.,39 delay in payments affect the plaintiff and defendant differently. Delays tend to force the injured to settlement. According to a GAO study, medical malpractice cases were settled for an average payment of $400,000 even though their estimated average economic costs alone were $1.7 million. The proportion of cases that were settled in favor of the plaintiff for various age groups and the proportion of malpractice payments for various age groups for cases closed from 1 September 1990 to 30 April 1997 are as follows: 20–30

0.953

0.0088

30–40

0.962

0.2515

Malpractice Claims

59

40–50

0.961

0.3499

50–60

0.964

0.2402

⬎ 60

0.964

0.1372

Total

0.962

1.0000

No impact of age on the likelihood of settlement was found. The proportion of cases settled by malpractice reasons are as follows: Diagnosis

0.964

Anesthesia

0.970

Surgery

0.957

Medication

0.959

IV and blood products

0.967

Obstetrics

0.965

Treatment

0.964

Monitoring

0.969

Equipment

0.970

Miscellaneous

0.970

Settlement is lowest in surgery- and highest in anesthesia-related payments. Logistic regression with disposal as a dependent variable and tort reforms and other factors as independent variables is presented in Table 2.9. In the first specification, all variables other than categorical variables are expressed in logarithms. The malpractice payment amount positively affects settlement. In other words, the mean of payments that result from settlement is lower than the expected amounts paid as a result of judgment. The average delay also encourages settlement. Managed care penetration and higher state per capita income negatively impact settlement. States with higher metropolitan populations have higher settlement rates. Malpractice allegations affect settlement rates differently. Diagnosis-, anesthetics-, and obstetrics-related malpractice lawsuits are less likely to be settled than other malpractice lawsuits. Claims involving physicians in the age-groups 20– 29 and 40–49 are more likely to be settled. Single payment, instead of structured payments, is a significant incentive for malpractice claim settlement. The impact of tort reform on the likelihood of settlement is mixed. Mandatory collateral source payments may be a significant incentive for a defendant to go through a whole trial. By contrast, discretionary collateral source payments encourage settlements, as do economic and noneconomic damage caps. Although courts and legislatures encourage settlements, they significantly reduce payments to the injured person. Published statistics indicate that 58 percent of verdicts in medical malpractice ordered payments above the amount demanded for settle-

60

61

62

Medical Malpractice

ment by the injured; 3 percent ordered awards equal to the amount demanded; 27 percent ordered payments between those demanded by the injured and those offered by the defendant; and 12 percent ordered awards below or equal to the offer. In short, 88 percent of the time injured persons received as a result of a malpractice verdict more money than the amount offered by the defendant for settlement. Median value of the demand was $250,000; offer, $60,000; and verdict, $379,500. In other words, the injured received more than six times the amount going for verdict than they would have accepted through settlement.40 PHYSICIAN DISCIPLINE The purpose of physician licensure and discipline is to protect the public from incompetent physicians. The authority to license and discipline is given to states. State medical boards discipline physicians through the revocation or suspension of licenses. Other means of disciplining physicians include probation, restrictions, fines, reprimands, letters of censure, letters of concern, and so on. Incorrect drug prescription, unlawful distribution of drugs to addicts, self-abuse, incompetence, sexual abuse, and conviction for a felony are some examples of violations for which a physician can be disciplined. State medical boards are extremely conservative in taking disciplinary action against physicians. Although some authors estimate that 5 to 15 percent of physicians are professionally incompetent to practice medicine, only 0.40 percent of physicians annually were subjected to licensure and privileges actions between 1 September 1990 and 31 December 1996. In addition, 39.9 percent of physicians disciplined for sex-related offenses between 1981 and 1994 were licensed to practice.41 Reportable actions involving licensure, hospital privileges, and professional society in the NPDB may be exaggerated. For the same violation, there can be more than one adverse report. In addition, more than 1 in 10 licensure adverse actions are for actions taken by other states. Adverse actions relating to loss of licensure from 1 September 1990 to 30 September 1999 by reasons other than for actions of other states are as follows: Adverse licensure actions for alcohol and substance abuse, narcotics violation, felony, fraud, mental disorder, and allowing unlicensed person to practice

4,516

24.2%

Incompetence/malpractice/negligence

1,832

9.8%

Unprofessional conduct

1,914

10.3%

Other reasons

2,252

12.1%

Reprimand

1,872

10.1%

Other miscellaneous action including censure and surrender

6,177

33.2%

63

0.3%

Denied (renewal only) Total

18,626

100%

Malpractice Claims

63

The adverse actions relating to clinical privileges by reasons between September 1, 1990 and September 30, 1999 are as follows: Adverse clinical privileges actions for alcohol and substance abuse, narcotics violation, felony, fraud, mental disorder, and allowing unlicensed person to practice 728 10.7% Incompetence/malpractice/negligence

1825 26.9%

Unprofessional conduct

920 13.6%

Physical impairment

97

1.4%

Other

3209 47.3%

Total

6779 100%

About 1 in 10 adverse actions relating to clinical privileges are associated with violations of laws. A significant proportion of clinical privileges adverse actions are for “other” reasons. Reportable actions (which include adverse actions such as revocations, probation, suspensions, reprimands, and nonadverse actions such as restorations and reinstatements) are as follows: Year

Reportable Actions

Actions per 1,000 Physicians

Growth in Actions per 1,000 Physicians

1991

3,480

5.13

1992

3,925

5.36

4.5%

1993

4,231

5.71

6.5%

1994

4,820

6.54

14.5%

1995

4,765

6.32

⫺3.36%

1996

5,330

7.04

11.3%

1997

5,196

6.35

⫺9.8%

1998

5,543

6.53

2.8

The numbers of physicians with specific numbers of action reports from 1 September 1990 to 31 December 1997 are as follows: 1

7,644

2

3,442

3

1,562

4

718

5

389

6

191

7

87

8

48

64

Medical Malpractice

9

30

⬎ 10

39

Total

14,140

Roughly 1 in 2 physicians with reportable action reports has more than one report. There were 22,709 reportable action reports against physicians from 1 September 1990 to 31 December 1996. About 74 percent were licensure related, 25 percent were related to clinical privileges, and 1 percent to professional society membership. A very small percentage, 150 reports, were for drug enforcement agency actions. On average, 1 in 10 physicians made malpractice payments between 1 September 1990 and 31 December 1996. However, roughly 1 in 4 physicians with reportable action reports made malpractice payments in the same period. According to Fournier and Mcinnes,42 physicians in the state of Florida who had abnormal rates of malpractice claims during 1987–1991 also had a higher rate of disciplinary actions in 1992–1995. These authors also suggest that older physicians are more likely to be disciplined. Physicians with Reportable Action Reports

Physicians with no Reportable Action Reports

Total

Physicians with malpractice report

3,091

63,874

65,965

No malpractice report

9,399

535,853

545,252

12,490

598,727

611,217

Total

There are significant variations in reportable action rates per 1,000 physicians. Pennsylvania, New York, North Carolina, Massachusetts, and New Hampshire rank among the lowest reportable action rates and West Virginia, Montana, Oklahoma, Colorado, and Missouri among the highest. Reportable action reports and malpractice claim rates are related. The Spearman rank correlation between these two variables indicates that they are positively associated, with a statistical significance of 0.03. The ratios of malpractice rates to reportable action rates were calculated. South Carolina, Alabama, Oklahoma, Colorado, and Alaska have the lowest ratios and Pennsylvania, New York, Michigan, Utah, and New Hampshire have the highest. It can therefore be inferred that Pennsylvania, New York, Michigan, Utah, and New Hampshire have comparatively high malpractice rates in comparison to reportable action rates. Since malpractice rates are directly related to reportable action rates, these states should increase their physician disciplinary actions. The top and bottom five states in annualized licensure reports between 1 September 1990 and 31 December 1998, along with their privileges reports are as follows:

Malpractice Claims

65

Licensure reports per 1,000 Physicians

Privileges reports per 1,000 Physicians

Rank

New Mexico

1.67

1.73

36

Massachusetts

2.03

0.75

3

New shire

2.28

0.69

2

Hawaii

2.37

1.64

33

North Carolina

2.37

1.44

25

Hamp-

Oklahoma

9.82

2.85

48

Iowa

10.07

1.58

31

Mississippi

10.92

1.37

20

North Dakota

11.02

2.52

47

West Virginia

12.19

1.65

34

The top and bottom five states in annualized privileges actions reports between 1 September 1990 and 31 December 1998 along with their privileges reports are as follows: Privileges reports per 1,000 Physicians

Licensure reports per 1,000 Physicians

Rank

Connecticut

0.59

3.68

20

Massachusetts

0.69

2.24

3

Illinois

0.77

3.19

15

Alaska

0.78

7.54

45

New York

0.84

3.55

18

North Dakota

2.52

11.02

50

Oklahoma

2.85

9.82

47

Kansas

2.90

4.34

26

Arizona

2.97

6.60

43

Nevada

3.65

3.92

22

There are significant variations in licensure reports and privileges reports. The percentage of hospitals that did not submit a single report from 1 September 1990 to 31 December 1998 varies from 36.5 percent in New Jersey to 79 percent in Minnesota. Baldwin et al.43 state that the lower reporting rate may be because the information submitted to the NPDB may be incomplete. Imposing penalties that require no reporting to the NPDB, substitution of continuous improvement for peer review, and increased licensing board actions in lieu of privileges actions may be some of the reasons for lower reporting by hospitals. However, higher quality care is not the reason for lower reporting level, according to Baldwin et al. Such low reporting by hospitals is of significant concern. In his

66

Medical Malpractice

book Blind Eye: The Terrifying Story of a Doctor Who Got Away with Murder, Stewart44 explains how a physician convicted of the fatal poisoning of a coworker and investigated for murder at a hospital could find jobs as a hospital physician in South Dakota, New York, and other places. A scatter diagram with privileges action reports per 1,000 physicians on the Y-axis and percent of hospitals that never reported between 1 September 1990 and 31 December 1998 is presented in Figure 2.3. Consumer groups raise several criticisms about the current physician disciplinary system. First, there are significant variations in disciplining rates among states. If only serious disciplinary actions per doctor are considered, then Alaska, Oklahoma, and Mississippi have, respectively, 15.4, 9.2, and 8.9 actions per 1,000 physicians and Tennessee has only 0.9. States with large populations have low serious disciplinary action numbers per physician.45 Several medical boards require a higher standard of proof, such as “clear and convincing evidence” or “beyond a reasonable doubt,” making it difficult to take a disciplinary action against a physician. Licensure registration fees are the major source of revenues for a medical board that is given responsibility for licensure actions. I therefore computed the Spearman rank correlations between fees per year and mean annualized licensure and clinical privileges reports per 1,000 physicians for 1991–1995, annualized licensure reports per 1,000 physicians from 1 September 1990 to 31 December 1995, and annualized privileges reports per 1,000 physicians from 1 September 1990 to 31 December 1995. Although the Spearman correlations do not indicate any statistically significant relationships, there is a mild positive relationship (statistical significance .1054) between annual fees and annualized licensure reports. To evaluate any relationship between licensure rates per 1,000 physicians and other variables, I performed a multiple regression analysis with the logarithm of licensure reports rate per 1,000 physicians for 1990–1995 as a dependent variable and the logarithm of licensure fees per annum, a dummy variable representing preponderence of the evidence as the standard of proof for disciplinary matters, a dummy variable denoting states with civil penalty for failure to report possible violations, and the structure of the board as independent variables. Board structure is categorized into independent (the board exercises all licensing and disciplinary powers), semiautonomous (the board exercises most key powers), subordinate (the board exercises few key powers and a central agency makes most decisions), and advisory (the board acts in a purely advisory role). The data are from a report compiled by the American Medical Association.46 The regression analysis output is as follows:

68

Medical Malpractice

Log (licensure reports/1,000 physicians) ⫽ 0.078⫹0.20 Log (annual license fee) (0.13) (1.61) ⫺0.15 Preponderence of evidence for disciplinary matter dummy (0.98) ⫺0.01 Civil penalty for failure to report violations dummy (0.07) ⫹0.59 Independent board dummy (2.37**) ⫹ 0.424 Semiautonomous board dummy (0.18) ⫹ 0.19 Subordinate board dummy

Probability ⬎ F 0.1431** and R-squared 0.1961. Except for the independent board, none of the variables is statistically significant. The mean licensure reports per 1,000 physicians by various categories are as follows: States with preponderance of the evidence as a standard proof required in disciplinary matters

(35)

4.65

Others

(14)

4.78

States with civil penalties for failure to report possible violations

(17)

4.67

Others

(32)

4.70

36

5.06

States with semiautonomous structures

6

4.64

States with subordinate structures

3

3.23

States with advisory structures

3

2.64

States with independent structures

It is obvious that as board structure becomes independent licensure rates increase. To improve physician discipline, the National Center for Patients’ Rights recommends independent boards with a majority of public members, execution of consent agreements only if the physician agrees to plead guilty to the most serious allegations, public disciplinary hearings, increased licensing and other fees, and responsibility for licensure and discipline.47 According to the Federation of State Medical Boards, a politically independent board with its own administration, with operating expenses fully funded by physician licensing fees, and with full powers including the subpoena of documents would be an ideal board.48 CONCLUSIONS In this chapter, I examined the impact of tort reforms on malpractice payment rates and settlement. Caps on economic and noneconomic damages, periodic payment of awards, and attorney fee regulations have been effective in reducing payment rates. However, they also reduce the probability of settlement, raising

Malpractice Claims

69

overall malpractice costs. Licensure and privileges reporting by hospitals is extremely varied and steps need to be taken to improve them. NOTES 1. Elihu Schimmel, “The Hazards of Hospitalization,” Annals of Internal Medicine 60 (1964): 100–10. 2. K. Steel, P. M. Gertman, C. Crescenzi, and J. Anderson, “Iatrogenic Illness on a General Medical Service at a University Hospital,” New England Journal of Medicine 304(11) (1981): 638–42. 3. California Medical Association and California Hospital Association, “Report on the Medical Insurance Feasibility Study,” August 1977, quoted in the Institute of Medicine, A Policy Analysis, Beyond Malpractice: Compensation for Medical Injuries (Washington, D.C.: National Academy of Sciences, March 1978), 6. 4. P. C. Weiler, H. H. Hjiatt, J. P. Newhouse, W. G. Johnson, T. A. Brennan, and L. L. Leape, A Measure of Malpractice: Medical Injury, Malpractice, Litigation, and Patient Compensation (Cambridge: Harvard University Press, 1993). 5. U.S. General Accounting Office, Medical Malpractice: Six State Case Studies (Washington, D.C.: U.S. Government Printing Office, 1986). 6. U.S. Department of Health and Human Services, National Practitioner Data Bank, Annual Report (Rockville, Md.: U.S. Department of Health and Human Services, various issues). http://www.hrsa.dhhs.gov/bhpr/dqa. 7. LRP Publications, What are Catastrophic Injuries Worth? 180–1, 182–3, 189, 152–3, 173–4 (Horsham, PA: LRP Publications, 1997). 8. Socio-economic Characteristics of Medical Practice, 1997–98 (Chicago: American Medical Association, 1998), 41. 9. U.S. Department of Health and Human Services, National Practitioner Data Bank, 1997 Annual Report (Rockville, MD: U.S. Department of Health and Human Services, 1998). 10. M. I. Taragin, A. P. Wilczek, M. E. Karns, R. Trout, and J. L. Carson, “Physician Demographics and the Risk of Medical Malpractice,” American Journal of Medicine 93(5) (November 1992): 537–42. 11. W. Levinson and J. P. Mullooly, “Medical Malpractice and Its Consequences: Does Physician Gender Play a Role?” Journal of Gender, Culture, and Health 4(3) (September 1999): 201–14. 12. P. Danzon and L. Lillard, The Resolution of Medical Malpractice Claims: Research Results and Policy Implications, Report No. R-2793-ICJ (Santa Monica, Calif.: Rand Corporation, 1982). 13. L. Bebchuck, “Litigation and Settlement under Imperfect Information,” Rand Journal of Economics (1984) 15(3): 404–15. 14. R. Posner, Economic Analysis of Law (Boston: Little, Brown, 1986). 15. R. Feldman, “The Determinants of Medical Malpractice Incidents: Theory of Contingency Fees and Empirical Evidence,” Atlantic Economic Journal 7(2) (1979): 59–65. 16. Stephen Zuckerman, Randall R. Bovbjerg, and Frank Sloan, “Effects of Tort Reforms and Other Factors on Medical Malpractice Insurance Premiums,” Inquiry 25 (summer 1990): 167–82). 17. Patricia M. Danzon, “The Frequency and Severity of Medical Malpractice Claims: New Evidence,” Law and Contemporary Problems 49(2): 57–84.

70

Medical Malpractice

18. Frank A. Sloan, Paula M. Mergenhagen, and Randall R. Bovbjerg, “Effects of Tort Reforms on the Value of Closed Medical Malpractice Claims: A Microanalysis,” Journal of Politics, Policy, and Law 14(4) (winter 1989). 19. National Practitioner Data Bank Public Use Data File, April 30, 1997 (Rockville, Md.: U.S. Department of Health and Human Services, Health Resources and Services Administration, Bureau of Health Professions, Division of Quality Assurance, 1997). 20. K. Y. Liang and S. L. Zeger, “Longitudinal Data Analysis Using Generalized Linear Models,” Biometrika 73: 13–22. 21. Bebchuck, “Litigation and Settlement under Imperfect Information.” 22. Posner, Economic Analysis of Law. 23. I. P. L. Png, “Litigation, Liability, and Incentives for Care,” Journal of Public Economics 34 (1987): 61–85. 24. Mark Sager, S. Voeks, P. Drinka, E. Langer, P. Grimstad, “Do the Elderly Sue Physicians?” Archives of Internal Medicine 150(5) (1990): 1091–3. 25. Helen R. Bustin and others, “Do the Poor Sue More?” Journal of the American Medical Association 270(14) (13 October 1993): 1697–1701. 26. Frank A. Sloan, Randall R. Bovberg, and Penny B. Githens, Insuring Medical Malpractice (New York: Oxford University Press, 1991). 27. J. E. Rolph, “Some Statistical Evidence on Merit Rating in Medical Malpractice Insurance.” Journal of Risk and Insurance 48 (June 1981): 247–60. 28. Blaine F. Nye and Alfred E. Hofflander, “Experience Rating in Medical Professional Liability Insurance,” Journal of Risk and Insurance 55 (March 1988): 150–7. 29. Randall P. Ellis, Cynthia L. Gallup, and Thomas G. Mcguire, “Should Medical Liability Be Experience Rated?” Journal of Risk and Insurance 57 (March 1990): 66–78. 30. Randall R. Bovbjerg and Kenneth R. Petronis, “The Relationship between Physicians’ Malpractice Claims History and Later Claims: Does the Past Predict the Future?” Journal of the American Medical Association (9 November, 1994) 272(8): 1421–54. 31. Gail A. Jensen, Stephen J. Spurr, Derek A. Weycker, and Maria Bulycheva, “Physicians and the Risk of Medical Malpractice: The Role of Prior Litigation in Predicting the Future,” Quarterly Review of Economics and Finance 39 (1999): 267–89. 32. Socio-economic Characteristics of Medical Practice, 1996 (Chicago: American Medical Association, 1996), 36, 37. 33. William B. Schwartz and Daniel N. Mendelson, “Physicians Who Have Lost Their Malpractice Insurance,” Journal of the American Medical Association 262(10) (8 September 1989): 1335–41. 34. E. K. Adams and S. Zuckerman, “Variation in the Growth and Incidence of Medical Malpractice Claims,” Journal of Health, Politics, Policy, and Law 9(3) (fall 1984): 475–88. 35. Danzon, “The Frequency and Severity of Medical Malpractice Claims.” 36. S. Zuckerman, R. R. Bovbjerg, and F. Sloan, “Effects of Tort Reforms and Other Factors on Medical Malpractice Insurance Premiums,” Inquiry 27(2) (summer 1990): 157–82. 37. Institute of Medicine, Medical Professional Liability and the Delivery of Obstetrical Care Vol. 1 (Washington, D.C.: National Academy Press, 1989), 219–25. 38. Steven K. Smith, C. J. DeFrances, and P. A. Langans, Civil Justice Survey of State Courts, 1992, NCJ-153177 (Washington, D.C.: U.S. Department of Justice, Office of Justice Programs, Bureau of Justice Statistics, April 1995), 3.

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39. Weiler et al., A Measure of Malpractice. 40. Trends in Health Care Provider Liability (Horsham, PA: LRP Publications, 1994), 21. 41. C. E. Dehlendorf and S. M. Wolfe, “Physicians Disciplined for Sex-related Offenses,” Journal of the American Medical Association 279(23) (17 June 1998): 1883–8. 42. Gary M. Fournier and Melayne Morgan Mcinnes, “Medical Board Regulation of Physician Licensure: Is Excessive Malpractice Sanctioned?” Journal of Regulatory Economics 12 (1997): 113–26. 43. L. M. Baldwin, L. G. Hart, R. E. Oshel, M. A. Fordyce, R. Cohen, and R. A. Rosenblatt, “Hospital Peer Review and the National Practitioner Data Bank: Clinical Privileges Action Reports,” Journal of the American Medical Association 282(4)(July 28 1999): 349–55. 44. James B. Stewart, Blind Eye: The Terrifying Story of a Doctor Who Got Away with Murder (New York: Simon & Schuster, 1999). 45. “Doctor Policing: Too Tough? Too Easy?” Medical Economics, 10 May 1999, 139. 46. State Medical Licensure Requirements and Statistics 1999–2000 (Chicago: American Medical Association, 1999). 47. “Medical Malpractice Reform,” Hearing before the Subcommittee on Courts and Administration Practice, S. Hearing 103–1069, Serial no. J-103–56 (Washington, D.C.: U.S. Government Printing Office, 1994), 16–23. 48. “Doctor Policing,” 140.

3

Severity of Medical Malpractice Claims INTRODUCTION Malpractice claim severity is defined as the average payment per claims paid. This is one indicator of malpractice stringency, the other being malpractice payment rates. Among tort cases, medical malpractice has the highest severity. According to the Civil Justice Survey of State Courts, severity trends for various tort cases are as follows:1 Median Toxic substances Automobile

Mean

% Cases Plaintiff Won

$101,000

$526,000

74

29,000

220,000

60

Premises liability

57,000

232,000

44

Product liability

260,000

727,000

41

Medical malpractice

201,000

1,484,000

30

Although mean medical malpractice severity is the highest among tort cases, the probability of winning is 3 out 10 as compared to greater than 7 out of 10 in toxic substances cases. The average payment per paid claims from 1991 to 1998 is as follows: Year

Settled ($)

Verdict ($)

Verdict/Settled (%)

1991

153,068

291,484

.53

1992

171,732

349,909

.49

74

Medical Malpractice .

Year

Settled ($)

Verdict ($)

Verdict/Settled (%)

1993

178,147

383,906

.46

1994

192,639

322,089

.60

1995

194,240

348,627

.56

1996

203,667

328,744

.62

1997

209,308

389,323

.52

1998

216,694

409,427

.53

1999 (Jan.– Sept.)

221,266

381,149

.58

The trends in the average malpractice payment since 1850 are given in Figure 3.1. The mean malpractice payment peaked around the 1940s, then went down, and then rose sharply in the late 1970s. The average payments per paid claims have been steadily rising since 1991. According to the Bureau of Justice Statistics, 93.1 percent of malpractice lawsuits are disposed before they reach trial verdict stage.2 SEVERITY BY MALPRACTICE REASON Claims involving obstetrics are the most expensive of those filed against physicians and surgeons, followed by anesthesia-related claims. Obstetrics have the longest delay (6.57 years) between malpractice incidence and payment time. Cumulative claims by malpractice reasons along with the mean and the median for the period from 1 September 1990 to 31 December 1996 are given below:3 Cumulative, 1 Sept. 1990–31 Dec. 1996 Inflation Inflation Adjusted Adjusted Median Mean Mean Median Mean Number of Payment Payment Payment Payment Delay ($) Years ($) Malpractice Reason Payments ($) ($) Obstetrics related

8,428

335,107

165,000

358,858

178,283

6.57

Anesthesia related

3,765

199,939

60,000

216,573

66,244

3.59

Diagnosis related

31,931

190,055

98,000

203,176

102,163

4.94

Monitoring related

1,594

179,045

65,000

191,714

71,710

5.16

Blood products

571

152,981

40,000

163,214

42,900

4.79

Surgery related

28,102

137,043

60,000

146,335

62,500

4.29

Medication related

7,472

123,204

29,999

132,267

31,682

5.24

Treatment related

33,050

95,796

25,000

102,350

27,174

4.40

2,494

91,159

25,000

99,187

27,174

5.16

Miscellaneous Equipment All Reports

553

59,875

15,000

64,547

16,304

3.71

117,960

154,431

52,250

165,225

57,604

4.73

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Medical Malpractice

Cumulative claims in terms of percentage of total claims and percentage of total incurred costs by malpractice reasons for the period from 1 September 1990 to 31 December 1996 are given below: Equipment or product

0.469

0.182

Blood product

0.484

0.480

Miscellaneous

2.114

1.248

Monitoring related

1.351

1.567

Anesthesia related

3.192

4.132

Medication related

6.334

5.054

Obstetrics related

7.145

15.504

Treatment related

28.018

17.380

Surgery related

23.823

21.141

Diagnosis related All reports

27.069 100

33.314 100

Diagnosis-related reasons account for 27 percent of the claims and one third of total payments made. Surgery-related reasons account for 24 percent of claims and 21 percent of total payments made. DISTRIBUTION OF SEVERITY The payment distribution is extremely skewed. The highest 1 percent of claim payments account for 12.67 percent of all claims paid. The distribution of claim amounts for claims closed between 1 September 1990 and 30 April 1997 is as follows: Maximum

Percent of Total Claims Paid

1 percent

12.67 percent

5 percent

32.68 percent

10 percent

48.21 percent

20 percent

67.02 percent

30 percent

78.52 percent

40 percent

86.63 percent

50 percent

91.63 percent

Payments are extremely skewed, with the top 50 percent accounting for more than 90 percent of total payments. Little more than the top 10 percent of payments are the same as the little less than bottom 90 percent of bottom payments. The sum of about 10 percent of the highest payments is the same as the sum of 90 percent of the lowest payments.

Severity of Medical Malpractice Claims

77

MEAN SEVERITY BY STATES There are significant differences in severity among states. Washington, D.C., Alabama, Illinois, Wisconsin, Rhode Island, and New York have mean severities of more than $200,000. Mean, median, inflation adjusted mean and median severities, along with delay in years for these states for 1 September 1990 to 31 December 1996 are given below:4 Mean ($)

Median ($)

Mean ($)

Median ($)

Delay

Washington

299,045

100,000

321,061

103,687

4.73

Alabama

261,233

70,000

275,367

72,091

3.83

Illinois

219,875

100,000

237,047

109,015

5.68

Wisconsin

212,345

47,750

227,776

49,459

4.54

Rhode Island

210,112

75,000

227,049

83,893

6.02

New York

205,117

75,000

219,952

82,381

7.19

However, for states such as Michigan, Utah, California, Nebraska, and Louisiana, median severity is less than $100,000 and median severities are much lower. Median payments of $10,001 for Utah should be of serious concern to anyone interested in the civil justice system. Mean, median, inflation adjusted mean and median severities, along with delays in years for these states for 1 September 1990 to 31 December 1996 are given below: Mean ($)

Median ($)

Mean ($)

Median ($)

Delay

Michigan

84,763

48,500

91,342

50,318

4.19

Utah

85,501

10,001

91,093

11,371

3.30

California

87,337

29,999

93,627

30,000

3.52

Nebraska

88,149

35,000

94,698

37,076

3.72

Louisiana

100,051

50,000

107,758

55,928

4.48

IMPACT OF TORT REFORMS A comprehensive literature review on the impact of tort reforms on the mean payment for paid claims can be found in the analysis done by the Office of the Technology Assessment.5 Danzon6 analyzes average payment per claim paid using 1975–1984 data, focusing on state level data. Claims under both claimsmade and occurrence policies are included in the analysis. Urbanization, percentage of population over 65, surgeons per physicians, and attorneys per capita are some of the variables included to account for differences between states. Tort reform measures used as independent variables include collateral source offset, mandatory collateral source offset, cap, screening panel, mandatory screening panel, arbitration, and fee limits. Since states with high claim

78

Medical Malpractice

rates and payment amounts are likely to enact reforms, two-stage least squares estimates in addition to ordinary least-square estimates are also presented. Collateral source offset, mandatory collateral source offset, cap, and arbitration panel are found to have an impact in reducing average payments. Sloan et al.7 analyze the influence of tort reforms on the likelihood that the claim would result in payment, logarithm of payment, logarithm of payment and loss-associated expense, months from injury to filing, and years from filing to closing. The data is from the General Accounting Office for the year 1984 and National Association of Insurance Commissioners for the years 1975 to 1978. The focus of analysis is individual claims. Zuckerman et al.8 examined the impact of tort reforms on the malpractice payment per paid claims. Both claims-made and occurrence policies for the years 1975 to 1986 were included in the analysis. I analyze the malpractice payments per paid claim, focusing on individual payments for the years 1991 to 1995. I include per capita income and proportion of metro population in 1992 to account for the differences among states. I also include physician’s age groups, malpractice reasons, whether or not the payment is as a result of verdict, state average years from the occurrence of the malpractice to closing, and whether payment is single as independent variables. I include 17 tort reform variables to examine the impact on the payments. All variables except categorical variables are expressed in logarithms. The result of the multiple regression analysis is presented in Table 3.1. State average delay positively affects payment. It is obvious that insurance companies and physicians take a longer time to pay higher amounts. States with a higher proportion of metro population have higher malpractice severity. Single payments are typically lower. Payments as a result of verdict are higher than those as a result of settlement. After accounting for other factors, the impact of the age group on payments is negligible. Obstetrics-, diagnosis-, and surgeryrelated malpractice payments are higher. Mandatory collateral offsets, mandatory and discretionary periodic payments, statutes of limitation, mandatory periodic payments of awards, fee restrictions (including sliding scale, maximum percent, and court-approved fees), frivolous lawsuit penalties, and a joint and several liability rule are found to reduce payments. Caps reduce payments, but my analysis indicates that this conclusion is not statistically significant even at the 0.1 level. Discretionary collateral source offsets, patient compensation funds, and voluntary pretrial screening panels increase payments. Table 3.2 lists simple averages of mean payments for paid claims and average payment per physician for 1 September 1990 to 31 December 1998 by tort reforms. Average payment per physician is obtained by multiplying payment rates by average payment for paid claims. This indicator includes both payment frequency and amount. On an average, payment per physician per year is about $3,240 in the United States. States with mandatory and discretionary collateral source offsets pay lower mean payment for paid claims as compared to states

Severity of Medical Malpractice Claims

79

without. However, average payment per physician is lower only for states with discretionary collateral source offsets. A cap on damages has a significant impact on the average payment for paid claims and average payment per physician. States with a cap on both economic and noneconomic damages have significantly lower mean payments for paid claims and average payments per physician. These states have a mean payment for paid claim and an average payment per physician of $155,075 and $2,677, respectively, compared to $167,283 and $3,496, respectively, for states without caps. Whenever total malpractice payments per claim exceed a maximum established by the state for the physician’s primary malpractice insurance carrier, the fund makes the excess payment. Two malpractice payment reports are created for a single malpractice payment in the states with patient compensation funds. As a result, average payment per paid claims is underestimated and payment rate per physician is overestimated. However, average payment per physician is not affected. The average payment per physician in states with patient compensation funds is higher as compared to states without this reform. This may be because the physician and insurance carrier do not have an incentive to reduce the amount if it exceeds the limit set by the fund. States with periodic payments of awards have significantly lower mean payments for paid claims and for average payment per physician. States with pretrial screening panels also have lower mean payments for paid claims and average payment per physician compared to states without these reforms. Attorney fee regulations have different impacts depending on the type. States with maximum percent attorney fees have the lowest mean payment for paid claims and states with court-approved or -determined attorney fees have the lowest average payment per physician. States with sliding-scale fees have higher average payments for paid claims and average payments per physician than states without any reform relating to attorney fee. States with arbitration provisions have higher mean payments and average payments per physician. Tort reform involving frivolous lawsuit penalties significantly reduces both mean payments for paid claims and average payments per physician. In summary, the impact of tort reforms is mixed. States with reforms except mandatory collateral source offsets, patient compensation funds, statutes of limitation, sliding-scale attorney fees, arbitration provisions and joint and several liability rules reduce the average payment per physician and all reforms except sliding-scale attorney fees, arbitration provisions, and ad damnum clauses reduce the mean payment for paid claims. Annual payment rate per 1,000 physicians, state rank, mean and median payment for paid claims, average payment per physician, state rank, percent of payments because of verdict, and mean delay between incident and payment in years are given in Appendix IIB. The mean payment per physician, which accounts for both claim rate and mean payment for claims paid is lowest in Minnesota, South Carolina, Nebraska, Oregon, and Hawaii and highest in Nevada, Illinois, New York, West Virginia, and Pennsylvania. The claim rates, mean payment for claims paid, and average annual payment

80

81

Severity of Medical Malpractice Claims

83

per physician for various states with an increasing maximum total cap for economic and noneconomic damages from 1 September 1990 to 31 December 1998 are given below:

State

Maximum Total Cap

Claim Rate

Mean Payment

Payment per Physician

LA

$ 500,000

17.77 (24)

263,741

4,687 (44)

NM

$ 500,000 ⫹ medical expenses

20.13 (27)

147,776

2,975 (28)

IN

$

750,000

27.06 (45)

127,748

3,457 (5)

VA

$ 1,000,000

12.8 (10)

159,258

2,039 (10)

20.75

173,712

3,605

U.S.

Louisiana and Virginia have lower than median claim rates and New Mexico and Indiana have higher than median claim rates. Except Louisiana, all states have mean payments lower than that of the nation. It is obvious from the preceding that the impacts of caps on claim rate, mean payment, and payments per physician are not similar. The claim rates, mean payment for claims paid, and average annual payment per physician from 1 September 1990 to 31 December 1998 for various states with noneconomic caps are given below: State

Maximum Cap

Claim Rate

CA

$ 250,000

20.6 (30)

UT

$ 250,000

KS

$ 250,000

MT WI

Mean Payment

Payment per Physician

90,919

1,873 (7)

25.5 (41)

92,401

2,356 (15)

20.6 (31)

209,510

4,316 (42)

$ 250,000

35.1 (48)

121,933

4,281 (41)

$ 350,000

9.2 (2)

275,475

2,540 (17)

FL

$ 350,000

26.3 (44)

181,487

4,780 (45)

HI

$ 375,000

9.6 (3)

179,687

1,718 (5)

ID

$ 400,000

16.2 (17)

160,935

2,612 (22)

MD

$ 500,000

10.8 (7)

182,511

1,969 (9)

MA

$ 500,000

10.5 (5)

210,191

2,205 (11)

AK

$ 500,000

16.6 (18)

154,178

2,566 (18)

OK

$ 500,000

17.5 (21)

187,249

3,269 (28)

MI

$ 500,000

39.3 (50)

86,180

3,385 (31)

MO

$ 565,000

21.9 (33)

184,273

4,034 (36)

WV

$1,000,000

35.6 (49)

184,106

6,562 (4)

Again, examining the data above, it is obvious that the impact of caps is not similar.

84

Medical Malpractice

Of all malpractice claims of 1991 that resulted in payment, only 3.34 percent were as a result of jury verdict. Mean value of settled payment was $185,557 and mean payment as a result of verdict was $318,330. In Table 3.1, I presented multiple regression estimates when dependent variables are payments as a result of settlement and also of verdict. Average delay from occurrence to payment is positively related to settled payment. The states with higher metro population had higher settled payments. Single payments even in settled cases are lower. Obstetrics-, diagnostic-, and monitoring-related malpractice payments are higher than payments as a result of other reasons. Caps on economic and noneconomic damages, periodic payments, mandatory screening panels, attorney fee regulations, frivolous lawsuit penalties, and joint and several liabilities reduce settled payments. In the case of payments as a result of verdict, average delay in payment is positively related to higher payments. Single payments even as a result of verdict typically result in reduced amounts. Once a malpractice claim goes for verdict, the impact of tort reforms is limited. Only statutes of limitation and slidingscale attorney fees reduce payments as a result of verdict. I present here, for states with patient compensation funds, the percent of all payments, mean payment, and percent settled for payments below and above limits established by the patient compensation funds from 1 September 1990 to 30 April 1997. State

% of All Payments

Mean % Settled % of All Payment Payments ⬍ 100,000

Mean % Settled Payment ⬎ 100,000

IN

69.8

40,895

92.8

30.2

371,698

7.1

LA

76.8

51,902

89.3

23.7

347,522

84.1

SC

79.1

58,132

85.8

20.9

612,057

75.8

TX*

62.8

42,835

99.4

37.2

352,940

88.9

Others** 58.3

38,285

97.7

41.7

409,156

95.4

⬍ 200,000

⬎ 200,000

KS

67.8

88,081

97.3

32.2

438,631

94.2

NE

88.7

58,604

96.2

11.3

650,874

82.4

NM

88.3

70,268

97.9

11.7

424,872

94.7

PA

73.9

109,320

96.2

26.1

573,337

98.5

73.4

63,458

96.8

26.6

564,721

93.1

Others**

*No Statutory limitations on damages. **Others include states other than IN, LA, SC, TX, KS, NF, NM, PA, and WY.

Severity of Medical Malpractice Claims

85

It is hard to draw any conclusion about the impact of the patient compensation funds on the settlement. Table 3.3 is a summary of the impacts of tort reforms on payments.9,10,11 The impact of tort reforms on payment is mixed. Age-wise mean values of payments for 1 September 1990 to 30 April 1999 are presented below. Age

Settled

Verdict

All

% Verdict

20–30

243,328

353,399

247,648

3.92

30–40

201,201

396,413

208,575

3.78

40–50

191,394

344,593

397,420

3.93

Over 50

185,167

330,878

190,286

3.51

Mean payments for paid claims from 1 September 1990 to 30 September 1999 by malpractice reasons are as follows: Reason

Settled

Verdict

All

% Verdict

Diagnosis

211,123

386,665

217,296

3.52

Anesthesia

218,245

464,941

225,581

2.97

Surgery

153,325

306,902

159,948

4.31

Medication

142,691

204,567

145,157

3.98

IV and blood products

161,319

248,774

163,561

2.56

Obstetrics

339,888

568,641

348,422

3.73

Treatment

167,845

318,828

173,273

3.60

Monitoring

202,683

326,611

206,643

3.19

Equipment

58,906

136,111

60,751

2.36

Miscellaneous

89,433

227,648

93,223

2.70

Obstetrics, anesthesia, and diagnosis have the highest average payments when payments are as a result of either settlements or verdicts. Surgery, medication, and obstetrics have the highest likelihood of going for verdict. We examined the payments for physicians for one payment and more than one payment during the period 1 September 1990 to 30 April 1997. The mean payments by malpractice reasons are given below: 1 payment

⬎1 payment

Diagnosis

196,349

223,667

Anesthesia

202,599

221,243

Surgery

135,462

164,882

Medication

138,060

138,674

IV and blood products

156,837

157,895

86

87

88

Medical Malpractice

Obstetrics

319,189

364,517

Treatment

161,538

168,639

Monitoring

191,550

204,212

65,279

70,625

123,311

202,306

Equipment or product Miscellaneous

The physicians with more than one payment typically have higher average payments. Since most payments are a result of settlement, my result is consistent with the findings of Jensen et al.12 that litigation record is positively related to the payment that results from settlement rather than trial or arbitration. A number of states have adopted mandatory and voluntary periodic payments of awards. The percentages of verdicts for single and multiple payments of various dollar amounts in thousands from 1 September 1990 to 30 September 1999 are as follows: Payment

0–100 100–250 250–500 500–750 750–1000 ⬎ 1000

As a result of verdict % Single % Multiple

95.5

96.2

91.8

94.3

91.2

90.2

4.5

3.8

8.2

5.7

8.8

9.8

95.6

93.3

86.9

82.0

85.4

69.5

4.4

6.7

13.1

18.0

14.6

30.5

As a result of settlement % Single % Multiple

Percent of single payments falls as dollar amounts increase both in verdicts and settlements. Three in 10 over-million-dollar payments in settlements are in periodic payments rather than in single payments as compared to only 1 in 10 in verdicts. In other words, as the amount increases, settlements with single payments are become hard to negotiate. It is therefore important to consider the impact of periodic payments of awards on settlements with single payments. PAYMENT DELAYS The effects of delays on patients and physicians are significantly different. Delay helps a physician to keep his or her name out of the National Practitioner Data Bank and also allows the insurance company to keep the payment and receive interest on it. However, for a patient who requires money for treatment and living, delay is a nightmare. It also pressures the patient to settle for lower amounts. My estimation of the Spearman correlation between the delay and severity reveals that for 57,917 payments made during the period 1 September 1990 to 30 April 1997, the correlation between delay and severity is positive and is statistically significant at the 0.01 level. This indicates that larger pay-

Severity of Medical Malpractice Claims

89

ments typically takes longer to resolve. Mean severity by delay from incidence to payment from 1 September 1990 to 30 April 1997 is as follows: 0–1 year

$ 89,752

1–2 years

$110,102

2–3 years

$164,233

3–4 years

$184,303

4–5 years

$201,778

5–6 years

$218,522

6–7 years

$252,714

7–8 years

$234,316

8–9 years

$247,898

⬎ 10 years

$239,602

I use 406 observations of Florida to evaluate the severity of claim, the legal stage of disposition, and the amount paid.13 The Spearman rank correlations among the severity of the claim, the legal stage of disposition, and the amount are as follows:

Amount Severity

Severity

Legal Stage

0.52

0.22 0.18

All these correlations are positive and are statically significant at the 99 percent level. The correlation between severity code and indemnity paid (after accounting for legal stage) is statistically significant. Similarly, payments after accounting for severity code is positively related to legal stage. This clearly indicates that larger payments take longer time to make even when severity is very high. There are not many studies on the delay in adjudication of malpractice claims. Sloan et al.14 analyzed the years from filing to closing using multiple regression analysis. Hughes and Savoca15 analyzed the impact of tort reforms on the delay in adjudicating malpractice claims and found that the English law reduces the delay. The English law requires the loser to pay the legal expenses of the trial. One of the difficulties in analyzing delays using data about payments made between two different years is the sampling bias. For example, if we take all payments between 1991 and 1998, the sample will not include those claims that are filed and not adjudicated. Since they have longer delay, the sample underestimates delays. However, claims that are started before 1991 and have longer delays are likely to be in the sample. This overestimates the delay. In order to avoid these problems, I take all payments that are made between 1991 and 1998 and malpractice that occurred in 1991. In addition, to compensate for the malpractice claims that occurred in 1991 and are not resolved, I take all payments

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Medical Malpractice

of 1998 that started before 1991. With this sample I perform multiple linear regression analysis with delay as a dependent variable. The regression estimates are given in Table 3.4. In order to account for differences in payments, I include physician’s age group and malpractice reasons as independent variables. In addition, I include the logarithm of payments and a dummy to represent whether the payment is a result of settlement or verdict. There are two specifications—one with delay as a dependent variable and the other with the logarithm of delay as a dependent variable. In both specifications, states with collateral source offsets have lower delay. Caps on only noneconomic damages decrease delays. However, according to one specification, caps on economic and noneconomic damages increase delays. Often, patient compensation funds require additional hearings. As a result, reform involving patient compensation funds increases delays according to one of the specifications. Although according to one specification, periodic payment of awards reduces delays, discretionary periodic payment increases delays according to both specifications. Statutes of limitation reduce delays because injured patients are forced to file early. Mandatory screening panels increase delays according to one specification. However, voluntary screening panels reduce delays, perhaps because injured persons avoid such panels. According to the conventional wisdom, any regulations on attorney fee should reduce delays because attorneys have incentives to settle and reduce their workload. However, we find that sliding-scale and court-approved or-determined fees increase delays according to both specifications and maximum percent attorney fees increase delays according to one specification. Arbitration provision and frivolous lawsuit penalties reduce delays and joint and several liability increase delays. Higher payments require longer delays. Settlements take less time. Payments involving anesthesia, surgery, and medication take less time to resolve, whereas those involving equipment take longer. The average payments resulting from settlement and verdict for various years of delays for malpractice that occurred in 1991 and was resolved by 1998 are given below: Year 0

No. Settled 150

Settled Payment 90,637

No. Verdict 0

Verdict Payment 0

1

828

78,324

4

106,114

2

1705

128,685

20

376,933

3

2620

159,271

68

216,017

4

2304

205,483

49

299,879

5

1821

214,626

122

371,261

6

1183

244,513

69

341,664

7

820

278,153

44

326,945

8

467

237,703

35

292,383

Severity of Medical Malpractice Claims

93

Mean payment and cumulative proportion of claims filed in 1991 resolved within various years are presented in Figure 3.2. It is obvious that in order to receive higher payments through settlements, an injured person has to wait long. However, the injured is not benefited by waiting longer for payments through verdict. Higher payments typically involve serious injuries; it is unfortunate that seriously injured patients have to wait longer to resolve their claims. CONCLUSIONS In this chapter, I examined the impact of tort reforms on payments. My analysis shows that the tort reforms do not have much influence on the payments made as a result of verdicts. However, they significantly affect total payments and particularly payments as a result of settlements. Collateral source offsets, periodic payments, mandatory screening panels, attorney fee restrictions, frivolous lawsuit penalties, and joint and several liability rule reduce payments. An injured person can increase payments by waiting longer and settling. However, longer waiting does not increase mean payments in payments involving verdicts. NOTES 1. Carol J. DeFrances, Steven K. Smith, Patrick A. Langan, Brian J. Ostrom, David B. Rottman, and John A. Goerdt, Civil Justice Survey of State Courts, 1992: Civil Jury Cases and Verdicts in Large Counties, Bureau of Justice Statistics, Special Report, NCJ154346 (Washington, D.C.: U.S. Department of Justice, July 1995). 2. Ibid. 3. Division of Quality Assurance, National Practioner Data Bank, 1996 Annual Report (Rockville, Md.: U.S. Department of Health and Human Services, Health Resources and Services Administration, Bureau of Health Professions, 1997), Table 10. 4. Ibid., Table 9. 5. U.S. Congress, Office of the Technology Assessment, Impact of Legal Reforms on Medical Malpractice Costs, OTA-BP-H-119 (Washington, D.C.: U.S. Government Printing Office, 1993). 6. P. M. Danzon, “The Frequency and Severity of Medical Malpractice Claims: New Evidence,” Law and Contemporary Problems 49(2) (spring 1986): 57–84. 7. F. A. Sloan, P. M. Mergenhagen, and R. R. Bovbjerg, “Effects of Tort Reforms on the Value of Closed Medical Malpractice Claims: A Microanalysis,” Journal of Health Politics, Policy, and Law 14(4) (winter 1989):663–89. 8. S. Zuckerman, R. R. Bovbjerg, and F. Sloan, “Effects of Tort Reforms and Other Factors on Medical Malpractice Insurance Premiums,” Inquiry 27(2) (summer 1990): 167–82. 9. Danzon, “The Frequency and Severity of Medical Malpractice Claims.” 10. Sloan et al., “Effects of Tort Reforms on the Value of Closed Medical Malpractice Claims.” 11. Zuckerman et al., “Effects of Tort Reforms and Other Factors on Medical Malpractice Insurance Premiums.” 12. G. A. Jensen, S. J. Spurr, D. A. Weycker, and M. Bulycheva, “Physicians and the

94

Medical Malpractice

Risk of Medical Malpractice: The Role of Prior Litigation in Predicting the Future,” Quarterly Review of Economics and Finance 39(1999):267–89. 13. Florida Report on Physician Discipline and Malpractice, 1998 (Tallahassee: Agency for Health Care Administration, State of Florida, 1999). 14. Sloan et al., “Effects of Tort Reforms on the Value of Closed Medical Malpractice Claims.” 15. James W. Hughes and Elizabeth Savoca, “Accounting for Censoring in Duration Data: An Application to Estimating the Effect of Legal Reforms on the Duration of Medical Malpractice Disputes,” Journal of Applied Statistics 26, no. 2 (1999): 219–28.

4

Medical Malpractice Insurance Premiums INTRODUCTION Malpractice insurance has become so important that most patients will not choose to be treated by physicians who do not have it. Most hospitals will not allow a physician to practice without it. Rising malpractice insurance premiums are of public concern as they have a significant impact on the cost and access to care. Malpractice insurance covers costs of damages that are the responsibility of a policyholder, generally a health care provider. Laws and not policy provisions determine the amount of damages, which can vary depending on the medical injuries and laws of the states. Unlike other property and casualty insurance, malpractice insurance payments depend on injured parties who are not policyholders. Medical malpractice insurance covers low-frequency, high-severity risk. There is a significant lag between receipt of premiums and claim payments. As a result, a malpractice insurer can have significant incomes from investments in addition to underwriting profits. Variations in investment incomes can significantly affect the malpractice insurance premium a physician pays each year. A medical malpractice insurance policy can be bought from a variety of carriers. Commercial carriers are for-profit companies whose business is tightly regulated by states and who, therefore, are financially stable. However, premiums are high. In addition, they may assert more influence on legal and settlement strategies than do other types of insurers. Captive insurance companies formed by groups typically meet malpractice insurance requirements of their members. Premium rates are based on the claims paid and on actual expenses. These companies are cost effective as they control

96

Medical Malpractice

claims more efficiently; however, since they insure only a limited number of members, their risk of going broke is high. Assessable insurance trusts are nonprofit entities formed by physicians to insure against malpractice claims. These trusts, regulated by states, do not have large capital funds to back up claim payments; member physicians are assessed premiums for expenses and malpractice payments. Since claim experience changes from year to year, premiums vary yearly. Excessive claims against a physician can result in revocation of his membership in assessable trusts. Physician-owned companies provide malpractice insurance to a significant percentage of physicians. They may be organized as a captive insurance company or an assessable insurance trust. Physicians buy policies from such companies because they provide more control to physicians in underwriting, risk management, and litigation decision making. Typically, these companies operate in only one state. Since there is less risk diversification, their premiums can vary significantly on a year-to-year basis. Surplus-line companies provide insurance coverage to those physicians who cannot buy malpractice insurance from traditional sources. These policies have many more restrictions than traditional malpractice policies; they charge higher premiums and require higher deductibles. Risk Retention Groups (RRG) are organized corporations or limited liability companies and help to spread the malpractice risk exposure among their members. They should be licensed in at least one state and can sell coverage only to their shareholders who have similar risks. Although premiums for policies from risk retention groups may be lower, policyholders may be additionally assessed if losses exceed incomes. In addition, these companies are not protected by a state’s guaranty funds and as a result, a company may not be able to pay claims if it becomes insolvent. To take advantage of the purchasing power of groups, physicians can get together and form risk purchasing groups. These groups buy coverage from an insurance company. Such an arrangement does not subject the group to any licensing requirements or financial scrutiny. However, a state’s guaranty fund will not reimburse the members should the group became insolvent. Joint underwriting associations (JUAs) are nonprofit entities established by state legislatures to provide malpractice coverage to physicians within the state. They are consortiums of insurers who write property and casualty insurance in a state. Joint underwriting associations should cover all health care providers who pay the required premium. Whenever premiums do not fully cover liabilities, insurance companies who are members of the JUA are assessed deficits. More than half of malpractice insurance business is done by physician and hospital captives, about 30 percent by commercial insurers, and the rest (10 percent) by JUAs and others.1 Of medical malpractice insurance, 59.2 percent is sold directly and 40.8 percent by national and regional agencies.2 Some states have established patient compensation funds to reimburse claims above certain limits. Physicians typically buy malpractice insurance from private insurers with

Medical Malpractice Insurance Premiums

97

liability coverage up to the limit beyond which liability will be assumed by the compensation funds. Florida, Indiana, Kansas, Louisiana, Nebraska, New Mexico, Pennsylvania, South Carolina, and Wisconsin have patient compensation funds.3 Because insurance companies are regulated by states, most insurance underwriters are organized on a state-by-state basis. The regulations are intended to reduce bankruptcies, to provide fair premiums, and to improve availability. States use a variety of regulations, including prior approval of premiums and the requirement to file rates. Insurers choose the ownership forms to maximize benefits of regulations and tax laws. Malpractice insurance is a contractual relationship between an insurer and a health care provider under which the insurer agrees to indemnify the provider for losses from malpractice claims. Occurrence and claims made are two types of malpractice insurance policies.4 Under an occurrence policy, an insurance company is responsible for all claims of malpractice occurring during the period the policy is in effect irrespective of the time of filing the claim. Under a claimsmade policy, an insurer is responsible for malpractice that occurred and for which a claim is made during the time a policy is in effect. The financial exposures under claims-made policies are more predictable and are lower; however, total risks are the same under both policies over several years. From the insurer’s point of view, claims-made policies are preferred because risk is set retrospectively as compared to prospectively under an occurrence policy. Claims-made policies also have lower premiums because it is much easier to predict projected claims for the current year rather than for several years as in the case of occurrence policies. A retiring physician needs to buy tail policies to indemnify him for claims that happened during his working life. Malpractice insurance has two coverage limits: The per occurrence coverage limit represents the maximum amount per claim, and the aggregate limit the maximum amount for the policy period that the insurer will indemnify the insured. Typical policy limits are $1 million for per occurrence coverage and $3 million for one year for aggregate coverage. Medical malpractice premiums represent total costs of medical malpractice as they include not only malpractice payments but also all costs relating to defending lawsuits. This chapter examines the impact of tort reforms on physician and hospital malpractice premiums. The statewide variations in median combined ratios from 1992 to 1996 of medical malpractice lines and their associations with median combined ratios of other lines are also analyzed in this chapter.

MEDICAL MALPRACTICE INSURANCE PREMIUMS Physician Premiums Medical liability costs include malpractice insurance premiums, defensive medical costs, administrative costs, and liability costs of drugs and devices.

98

Medical Malpractice

Since malpractice insurance premiums are paid by physicians and since they are easy to quantify, malpractice premiums are examined in detail as compared to other costs. The insurance industry’s pattern of setting premium rates is cyclical in nature and, therefore, malpractice claim rates and health care costs have very little impact on premium rates. Price competition and price cutting to get a larger group of people to insure are followed by extreme price increases and market withdrawals or the threat of market withdrawals. Moreover, the cost of a doctor’s medical malpractice premium may depend more on his or her insurance company’s reserving practices than on claim frequencies. According to a study by Hassan,5 the underwriting profitability of the malpractice insurance line of business was medium compared with other lines of business from 1978 through 1986 and was least profitable in 1985–1986. The premiums are calculated using the probabilities of claims and payment amounts and attorney fees. Since payments are typically made several years after the claims, profits include both underwriting results and investment results. Some states regulate premiums through prior-approval requirements, statemandated rates, or bureau-set rates. For example, Massachusetts, North Carolina, and Texas have mandatory rates.6 Insurance companies set malpractice rates for each state for various specialties. Average malpractice liability premiums paid by self-employed physicians in 1994 as a proportion of average premiums from all physicians of $15,1007 are as follows: General and family practice

0.675

Internal medicine

0.570

Surgery

1.477

Pediatrics

0.503

Obstetrics and gynecology

2.477

Radiology

0.742

Psychiatry

0.623

Anesthesiology

0.993

Pathology

0.391

Other

0.583

Pathology, pediatrics, and internal medicine have the lowest malpractice premium payments and obstetrics and surgery have the highest payments. There are significant variations in malpractice premiums paid by selfemployed physicians. Average premiums paid in various census divisions as a proportion of average premiums paid by all physicians for 1994, along with physicians’ fees for new-patient office visits as a proportion of average fees for the U.S for 1993 are as follows:8 New England

1.11

1.16

Middle Atlantic

1.27

1.20

Medical Malpractice Insurance Premiums

East north central

1.09

0.86

West north central

0.85

0.86

South Atlantic

0.95

0.92

East south central

0.75

0.79

West south central

0.95

0.87

Mountain

1.01

0.79

Pacific

0.85

1.21

99

Physicians in the middle Atlantic states pay the highest premiums and those in the east south central states pay the lowest. Physicians in the middle Atlantic region pay almost 70 percent more in malpractice premiums than physicians in the east south central region. The mountain, east north central, west north central, and west south central regions have the lowest fees and Pacific, middle Atlantic, and New England areas have the highest physician fees for new-patient visits. Malpractice payments per physician can be estimated by multiplying the payment rate per physician by the mean payment. The malpractice payment per physician along with ratios of malpractice payments in 19989 to professional liability insurance premiums per self-employed nonfederal physician in 199610 is given below: New England

$ 3,374

0.23

Massachusetts

$ 2,498

0.15

Middle Atlantic

$ 8,421

0.47

New Jersey

$ 6,518

0.38

New York

$ 7,050

0.35

Pennsylvania

$12,455

0.88

East north central

$ 3,904

0.23

Illinois

$ 5,477

0.31

Michigan

$ 3,359

0.19

Ohio

$ 3,172

0.18

West north central

$ 2,682

0.23

South Atlantic

$ 4,459

0.34

Florida

$ 6,192

0.36

East south central

$ 3,229

0.26

West south central

$ 4,518

0.39

Texas

$ 3,869

0.35

Mountain

$ 4,618

0.31

Pacific

$ 2,383

0.20

California

$ 2,165

0.17

U.S.A.

$ 4,562

0.32

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Medical Malpractice

The average claim payment per physician is $4,562 and, on an average, for every $1 of premium paid by a physician, only 32 cents is paid out in claims. These figures vary significantly among regions. The average claim payment per physician varies $2,383 in the Pacific area to $8,421 in the middle Atlantic area. The cents paid per $1 of premium varies from 20 in the Pacific region to 47 cents in the middle Atlantic region. The higher number for the middle Atlantic area is because of Pennsylvania, which has a patient compensation fund that pays for claims above certain limits, and my calculation ignores the payments by the fund. Impact of Tort Reforms Rising malpractice premiums in the mid-1970s was the major driving force for tort reforms. However, tort reforms were not the only outcome of this insurance crisis of the mid-1970s. Significant changes in insurance laws encouraged the formation of joint underwriting associations. One of the earliest analyses relating to the impact of tort reforms on malpractice insurance premiums was done by Sloan,11 who found no relationship between tort reforms and medical malpractice insurance premiums. According to Sloan’s analysis, screening panels reduced malpractice premiums and binding arbitration increased them. Sloan et al.12 analyzed the impact of tort reforms on the probability that a claim would be paid, the amount of payment, and the speed with which a claim would be resolved. According to them, discovery rule changes reduced the probability that a claim would be paid and binding arbitration provisions and mandatory collateral source offsets reduced payments. Damage caps reduced payments and reduced the time to resolve claims. Barker13 examined the impact of tort reforms on the mean loss ratio and the standard deviation of mean loss ratios (a proxy for total risk) for all companies, for companies operating through the American Agency System, direct writers, and insurers licensed to operate in only one state. According to Barker, damage caps reduced risk and increased profits. Codifying the standard of care increased profitability of state agencies and direct writers. Based on a random effects model, Gius14 concluded that statelevel effects and not tort reforms affect malpractice premiums. According to Zuckerman et al.,15 damage caps and statutes of limitations are two tort reforms that reduce malpractice premiums. States requiring prior approval of premiums also have lower premium rates. Blackmon and Zeckhauser16 found that limits on noneconomic and punitive damages and measures to limit liability or grant immunities reduced insurer losses by 44 percent and 43 percent respectively and together reduced loses by 55 percent. Similarly, joint and several liability, noneconomic and liability limits, and more intensive rate regulation reduced premiums by about 30.9 percent. I examined the impact of tort reforms on the malpractice premiums of Class 3 doctor–mature claims-made rates at $1 million–3 million limits of the St. Paul

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101

Fire and Marine Insurance Company for 1990 to 1994. The Spearman rank correlations between malpractice premiums for 1992 and various variables using data of 41 states are as follows: Trial lawyers per capita in 1995

⫺0.179

Managed care penetration in 1992

⫹0.342**

Percentage of population above 65 in 1994

⫺0.133

Percentage metro population in 1992

⫹0.457***

Percentage urban population in 1990

⫹0.428***

Delay in paying claims 1990–1994

⫹0.346**

Operations per capita

⫹0.287*

Proportion of surgeons among physicians

⫹0.254

Proportion of direct insurance sale

⫹0.223

Previous year loss ratio

⫹0.253 17

Herfindhal index in 1990

⫺0.323**

*Significant at the .10 level. **Significant at the .05 level. ***Significant at the .01 level.

Univariate analysis indicates that managed care penetration, metro and urban population, delay in paying claims directly, and herfindhal index inversely affects premiums. The higher the herfindhal index, the higher the market concentration the squared market shares of all practice insurance companies. The negative correlation between the herfindhal index and premiums indicates that less concentration results in lower premiums. The mixed model results using premiums as a dependent variable and demographic and tort variables as independent variables are presented in Table 4.1. There are two specifications; in the second specification, all variables except categorical variables are expressed in logarithms. To account for states with other than $1 million and $3 million limits, we introduce a dummy variable. For example, Wisconsin has limits of $400,000 and $1,000,000. For Kansas, Nebraska, and Pennsylvania, the limits are $200,000 and $600,000. For Indiana and Louisiana, the limits are $100,000 and $300,000. In both specifications, the proportion of urban population is positively associated with premiums. Delay is positively associated with premiums, indicating that payments involving longer delays are larger and the increased investment income does not reduce total payments. The proportion of direct sales and the herfindhal index do not have much influence on premiums. The impact of tort reform on premiums is not significant. Mandatory and voluntary collateral source offsets do not influence premiums. Although caps on noneconomic damages do not have any influence, caps on economic and non-

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103

economic damages have a mild negative influence (the level of significance is 0.1) on premiums. Patient compensation funds obviously reduce premiums because when payments exceed certain limits, the amount that exceeds the limit is paid by the fund. Periodic payment of awards, statutes of limitation, mandatory pretrial screening panels, and attorney fee restrictions do not influence premiums. However, voluntary pretrial screening panels and frivolous lawsuit penalties negatively influence premiums and joint and several liability rules positively affect them. There are not many studies of malpractice insurance coverage of physicians. According to a study for 1983–1986, about 90 percent of coverage was paid for by physicians in 1986.18 For 3 percent, hospitals paid the premiums and for 6 percent, hospitals paid a portion of malpractice coverage. One percent of physicians were uninsured: 1 in 4 among the uninsured never bought a policy, 2 in 5 discontinued the policy during the insurance crisis of the 1970s, and about 1 in 3 discontinued their coverage since 1984. Only a few states have laws requiring physicians to buy malpractice coverage. Colorado, Connecticut, Florida, Georgia, Kansas, Massachusetts, Pennsylvania, Rhode Island, and Wisconsin require some form of malpractice coverage to practice. Indiana, New Mexico, Nebraska, North Carolina, and Oregon require malpractice coverage to participate in patient compensation funds and to receive other malpractice benefits. Arizona, California, and Missouri require physicians to have malpractice insurance coverage for hospital privileges. By case law, hospitals in Arizona and Indiana may require physicians to have malpractice insurance for hospital privileges.19 If malpractice insurance coverage is not a requirement, physicians who expect malpractice losses are more likely to buy the coverage. In other words, these states could have what insurers call the problem of adverse selection. I verified whether there is a problem of adverse selection by introducing a dummy variable for states that require malpractice insurance and found that this dummy is not statistically significant. I also examined whether the state rate structure and operation had any effect on the premiums by introducing a new dummy to account for whether or not a state rate operation is regulated.20 The dummy was not statistically significant; this indicated a negligible influence of state rate operation on premiums. Hospital Malpractice Premiums According to Tillinghast-Towers Perrin,21 hospital malpractice costs rose by 8.6 times from $320 million in 1975 to $2,753 million in 1994. Hospital malpractice costs accounted for about 26.2 percent of total medical malpractice costs in 1994. The median hospital malpractice award for the 1988–1994 period was about $357,000. Recovery rate in the same period was about 1 in 2.22 According to Carter and Cromwell,23 hospital malpractice insurance increased between 1983 and 1985 because hospitals were buying more coverage and costs per

104

Medical Malpractice

dollar coverage did not change during this time. In 1985, regions in order of decreasing cost per dollar aggregate coverage after adjusting for bed size are the Pacific, middle Atlantic, east north central, mountain, west south central, east south central, south Atlantic, west north central, and New England areas. Impact of Tort Reforms In this section, I analyze the impact of tort reforms on hospital malpractice premiums. The premium rates are for acute care bed rates for mature claimsmade coverage primarily at $1 million and $3 million limits of liability from the St. Paul Fire and Marine Insurance Company. For 1992, premium per bed varied from $719 in Indiana to $4,572 in Rhode Island. The average premium per bed was $1,348. Major metropolitan areas such as Detroit had premiums as high as $8,593. However, I consider statewide premiums in this section. The correlation between hospital premiums for 1992 and various parameters are as follows: Hospital cost per day 1992

⫹0.466***

Number of beds 1992

⫹0.137

Trial lawyers per capita 1990

⫺0.105

Managed care 1992

⫹0.216

Population above 65 in 1994

⫺0.27*

Metro population in 1992

⫹0.31**

Market concentration (Herfindhal index) for 1989

⫺0.225

Delay in payment

⫹0.115

Operations per physician

⫹0.197

Surgeons per capita

⫹0.198

Proportion of malpractice policies sold directly

⫹0.386***

Average loss ratio

⫹0.114

*Significant at the 0.1 level. **Significant at the 0.05 level. ***Significant at the 0.01 level.

Malpractice premiums are positively associated with hospital costs and metropopulation with a statistical significance of more than 0.95, indicating that medical malpractice premiums are generally high for metro-areas and hospitals with high costs. Table 4.2 shows a mixed model with hospital malpractice premium per bed for various states as a dependent variable and demographics and tort reforms as independent variables. There are two specifications; the second specification has

106

107

108

Medical Malpractice

all its variables other than categorical variables in logarithms. The results of the specifications are similar except that the tort reform dummy for sliding-scale attorney fee is statistically significant at the 10 percent level in specification 1 and not in specification 2. Proportion of urban population has a positive impact on premiums. Delay is positively associated with premiums, indicating that delayed payments are larger payments. Beds per hospital, hospital cost per day, and the Herfindhal index do not have much influence on premiums. The impact of tort reforms on the hospital premiums is minimal. Statutes of limitation increase premiums and court-approved or-determined attorney fees reduce them. The sliding-scale attorney fee also reduces premiums according to specification 1. A summary of the impacts of tort reforms on malpractice

Medical Malpractice Insurance Premiums

109

insurance premiums is presented in Table 4.3.24,25,26 Statutes of limitations and caps appear to reduce premiums and the impacts of other reforms are minimal. COMBINED RATIOS The combined ratio of an insurance line consists of the underwriting expense ratio and the loss ratio and represents profits generated through underwriting operations. In this section, I examine the median combined ratio of various insurance lines for various states for the period 1992 to 1996. These median combined ratios for all lines of business are calculated by the National Association of Insurance Commissioners using the year-end annual statement of insurance expense exhibit and the exhibit of premiums and losses for all companies that had earned premiums of at least $10,000 for 1992–1996.27 Since the mean combined ratio is likely to be affected by extreme values, the median represents a more accurate indicator of the average statutory underwriting results of individual companies doing business in a state. Mean and standard deviations of median combined ratios for 1992–1996 of various states, along with their Spearman correlations with medical malpractice insurance are presented in Table 4.4. The Spearman correlations between medical malpractice and other casualty insurance median combined ratios for the 1992–1996 period are positively associated with 19 out of 30 lines, indicating that statewide variations in medical malpractice insurance are similar to those in other lines. I also examine the association between median combined ratios for the 1992–1996 period and the Herfindhal index of medical malpractice for 1990, a measure of concentration. According to the Spearman correlation (⫺0.023), the association is not statistically significant at the 0.05 level. Variations in combined ratios indicate statewide variations in the ability of an insurance company to predict losses. Crop multiperil insurance has the highest standard deviation, followed by mortgage, aircraft, worker compensation, product liability, farm multiperil, boiler, allied lines, medical malpractice, and so on. Since medical malpractice has a lower variation in combined ratios than several other liability insurances, it is obvious that the prediction of malpractice insurance losses is not as difficult as in other insurance lines. CONCLUSIONS In this chapter, I examined the impact of tort reforms on physician and hospital malpractice premiums. Caps on economic and noneconomic damages, patient compensation funds, voluntary pretrial screening panels, and frivolous lawsuit penalties reduce premiums and joint and several liability rules increase physicians’ premiums, Tort reforms relating to statutes of limitation increase hospital premiums per bed and court-approved or determined attorney fees re-

110

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duce them. Although several tort reform measures have been enacted by states specifically to reduce premiums, only a few of them have any significant impact on premiums. NOTES 1. Hope Maxwell, “The Malpractice Shakeup Continues,” Best Review P/C, November 1996, 116. 2. Patrick M. Sweeney, “Not What the Doctor Ordered,” Best Review P/C, November 1997. 3. U.S. Congress, Office of Technology Assessment, Impact of Legal Reforms on Medical Malpractice Costs, OT4-BP-H-119 (Washington, D.C.: U.S. Government Printing Office, 1993), 81–2. 4. Ilene Davidson-Johnson, “Occurrence vs. Claim-made Medical Professional Liability Insurance Policies,” Journal of the American Medical Association 266(11) (18 September 1991): 1570–2. 5. Mahmud Hassan, “How Profitable Is Medical Malpractice Insurance?” Inquiry 28 (spring 1991): 74–80. 6. Anne Gron, “Regulation and Insurer Competition: Did Insurers Use Rate Regulation to Reduce Competition?” Journal of Risk and Uncertainty 11 (1995): 87–111. 7. Martin L. Gonzalez and Puling Zhang, eds., Socioeconomic Characteristics of Medical Practice, 1997/98 (Chicago: American Medical Association, 1998), 95. 8. Ibid. 1996. 9. Division of Quality Assurance, Health Resources and Services Administration, Bureau of Health Professions, National Practitioner Data Bank, 1998 Annual Report (Rockville, Md.: U.S. Department of Health and Human Services, Public Health Service, 1999). 10. Physician Marketplace Statistics 1997/98 (Chicago: American Medical Association, 1998), 72. 11. F. Sloan, “State Responses to the Malpractice Insurance ‘Crisis’ of the 1970s: An Empirical Assessment,” Journal of Health Politics, Policy, and Law 9(4): 629–46. 12. F. Sloan, P. M. Mergenhagen, and R. R. Bovbjerg, “Effects of Tort Reforms on the Value of Closed Medical Malpractice Claims: A Microanalysis,” Journal of Health Politics, Policy, and Law 14 (1989): 663–89. 13. D. Barker, “The Effects of Tort Reform on Medical Malpractice Insurance Markets: An Empirical Analysis,” Journal of Health Politics, Policy, and Law 17 (spring 1992):143–61. 14. Mark Paul Gius, “Using Panel Data to Estimate the Determinants of Medical Malpractice Insurance Premiums,” Applied Economic Letters 5 (1998): 37–9. 15. Stephen Zuckerman, Randall R. Bovbjerg, and Frank Sloan, “Effects of Tort Reforms and Other Factors on Medical Malpractice Insurance Premiums,” Inquiry 27: 167–82. 16. Glenn Blackmon and Richard Zeckhauser, The Effect of State Tort Reform Legislation on Liability Insurance Losses and Premiums, Discussion paper series 182D (Cambridge: Public Policy Program, Kennedy School of Government, Harvard University, 1990). 17. Martin F. Grace, The Regulation and Structure of Non-life Insurance in the United States, WPS 1155 (Washington, D.C.: World Bank, 1993), 27.

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18. M. L. Rosenbach and Ashley G. Stone, “Malpractice Insurance Costs and Physician Practice, 1983–1986,” Health Affairs (winter 1990): 176–85. 19. American Medical Association, Liability Insurance Requirements, http//www.amaassn.org/physlegl/legal/insure.htm, June 1998. 20. Gron, “Regulation and Insurer Competition.” 21. Tort Cost Trends: An International Perspective (Tillinghast-Towers Perrin, 1995, www.wp.com/hcla/medmalno.htm). 22. Trends in Healthcare Provider Liability (Horsham, Pa.: LRP Publications, 1995), 48, 49. 23. C. Carter and J. Cromwell, “Variations in Hospital Malpractice Costs, 1983–85,” Inquiry 24 (winter 1987): 392–404. 24. Zuckerman et al., “Effects of Tort Reforms and Other Factors on Medical Malpractice Insurance Premiums.” 25. G. Blackmon and R. Zackhauser, “State Tort Reform Legislation: Assessing Our Control of Risks,” in Tort Law and the Public Interest, ed. Peter H. Schuck (New York: Norton, 1991). 26. Barker, “The Effects of Tort Reform on Medical Malpractice Insurance Markets.” 27. NAIC Staff, “Median Combined Ratios by Line by State, 1992–1996,” NAIC Research Quarterly 3, issue 4 (October 1997): 22–36.

5

Dental Malpractice INTRODUCTION The cost of dental care is a significant policy issue as more and more people requiring dental care cannot get services at a cost they can afford. Only 6 in 10 adults made a dental visit in 1993;1 more than 8 in 10 children experience tooth decay by the time they leave high school; 4 to 7 adults out of 10 have periodontal disease, and more than 1 in 3 over 65 years of age have no natural teeth.2 According to the Surgeon General, “dental caries (tooth decay) is the single most common chronic childhood disease—5 times more common than asthma and 7 times more than hay fever.”3 Currently less than 1 in 2 persons have dental insurance and less than 2 percent of all dental care is provided by the federal and state governments.4 Although dental care is badly needed by people above the age of 65, Medicare does not pay for dental care. Even Medicaid, which covers medical expenses of the poor, pays for dental care in only 27 states and pays for dental care for children under 21 years of age in another 8 states.5 According to an estimate by the Health Resources and Services Administration, 156,700 dentists or about 61.8 active civilian dentists per 100,000 population practiced dentistry in the United States in 1992.6 According to the American Dental Association, 92 percent of all dentists are in private practice. About 8 in 10 dentists are in general practice. The largest group of specialists is orthodontists, followed by oral surgeons. The remainder specialize in pedodontics (dentistry for children), periodontics (treating the gums), prosthodontics (making teeth or dentures), endodontics (root canal therapy), public health den-

114

Medical Malpractice

tistry, and oral pathology (diseases of the mouth). Dental offices represent one of the successful cottage industries in America, with a general practitioner making a net income of about $124,960 and a specialist $196,670 in 1995.7 The purpose of this chapter is to examine the impact of tort reforms on dental malpractice payment rates, average payments for paid claims, and claim settlements. I also analyze the impact of licensure policies on the supply of dentists. DENTAL EXPENDITURE The United States spent about $50.65 billion, constituting roughly 5.2 percent of the total health care expenditures, on dentists’ services in 1997. Physicians’ services, by contrast, accounted for $217.63 billion, or 22.46 percent of total health care expenditures. Per capita expenditure on dental services rose from $57 in 1980 to $121 in 1990 and $182 in 1997. The rise was 112.2 percent between 1980 and 1990 and 219.2 percent between 1980 and 1997. Per capita physicians’ services grew from $192 in 1980 to $563 in 1990 and $782 in 1997. The rise was 193.2 percent between 1980 and 1990 and 307 percent between 1980 and 1997. The increased growth rates of physicians’ services over dental services are 81 percent between 1980 and 1990 and 87.8 percent between 1980 and 1997. The expenditure on dentists’ services and physicians’ services by the source of payment in 1997 are as follows:8 Dentists’ Services

Physicians’ Services

Out-of-pocket payments

47.1

15.7

Private health insurance

47.9

50.2

4.5

32.2

Government

Government contributions toward dentists’ services compared to physicians’ services are significantly low. About one half of the expenditures on dentists’ services comes from out-of-pocket expenses. Studies show that dental insurance increases the use of dental services and also improves oral health status.9,10 The number of dentists rose from 141,000 in 1980 to 173,000 in 1990 and 196,000 in 1996. The number of active dentists per 100,000 population, excluding those in federal service, was 53 in 1980, 59 in 1990, and 61 in 1996. The growth in per capita dentists was 11.32 percent between 1980 and 1990 and 3.39 percent between 1990 and 1996. The number of physicians in patient care per 100,000 population was 158.52 in 1980, 195.8 in 1990 and 218.7 in 1996. The growth in per capita physicians in patient care was 23.5 percent between 1980 and 1990 and 11.7 percent between 1990 and 1996. To summarize, growth rates in per capita dentists between 1980 and 1996 were significantly lower than growth rates of physicians in patient care. The population without dental insurance is nearly 50 percent compared to only 16.1

Dental Malpractice

115

percent for medical insurance. As a result, out-of-pocket payments for dental care are much higher than those for medical care. Studies indicate that dental insurance is directly related to the increased use of dental services. These characteristics indicate that the growth rate of dental expenses should be much lower than that of physician services. The consumer price index for medical, physicians’, and dentists’ services from 1960 to 1996, along with annual changes are given in Figure 5.1. It is evident from the figure that the growth in these cases has been similar. The greater number of physicians and third-party payments usually contribute to greater growth in consumer price indices for medical and physicians’ services. Since third-party payments constitute only about one half of total dental expenditures, and growth in dentists per 100,000 has not been as high as that of physicians, the dental CPI lagged behind the CPIs of medical and physician services until 1990. However, dental CPI has begun to catch up with the medical and physician services CPI in recent years. DENTAL PAYMENT RATES Dental malpractice payment rates, average payments, and insurance premiums follow patterns similar to those of physicians because they are subjected to identical legal environments. According to a study done by the U.S. Department of Health, Education and Welfare in 1973, malpractice claims against dentists made up about 6.9 percent of all malpractice claims and had a median payment of $855 in 1970.11 An analysis of closed claims between the 1970s and the late

116

Medical Malpractice

1980s indicated that three quarters of the claims resulted in payments as compared to the more than half reported in the study by the U.S. Department of Health, Education, and Welfare in 1973. In addition, most claims were resolved within five years without any formal legal action.12 Dental and medical malpractice payment rates per 1,000 practitioners during 1990–1998 are as follows:13 Year

Dentist

Physician

1991

17.65

23.77

1992

20.98

23.97

1993

19.21

23.75

1994

18.79

24.42

1995

16.18

22.48

1996

15.96

24.96

1997

15.93

23.45

1998

15.50

21.83

Dentists, on an average, have rates about two-thirds those of physicians. The simple statewide averages and standard deviations of dental malpractice rates for 1 September 1990 to 31 December 1995 are 15.28 and 7.53, respectively. Physicians’ malpractice rates have a mean of 20.76 with a standard deviation of 8.18 during the same period. The standard deviations in dental cases are roughly 50 percent of the mean, whereas in physicians’ cases the figure is 40 percent. The statewide variations of claim rates of dentists are comparatively much higher than those of the physicians because there are fewer dentists and small changes in the number of claims result in large changes in claims rates. According to Milgrom et al.,14 malpractice claims by specialty in the period 1988–1992 are as follows: Oral surgery

0.22

Fixed prosthodontics

0.195

Endodontics

0.18

Periodontics

0.126

Restorative

0.051

Other

0.177

Missing

0.051

Oral surgery, fixed prosthodontics, and endodontics accounted for about 60 percent of claims. Malpractice claims by type of allegations are as follows: Treatment

0.55

Diagnosis

0.17

Dental Malpractice

Failure to consult

117

0.08

Lack of consent

0.06

Lack of follow up

0.048

Therapeutic drugs

0.035

Other

0.045

Based on published recovery rates, payment rates and claims filed per 1,000 dentists are as follows:15,16 1991

17.65

53.48

1992

20.98

58.28

1993

19.21

61.96

1994

18.79

64.79

Based on the data from the National Practitioner Data Bank, the percentage of payments by age group between 1 September 1990 and 30 April 1997 are as follows: 20–29 years

4.37%

30–39 years

30.9%

40–49 years

31.2%

50–59 years

20.62%

Above 60 years

13%

More than 60 percent of claims are against dentists in the age group 30 to 49. It is mainly because most dentists have an established practice and have maximum numbers of patients during this age range. Percentage of payments by malpractice reason for dentists from 1 September 1990 to 30 April 1997 are as follows: Diagnosis related

11%

Anesthesia related

1.2%

Surgery related

9.9%

Medication related IV and blood products related

2.1% 0.06%

Obstetrics related

0.02%

Treatment related

73.52%

Monitoring related

0.36%

Equipment or product related

0.71%

Miscellaneous

1.15%

All

100%

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Medical Malpractice

About 3 in 4 claims against dentists are for treatment-related malpractice. Diagnosis-related claims constitute less than 1 in 10. The variations in payment rates per 1,000 practitioners by states from 1 September 1990 to 31 December 1998, along with ranks (higher rank means lower rate) are as follows:17 State

Dentist

Rank

Physician 11.18

Rank

South Carolina

5.09

1

4

Alabama

6.37

2

6.81

2

North Dakota

6.53

3

17.96

24

Idaho

7.47

4

16.23

18

North Carolina

7.60

5

13.29

12

U.S.

17.17

Utah

38.72

51

21.58 25.53

42

California

26.67

50

20.60

31

Pennsylvania

22.37

49

35.60

41

Michigan

22.21

48

39.30

51

New Hampshire

21.20

47

21.72

33

The proportion of payments per dentist with different numbers of malpractice payments is as follows: Payments by dentists with 1 payment

60%

Payments by dentists with 2 payments

19%

Payments by dentists with 3 payments

7.7%

Payments by dentists with 4 payments

3.3%

Payments by dentists with 5 payments

1.9%

Payments by dentists with 6 payments

0.09%

Payments by dentists with more than 6 payments

7.2%

Six in 10 dentists with malpractice payments had only 1 claim from 1 September 1990 to 30 April 1999. The Spearman rank correlation between dental malpractice claim rates per 1,000 dentists in 1992 and various variables of the states are as follows [*** significant at the .01 level, ** at the .05 level, and * at the .10 level]: Per capita income in 1992 Trial lawyers per capita in 1990 % urban population 1990 % below poverty level in 1990

0.30** ⫺0.26* 0.42*** ⫺0.15

Dental Malpractice

119

Per capita income is positively associated with dental payment rates because the numbers of dental visits in states with high per capita income are likely to be higher and as a result payments are likely to be higher. The number of trial lawyers per capita is negatively related to payment rates. However, this association is statistically significant at the only 10 percent level. Patients in urban areas are more likely to sue and therefore percent urban population is positively associated with claim rates. Association between percent of population below poverty level and claim rates is not statistically significant. Impact of Tort Reforms To examine the impact of tort reform measures on dental malpractice claim rates, I developed a mixed model with dental malpractice payment rates per 1,000 dentists for the years from 1992 to 1995 as a response variable and tort reform measures as fixed effects. To account for statewide variations, I included per capita income, trial lawyers per 1,000 people in 1990, dentists per 100,000 population in 1993, percent of population urban in 1990, percent of population below poverty level in 1990, licensure by credentials all states in 1993 dummy, licensure by credential-reciprocal in 1993 dummy, three region dummies and three year dummies. The output is presented in Table 5.1. Per capita income, trial lawyers per 1,000 population in 1990, percent urban population in 1990, and percent below poverty in 1990 are found to have no statistically significant impact on payment rates. Region 1 dummy is statistically significant at the 10 percent level and has a positive sign, indicating a higher payment rate. Year 1994 dummy is statistically significant at the 5 percent level, again indicating higher payment rates in 1994 in comparison to other years. Caps on economic and noneconomic damages reduce payment rates and statutes of limitation increase them. Ad damnum clauses increase payment rates with a statistical significance of 0.1. All other tort reform variables are statistically insignificant, indicating that they have little effect on dental malpractice payment rates. Unlike payment rates for physicians, the impact of tort reforms on dental malpractice payment rates is minimal. DENTAL MALPRACTICE PAYMENTS Average malpractice payment for paid claims from 1 September 1990 to 31 December 1997 is about $29,951 with median $10,000. The cumulative distribution of malpractice payments along with payments at each cumulative relative frequency level for the period from 1 September 1990 to 30 April 1997 is given as follows:

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Medical Malpractice

Payments

Proportion of Total

Payment

Top 10 percent

57.89

64,994

Top 20 percent

73.6

35,000

Top 30 percent

83

22,500

Top 40 percent

89.2

14,976

Top 50 percent

93.3

10,000

The top 10 percent of the payments account for about 58 percent of total malpractice payments and the bottom 50 percent account for only 6.7 percent. The

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Medical Malpractice

top 10 percent of payments are considerably greater than the bottom 90 percent of payments. Payments by age group for 1 September 1990 to 30 April 1997 are given below: Age Group

Percent

Mean

Percent Settled

20–30

4.4

26,823

98.0

30–40

30.9

29,048

97.2

40–50

31.2

32,220

96.9

50–60

20.6

30,712

97.3

60 and above

13.0

25,754

97.5

29,951

97.2

All

100

Typically the largest percentage are in the 40–49 age group because that is the time most dentists have their practice established, with maximum patient visits. Mean payments by malpractice reasons from 1 September 1990 to 30 April 1997 are as follows: Diagnosis related

$ 43,835

Anesthesia related

$112,744

Surgery related

$ 45,718

Medication related

$ 72,339

IV and blood products related

$ 22,019

Obstetrics related

$ 50,917

Treatment related

$ 23,316

Monitoring related

$ 35,807

Equipment or product related

$ 18,421

Miscellaneous

$ 29,757

All

$ 29,951

Mean, median, and 95th percentile dental malpractice payments for 1 September 1990 to 30 September 1999 are given in Appendix IIC. Since a large payment can significantly increase mean payments, median payments are better indicators of malpractice payments. The top five and bottom five states in median payments are as follows: State

Rank

Dental

Utah

1

$ 1,670

Idaho

2

$ 4,000

Wisconsin

3

$ 5,250

Washington

4

$ 6,638

Dental Malpractice

Georgia

123

5

$ 7,000

New Hampshire

48

$16,500

Connecticut

49

$18,000

Florida

50

$20,000

Washington

51

$20,500

Delaware

52

$24,550

Mean dental claim payments as percentages of mean physician malpractice payments are as follows: Lowest five states: Utah

3.96

North Dakota

7.1

Wisconsin

7.2

Idaho

8.0

Maryland

11.6

Highest five states: Indiana

29.8

New Mexico

35.2

Hawaii

40.7

Wyoming

41.8

South Dakota

47.9

The Spearman rank correlation between mean physician and dental payments is positively correlated at a level of significance of 0.0001. This indicates that states with high mean malpractice payments for physicians are also states with high mean malpractice payments for dentists. I analyzed payments using a mixed model, with dental payments for the period from 1 September 1990 to 30 April 1997 as a response variable and tort reform measures as fixed effects. In order to account for statewide variations, I included dentists per 10,000 population in 1992, trial lawyers per 10,000 population in 1990, percent population urban, percent population above 65 in 1994, percent population below poverty level in 1990, licensure by credentials all states in 1993 dummy, licensure by credential-reciprocal in 1993 dummy, and three region dummy variables. We also include the age group of the dentist, whether payment is single, and whether payment is as a result of judgment (dummy ⫽ 1 for judgment and 0 for others). The results are presented in Table 5.1. States with a high proportion of the population with income below poverty level tend to make higher dental payments after accounting for other variables. States of region 1, which includes New Jersey, New York, Pennsylvania, Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont,

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Medical Malpractice

pay higher dental malpractice payments for paid claims than all states in other regions. Single payments are generally lower than periodic payments. Payments as a result of settlement are lower than payments as a result of judgment. The impact of tort reform measures on dental payments is statistically insignificant. ANALYSIS OF SETTLEMENTS More than 97 percent of all malpractice payments are resolved through settlement for the period starting from 1 September 1990 to 30 April 1997. Payments as a result of settlement by age group are as follows: Age Group

Settlement

Verdict

Proportion Settled

20–29 years

26,480

43,456

0.9798

30–39 years

28,073

63,062

0.9721

40–49 years

30,805

75,937

0.9686

50–59 years

29,388

78,349

0.9730

Above 60 years

25,494

35,828

0.9749

The payments against age-group 40–49 have the lowest settlement rates. Payments by settlements by malpractice reason are as follows: Malpractice Reason

Settlement

Verdict

Proportion Settled

Diagnosis related

42,996

78,406

0.9763

Anesthesia related

104,747

458,226

0.9774

Surgery related

42,363

128,329

0.9610

Medication related

68,996

281,815

0.9843

IV and blood products related

22,019

—

1.0000

Obstetrics related

50,916

—

1.0000

Treatment related

22,625

Monitoring related

35,807

Equipment or product related

18,471

Miscellaneous

29,757

All

28,864

46,765 — 15,159 — 67,409

0.9713 1.0000 0.9847 1.0000 0.9718

Payments as a result of settlement are much lower than payments as a result of verdict. Injuries involving small payments tend to be settled in view of high legal costs. I analyzed the reforms for their impact on settlement using the logistic regression analysis. The dependent variable is 1 if the payment is as a result of verdict and 0 otherwise. The independent variables and results of the logistic regression are presented in Table 5.1. The states that license dentists by credentials tend to have higher proportions of settlements. Regions 1 and 3 have

Dental Malpractice

125

lower settlement rates than other regions. The analysis shows no impact of dentist’s age on the settlement rate. States with mandatory collateral source offsets generally have higher proportions of settlements. States with patient compensation funds, caps on economic and noneconomic damages, required periodic payments, or all three reforms have lower settlement rates. These three reforms, which tend to reduce payments to the injured, discourage settlement, suggesting that tort reforms encourage plaintiffs to fight until the verdict. Similarly, restrictions on attorney fees, except a maximum fee reform, discourages settlement. Payments through settlements are much lower than payments as a result of verdict. Mean payments as a result of settlement and verdict for various lengths of time in years from the occurrence of malpractice to payment are presented in Figure 5.2. For the first two years mean settlement payments are greater than verdict payments. Mean settlement amounts remain almost constant for most of the time. The mean verdict payments first increase and then decrease. Since verdict takes a long time, malpractice victims have to either settle for low amounts to get compensation early or wait a long time for verdict to get larger amounts. A victim who needs money, will be forced to settle for less. The tort reforms along with the long wait are extremely unfair to malpractice victims. The impact of tort reforms on dental malpractice is marginal. Studies indicate that the impact of malpractice liability rules on practice behavior is insignificant. However, past malpractice claims experience is found to have an impact on the dentists’ behavior.18 DENTAL DISCIPLINE Dental licensure and privileges actions reports against dentists in different states are extremely varied. The top five and bottom five annual licensure and privileges actions reports between 1 September 1990 and 31 December 1998

126

Medical Malpractice

per 1,000 dentists, along with malpractice payment rates per 1,000 dentists and ranks are as follows: Bottom 5 Vermont

0.301

18.77

41

New Mexico

0.407

7.80

6

Delaware

0.437

19.21

42

North Dakota

0.610

16.10

33

Hawaii

0.680

6.53

3

Oregon

8.68

8.45

8

Minnesota

9.32

9.48

10

Top 5

Ohio

9.42

15.73

32

Colorado

13.64

13.29

20

Arizona

22.80

20.55

45

We present malpractice and licensure and previleges actions reports by states in Figure 5.3. Reportable actions against dentists by age from 1 September 1990 to 30 April 1997 are as follows: 20–30

50

30–40

977

40–50

1638

50–60

996

above 60

789

The relationship between reportable actions and malpractice payments from 1 September 1990 to 30 April 1997 are as follows: No Reportable Action No malpractice payment Malpractice payment Total

Reportable Action

Total

133,875

3,264

137,139

16,064

2,791

18,855

149,939

6,055

155,994

The probability of a dentist having a malpractice payment between 1 September 1990 and 30 April 1997 is 0.12. The probability of a dentist with reportable action having a malpractice payment is 0.46. Therefore, reportable action is a good indicator of malpractice payment. The probability that a dentist has reportable action is 0.039. However, the probability that a dentist with malpractice

128

Medical Malpractice

payment has a reportable action is 0.148. Therefore, malpractice payment is a good indicator of reportable action. The frequency distribution of malpractice payments, along with the number of dentists with reportable actions from 1 September 1990 to 30 April 1997 is as follows: Number of Malpractice Payments

Number of Dentists

Number Having Reportable Actions

Percent with Malpractice and Reportable Actions 11%

1

11,782

1,288

2

3,665

491

13.4%

3

1,430

193

13.5%

4

603

120

19.9%

5

342

104

30.4%

6

161

40

24.9%

7

121

61

50.4%

8

86

37

43%

9 10 or more

42

0

613

166

0% 27.1%

The frequency distribution of reportable actions, along with the percent of dentists with malpractice and reportable actions for various numbers of adverse actions are as follows: Number of Adverse Actions

Total Dentists

Dentists without Malpractice Payments

Percent Dentists with Malpractice and Adverse Actions

1

3,460

1,776

48.7%

2

1,498

896

40.2%

3

717

367

48.8%

4

191

118

38.2%

5

120

71

40.8%

6

40

23

42.5%

7

22

6

76.7%

9

7

7

0%

IMPACT OF STATE DENTAL BOARD LICENSING POLICIES Dental expenses are of significant concern to policy makers. Only 46.7 percent of the population are covered through any form of dental insurance.19 Licensing

Dental Malpractice

129

policies of state dental boards have significant impacts on the statewide distributions of dentists. To identify the parameters that affect the supply of dentists per 10,000 population, I performed a univariate analysis. The Spearman rank correlations between the dentists per 10,000 population in each state and various parameters are as follows: Per capita income

0.6531***

Dental visits/100,000 population

0.2605*

Dental expenditure as a % of total health care expenditure

0.4316***

Annual growth in per capita dental expenditure 1980–1993

⫺0.1370

Per capita dental expenditure

0.6794***

Percentage urban

0.5391***

Dental malpractice claim rate per 1,000 dentists

0.3395**

Dental malpractice payments per dentist

0.1028

Per capita income, per capita dental expenditures, percentage urban population, and dental expenditure as a percentage of total health care expenditures are positively associated with per capita dentists. Dental malpractice claim rates per 1,000 dentists also are positively associated with the supply of dentists. An excellent review of state dental board policies on licensing dentists already licensed in other states can be found in a report prepared by the U.S. Department of Health and Human Services.20 Any dentist wishing to practice dentistry in the United States needs a license; this involves overcoming a variety of hurdles imposed by the states. Graduation from an accredited or approved dental school is a requirement in all states and initial licensure requires written and clinical tests. Physicians, unlike dentists, take no clinical examination at the national or state level. Thirty-four states and the District of Columbia require satisfactory completion of tests conducted by a regional testing system. States that do not belong to the regional testing system administer their own tests. Some states belonging to the regional testing system require applicants to take tests in state laws and meet other requirements. Some of these tests require applicants to bring their own patients with the necessary oral problems and subject to irreversible treatments. Twenty-four states require active practice immediately preceding application in the state in which licensure is sought; 14 states require a personal interview, 8 require affidavits from practicing dentists regarding moral character, 6 require good moral character, 3 require a physician’s statement of physical and mental health, and 2 require dentists to have the intention to establish a practice in the state. In addition, states such as Delaware, Illinois, Mississippi, Tennessee, and Vermont require U.S. citizenship for a dental license. Even for a dentist already licensed in a state to practice in another state, state dental boards impose onerous conditions. Some states grant a license on the basis of credentials. In this process, a dentist gets his license on the basis of his creden-

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tials without any further examination requirements. In other states, a dentist with a license in a state must meet the same requirements that a dentist seeking an initial license should satisfy. In 1993, 29 states in the Northeast and Midwest granted licensure by credentials, whereas 22 states mostly in the South and West did not grant licensure by credentials. Licensure by credentials improves a dentist’s ability move from one state to another to practice dentistry. However, states not granting licensure by credentials claim their ability to assure higher competency of the out-of-state dentists seeking licensure. According to an analysis done by Boulier,21 the dental licensing system restricts the ability of dentists to move from one state to another and affects their geographical distribution. However, removal of licensing barriers would result in a redistribution of dentists and increase the mean net incomes of dentists. Even though all states license dentists to practice general dentistry, only 16 states license dentists to practice specialties. A license to practice general dentistry is a requirement for obtaining a specialty license in these 16 states. In addition, most of these 16 states conduct their own specialty examinations. States that license by credentials generally recognize general and specialty licenses from other states. However, states that do not have specialty examinations or licensure by credentials require the passage of the general clinical licensure examination before a specialist from another state can practice a specialty. By law, practicing specialists are not allowed to practice general dentistry once they pass a general dentistry examination. Eight specialty areas recognized by the American Dental Association include dental public health, endodontics, oral and maxillofacial surgery, oral pathology, orthodontics, pediatric dentistry, periodontics, and prosthodontics. Certification in each area requires graduation from an accredited program of advanced specialty education, practice experience for a specified number of years, and passing of an oral and clinical examination.22 I analyzed the impact of policies relating to granting of licensure by credentials on the supply of dentists using a system of two simultaneous equations to analyze the impact. Since ordinary least squares estimates are biased and inconsistent when there are two simultaneous equations, I used a two-stage least squares method to fit the equations. I assume that the demand for dentists measured in dentists per 10,000 people will be dependent on the per capita income of each state and the percentage of public water supply population using fluoridated water.23 The supply of dentists measured in dentists per 10,000 people will be dependent on per capita income, a dummy variable representing whether the state grants licensure by endorsement to all dentists licensed in other states, a dummy variable representing whether the state grants licensure by credentials to all dentists licensed in other states that grant licensure on a reciprocal basis, malpractice payment rates per 1,000 dentists, percent of urban population in a state, and graduates of dentistry school in 1992 per dentist. To account for the nonlinearities, I fitted two-stage least square equations taking logarithms of all variables except categorical variables. The results are presented in Table 5.2. Based on the demand equation, it is clear that dentists per capita is related

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directly to per capita income of the state and inversely to the percentage of public water supply population using fluoridated water. The demand equation demonstrates benefits for fluoride in reducing tooth decay. Per capita income is statistically significant in the supply equation. Since the parameters relating to dummy variables that have to do with the granting of licensure to all states and on a reciprocal basis are not statistically significant, we cannot draw any conclusion about the impact of dental board policies for licensing dentists. The straight regression with dentists per 100,000 population as the dependent variable and per capita income, a dummy variable representing states with licensure by credentials for licensed dentists from all states, a dummy variable representing states with licensure by credentials on a reciprocal basis, dentist malpractice rates per 1,000 dentists, and percentage urban areas as independent variables provided the following output: Dentists per 10,000 population ⫽ ⫺9.74 (1.32) ⫹0.0029 per capita income (5.96***) ⫺1.74 states with licensure by credentials for all states (0.738) ⫹1.727 states with licensure by credentials for reciprocating states (0.479) ⫺0.026 dental claim rates per 1000 dentists (0.159) ⫹0.148 urban (1.566) ⫹122.45 graduates of school of dentistry (2.07**)

Prob ⬎ F 14.402***, Number of observations 45, R-squared 0.6902, Adj. Rsquared 0.6425. (*** Significant of the .01 level; ** significant at the .05 level; * significant at the .10 level.). After accounting for other factors, licensing policies do not have much impact on the supply of dentists. This is consistent with the study by the Inspector General of the U.S. Department of Health and Human Services who reported that “we found no data, nor any studies, to indicate that licensure-by-credentials policies have much overall bearing on the access to dental services in undeserved areas.”24 I present below some statistics for states granting and not granting licensure by credentials. No Licensure by Credentials Variable

N

Dentists per 100,000 people in 1990 Dental visits

22 53.45 20 603.00

Mean

Licensure by Credentials

Std Dev N 11.11 114.74

Mean

28 59.43 28 619.25

Std Dev 12.10 89.76

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No Licensure by Credentials Mean

Licensure by Credentials

Variable

N

Dental spending as a % of health expenditure

22

5.10

1.15

28

4.79

1.08

% annual change in dental expenditure 1980–1993

22

8.96

0.84

28

8.11

1.12

Dental per capita expenditure

21 140.19

30.17

28 141.29

34.12

Average dental malpractice payments per dentist for 1992

22 562.68

321.38

28 511.51

270.95

Payment rate per 1,000 dentists for 1992

22

17.88

Std Dev N

8.21

28

Mean

16.23

Std Dev

5.85

Graduates of dental schools 1991–1992: 22 Dentists in each state

0.012

0.013 28

0.0226

0.022

Physicians/Dentists 1994

3.43

0.63

3.40

0.52

22

28

The states granting licensure by credentials have a higher number of dentist per population than the states not granting licensure by credentials. In addition, people make a higher number of dental visits per 1,000 people. As regards dental expenses as a percentage of total health care costs, states granting licensure by credentials spent less. Their dental expenditure growth rates during 1980 to 1993 are lower. However, there is not much difference in per capita dental expenditure. Malpractice payments per dentist and payment rates are also lower in states granting licensure by credentials. Since people are making more visits and per capita cost is less, cost per visit is lower in states granting licensure by credentials. I also examined the influence of a number of graduates of schools of dentistry in each state on the number of dentists. Several states, including Alaska, Arizona, Arkansas, Delaware, Hawaii, Idaho, Kansas, Maine, Montana, Nevada, New Hampshire, New Mexico, North Dakota, Rhode Island, South Dakota, Utah, Vermont, and Wyoming do not have schools of dentistry that produced graduates in 1991– 1992. Among these states, Wyoming grants licensure by credentials for dentists from reciprocal states. This state has 52 dentists per 100,000 population. Alaska, Arkansas, Kansas, Maine, New Hampshire, North Dakota, and South Dakota grant licensure by credentials for dentists from all states. These states have 49.42 dentists per 100,000 population. Arizona, Delaware, Hawaii, Idaho, Montana, Nevada, New Mexico, Rhode Island, Utah, and Vermont do not license by credentials at all. These states have 54.6 dentists per 100,000. This indicates that out-of-state graduates prefer states with no licensure by credentials. Physicians have less difficulty moving from one state to another. I therefore compared the numbers of physicians to dentists and found almost no difference between states with and without licensure by credentials. According to the U.S. Department of Health Resources and Services Administration,25 Connecticut, Delaware, Louisiana, Montana, and North Carolina have reported concerns about shortages of

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dentists. Among these states, North Carolina and Montana do not grant licensure by credentials. There is definitely a need for a formal process of licensing to practice dentistry based on some evidence of competency. However, there is debate about the definition of competency, how to evaluate it, who should decide it, how often evaluation should be done, and whether live patients should be used. There are also questions about the impact of licensure on a dentist’s ability to move from one state to another and about the geographical distribution of dentists. Those who are unhappy with the present licensing procedures support a medical model of licensing. In this model, to obtain license a dentist needs have graduated from a dental school and needs to pass a written national examination and complete a year of residency program. Those who favor a clinical examination for licensure argue that a dental diploma by itself is not evidence of competency, a written examination does not fully measure competency, and one-year residency programs are not uniform so that all dentists competent; also, the lack of hospital and peer review procedures make it necessary to provide additional public safeguards for the granting of licenses. According to the Northeast Regional Board of Examiners, quoted by the Institute of Medicine,26 initial failure rates in regional board examinations vary from about 18 percent to 65 percent. Those who are against clinical examination argue that the examination is narrow in scope, the testing procedure is highly variable, and the contents vary from state to state. Others criticize the live patient examinations because of treatment delays as patients are “saved” for the examination, unnecessary duplication of tests, inappropriate treatment, selection of patients using questionable methods such as offering money, and so on. One reason offered by states for not granting licensure by credentials is that the system does not offer adequate assurance of the competency of out-of-state dentists seeking licensure. They also argue about “bad apples” moving from state to state. However, reviews done by two states who grant licensure by credentials indicate that only a very small number of out-of-state dentists have been disciplined by them.27 The average malpractice rates from 1 September 1990 to 31 December 1994 for states with different licensure policies are as follows: 22 states that grant licensure by credentials to licensed dentists from all other states 28 states that do not grant licensure by credentials to licensed dentists from all other states 6 states that grant licensure by credentials to licensed dentists from reciprocating states 44 states that do not grant licensure by credentials to licensed dentists from reciprocating states 28 states that grant licensure by credentials to licensed dentists from other states

15.91 payments per 1,000 dentists 15.73 payments per 1,000 dentists

14.25 payments per 1,000 dentists 16.02 payments per 1,000 dentists

15.56 claims per 1,000 dentists

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22 states that do not grant licensure by credentials to licensed dentists from other states

16.13 payments per 1,000 dentists

Based on this list, it is obvious that differences in claim rates among states that grant and do not grant licensure by credentials are insignificant and the claim that states that grant licensure by credentials are likely to attract less competent dentists is not credible. I also examined whether states that did not grant licensure by credentials in 1993 had any mandatory continuing education requirements. The analysis by states is as follows:28 Whether Grant Licensure by Credentials Yes

No

Continuing Education Mandatory? Yes

No

AK GA IN IA KS KY MA ME MI MN

AR CT IL MD MO NJ NY

NE NH NM ND OH OK SD

PA SC TX VA WA WI WY

(17)

(14)

AL CA DE FL NV OR RI TN

AZ CO HI ID MS MT NC UT VT WV

(8)

(10)

Out of 18 states that did not allow licensure by credentials in 1993, 10 states did not have any mandatory continuing education requirements for dentists in 1991. However, only Colorado, Connecticut, Hawaii, Vermont, Wisconsin and Wyoming did not have any mandatory continuing education requirements in 1997.29 Continuing education by itself is not an indication of continued competency of dentists as no state requires “any assessment of what dentist actually learned from a course.”30

CONCLUSIONS In this chapter, I examined the malpractice payment rates and payments for paid claims against dentists. The claim rates in states are similar to those of physicians. However, the impact of tort reform on payment rates and payments is minimal. Licensure and privileges reports against dentists are extremely varied among states. Because dentists work without much interaction with other dentists, it is important to strengthen licensure and privileges action procedures. Although there is no impact of licensure requirements on the supply of dentists, the licensure requirements of dentists need to be completely overhauled to help dentists to move from one state to another.

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NOTES 1. U.S. Census Bureau, Statistical Abstract of the United States: 1998 (Washington, D.C.: U.S. Government Printing Office, 1998), 133. 2. National Center for Health Statistics, Healthy People 2000 Review, 1995–96 (Hyattsville, Md.: U.S. Department of Health and Human Services, Public Health Services, Center for Disease Control (CDC) 1996). 3. U.S. Department of Health and Human Services, Oral Health in America: A Report of the Surgeon General (Rockville, Md.: U.S. Department of Health and Human Services, National Institute of Dental and Craniofacial Research, National Institutes of Health, 2000). 4. Health Personnel in the United States, Ninth Report to Congress (Washington, D.C.: Bureau of Health Professions, U.S. Department of Health and Human Services, 1993), 64. 5. American Dental Association, 1996 Survey of State Dental Program in Medicaid (Chicago: Author, 1998). 6. Health Resources and Services Administration, Factbook: Health Personnel United States, DHHS Pub. no. HRSA-P-AM-93–1 (Rockville, Md.: U.S. Department of Health and Human Services, 1993), 40. 7. American Dental Association, Fact Sheet: Dentistry, http://www.ada.org/prac/ careers/fs-dent.html, 1 January 2000. 8. U.S. Census Bureau, Statistical Abstract of the United States: 1998, 120–34. 9. B. Bloom, H. C. Gift, and S. S. Jack, Dental Services and Oral Health, United States, 1989, DHHS publication, PHS-93–1511 (Vital and health statistics; series 10, no. 183) (Hyattsville, Md.: U.S. Department of Health and Human Services, Public Health Service, Centers for Disease Control, 1992), 8–11. 10. P. C. Damiano, D. A. Shugars, and J. D. Johnson, “Expanding Health Insurance Coverage and the Implications for Dentistry,” Journal of Public Health Dentistry (1992): vol. 52, 52–8. 11. M. H. Rudov, T. I. Myers, and A. Mirabella, “Medical Malpractice Claims Files Closed in 1970,” in Appendix, Report of the Secretary’s Commission on Medical Malpractice (Washington, D.C.: U.S. Department of Health, Education and Welfare, 1973). 12. P. Milgrom, L. Fiset, T. Getz, and D. Conrad, “Dental Malpractice Experience: A Closed Claim Study,” Medical Care 31(8) (1993): 749–56. 13. Bureau of Health Professions, National Practitioner Data Bank: 1998 Annual Report (Rockville, Md.: U.S. Department of Health and Human Services, 1998). 14. Peter Milgrom, Louis Fiset, Coralyn Whitney, Doublas Conrad, Tom Cullen, and David O’Hara, “Malpractice Claims during 1988–1992: A National Survey of Dentists,” Journal of the American Dental Association 125 (April 1994): 465. 15. Bureau of Health Professions, National Practitioner Data Bank: 1998 Annual Report. 16. Trends in Health Care Provider Liability (Horsham, Penn.: LRP Publications, 1994), 43. 17. Bureau of Health Professions, National Practitioner Data Bank: 1998 Annual Report. 18. D. A. Conrad, P. Milgrom, C. Whitney, D. O’Hara, and L. Fiset, “The Incentive

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Effects of Malpractice Liability Rules on Dental Practice Behavior,” Medical Care 36(5) (May 1998): 706–19. 19. Health Insurance Association of America, Source Book of Health Insurance Data 1997–1998 (Washington, D.C.: Author, 1998), 62, originally from National Association of Dental Plans, NADP/Interstudy 1996 National Dental Benefits Industry Census and Directory (Dallas, Tex.: Author, 1996). 20. U.S. Department of Health and Human Services, Office of the Inspector General, The Licensure of Out-of-State Dentists, OEI-01–92-00820 (Washington, D.C.: U.S. Department of Health & Human Services, 1993). 21. Bryan L. Boulier, “An Empirical Examination of the Influence of Licensure and Licensure Reform on the Geographical Distribution of Dentists,” in Occupational Licensure and Regulation, Ed. Simon Rottenberg (Washington, D.C.: American Enterprise Institute for Public Policy Research, 1980), 73–103. 22. Institute of Medicine, Dental Education at the Crossroads: Challenges and Change (Washington, D.C.: National Academy Press, 1995), 240–1. 23. Center for Disease Control and Prevention, Fluoride: The Benefits Can Last a Lifetime (flyer, no date). 24. U.S. Department of Health and Human Services, Office of the Inspector General, The Licensure of Out-of-State Dentists, 10. 25. Health Resources and Services Administration, States Assessment of Health Personnel and Shortages, Issues and Concerns, DHHS Publication no. HRS-P-OD 90–6 (Rockville, Md.: U.S. Department of Health and Human Services, October 1990). 26. Marilyn J. Field, ed., Dental Education at the Crossroads: Challenges and change, Institute of Medicine (Washington, D.C.: National Academy Press, 1995), 243. 27. U.S. Department of Health and Human Services, Office of the Inspector General, The Licensure of Out-of-State Dentists, 6. 28. The Council of State Governments, The Book of the States, 1992–93 (Lexington, Ken.: Council of State Governments, 1994). Table 8.31. 29. The Council of State Government, The Book of States, 1998–99 (Lexington, Ken.: Council of State Government, 2000). Table 7.37. 30. U.S. Department of Health and Human Services, Office of the Inspector General, The Licensure of Out-of-State Dentists, 9.

6

Politics of Malpractice INTRODUCTION Federal and state governments have proposed and enacted “reforms” to change the malpractice tort system. Most reforms enacted in the 1970s have been to reduce claim frequency and severity. The primary beneficiaries of such reforms were health care providers and liability insurers. Although the U.S. Congress plays a dominant role in enacting laws, tort law has been the exclusive domain of the states. The unique packages of laws enacted in different states to respond to malpractice problems indicate the importance individual states give to tort reforms. However, recent political science literature suggests that states are becoming increasingly similar in their enactment of laws. The basis for this observation is the diffusion theory. According to the diffusion theory, states imitate innovations from other states. According to Walker,1 states adapt laws of leading states in their region. However, according to Gray,2 the early or late adapters of innovations are not always the same states. Grupp and Richards3 suggest a different diffusion pattern, in which state bureaucrats copy policies of highly praised states in each policy area irrespective of their geographic region. Whatever the pattern of diffusion, the theory projects the eventual uniformity of laws among states. Another area of research deals with identification of the causes of policy differences. Traditional thinking attributes the differences in policy outcomes to political processes. Several empirical analyses indicate that socioeconomic factors and not political processes are the causes of differing policy outcomes among states.4

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In this chapter, I examine whether there are similarities in the passage of tort reforms as speculated by the diffusion theory. I also examine the impact of socioeconomic factors on various tort reforms enacted in the states from 1975 to 1980 and in 1986. I then analyze whether the characteristics of courts have any influence on the decisions regarding constitutionality of their reforms. The data for analysis in this chapter are from the doctoral dissertation of Dugan.5 After a prolonged battle to introduce tort reforms in the federal level, Congress was able to pass tort reform measures in 1996, but the president vetoed them. I analyze the influence of socioeconomic factors on the voting patterns of the senators.

REFORMS OF THE SEVENTIES Background Rising malpractice premiums and unavailability of malpractice insurance created a crisis situation in 1975. Many physicians were forced to pay higher premiums. Some practiced medicine without malpractice insurance. An almost monopoly market for malpractice insurance, with only a few insurance carriers forced physicians to stay with their insurance carriers even when their premiums were high. In addition, malpractice insurance companies simply stopped selling “occurrence” policies and subtly substituted “claims-made” policies. Several physicians threatened to stop practicing medicine unless malpractice insurance problems were resolved. When legislatures attempted to solve malpractice insurance problems through tort reforms, personal injury lawyers became involved. They blamed incompetent doctors for the increase in medical malpractice suits. Personal injury lawyers also blamed insurance companies for raising premiums to offset losses from inappropriate investments. They alleged that insurance companies were claiming losses through clever accounting practices. Physicians and insurance companies, for their part, blamed lawyers and the contingent fee system for the runaway malpractice system. They alleged that the contingent fee system encouraged lawyers to pursue frivolous claims. Patients’ expectations about the health delivery system rose with its cost. Any adverse outcome is perceived as caused by negligence. Health maintenance organizations, group practices, specialists, third-party payment systems, and other factors reduced personal relationships between doctors and patients. Increased propensity to sue and changing public attitudes toward litigation caused malpractice lawsuits to rise dramatically in the 1970s. In addition, legal developments contributed to increased numbers of malpractice suits. Changes in the locality rule, the application of res ipsa loquitur, lenient applications of statutes of limitations, informed consent doctrine, and collateral source rule significantly increased injured patients’ ability to recover damages.

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Tort Reforms The malpractice “crisis” forced legislatures to enact a variety of tort reforms between 1975 and 1980. Although these reforms can be categorized in several ways, I selected reforms as given in Dugan.6 The major tort reforms and the number of states implementing them are given below: Regulation of contingent fees

14

Caps on awards

17

Elimination of collateral source rule

17

Periodic payment of awards

16

Elimination of ad damnun clause

19

Pretrial screening panels

27

Modification of the discovery rule

38

Elimination of the majority rule

20

Each reform was implemented in a few states. A majority of states implemented reforms involving modification of the discovery rule and pretrial screening panels. On an average, each state enacted 3.36 reforms out of 8. In other words, on an average, states did not enact 4.64 reforms they could have implemented. Patterns of Reforms The numbers of states that have passed the combination of reforms are listed here. The most popular combinations of reforms are Pretrial screening panels and modification of the discovery rule

22 states

Modification of the discovery rule and elimination of the majority rule

19 states

Caps on awards and modification of the discovery rule

15 states

Elimination of collateral source rule and of modification of the discovery rule

15 states

Periodic payment of awards and modification of the discovery rule

14 states

Elimination of ad damnun clause and modification of the discovery rule

14 states

and least popular are Regulation of contingent fees and periodic payment of awards

5 states

Regulation of contingent fees and caps on awards

5 states

Regulation of contingent fees and elimination of ad damnun clause

5 states

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Influence of Socioeconomic Factors In this section, I examine the influence of socioeconomic factors on malpractice tort reforms. The Spearman rank correlation is used to determine the relationship between the factors and the number of reforms. The total number of reforms enacted is the basis for analysis. I selected the urbanization in the state, number of doctors per 100,000 population, lawyers and trial lawyers, malpractice insurance rates, physicians to lawyer ratio, and physicians to trial lawyers ratio. To examine the impact of quality of legislatures on the reforms, I use ranking of functionalism, information, and independence of the legislatures assigned by the Citizens Conference on State Legislatures.7 The Spearman rank correlations between the number of reforms and annual malpractice insurance premiums for class 5 physicians (high-risk physicians such as anesthesiologists, orthopedic surgeons and obstetricians) and various factors are given here. Data are from Dugan.8 Variable

Number of Reforms

Physicians per capita

Malpractice Premiums

0.077

0.276**

Lawyers per capita

0.091

0.341*

Trial lawyers per capita

0.184

0.398*

Trial lawyers: Physicians

0.051

0.030

Lawyers: Physicians

0.078

0.283**

Urban

0.129

0.350*

Functional rank

⫺0.096

⫺0.347*

Informed rank

⫺0.199

⫺0.458*

Independence rank

⫺0.115

⫺0.307*

Malpractice premiums

0.236

Reforms Reagan voters

0.236 0.312*

0.313* (*0.1 and **0.05 levels of significance)

Since lawyers and physicians are likely to lobby legislatures, their numbers should influence the number of reforms. Since proportion of urban areas directly influences the numbers of malpractice claims and sizes of payments, urban areas should be directly related to the number of reforms. Higher malpractice premiums should produce a higher number of reforms if the goal of reforms is to reduce malpractice claims and payments. However, I did not find a statistically significant impact of these variables on the number of reforms. The quality of the legislature is also not related to the number of reforms. However, I found that the proportion of votes received by Reagan in the 1980 presidential election,

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143

a proxy for the conservatism of the state, did influence the number of reforms. Statistically significant relationships exist between malpractice premiums and urbanization, lawyers, and trial lawyers. When the means of socioeconomic factors for states categorized into minor (0–2 reforms), moderate (3–5 reforms), and major (6–8 reforms) were computed, some interesting results were found. Eight states implementing 6 to 8 reforms had relatively high per capita income, urbanization, malpractice insurance premiums, physicians per lawyers, physicians per trial lawyers, high quality for legislature functionalism, large number of insurance companies, low quality for legislature information, and independence. Similar attributes are also found for states implementing minor (0–2 reforms). By contrast, states enacting moderate reforms (3–5) had lower per capita income, urbanization, malpractice premiums, physicians per lawyers, physicians per trial lawyers, insurance companies, proportion of Reagan voters, and a high proportion of lawyers among legislators (see Table 6.1). I examined the states using the criteria of “crisis” and “noncrisis” states as categorized by Brierly and McDonald.9 Crisis states typically have higher insurance premiums and lower availability of insurance. Therefore, they should typically enact more tort reforms. However, most of the crisis states made only minor reforms. Crisis states such as Alaska, Florida, New York, South Dakota, Tennessee, and Texas enacted minor reforms; Maine and South Carolina, moderate reforms; and California and Ohio, major reform. Therefore, it is hard to find a link between reforms and crisis. Similarities in Reforms Cluster analysis was used to group states based on similarities in tort reforms. Cluster analysis is a statistical technique that puts observations into clusters based on the similarity in data. The observations in each cluster tend to be similar as compared to the observations in other clusters. I used a hierarchical clustering algorithm, which is performed in a series of steps. The algorithm starts with each observation as a cluster. Two most similar clusters are combined together at each step until no more clusters can be combined. Once two obser-

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vations are combined, they can never be separated. I used the Manhattan method to measure differences between observations and average absolute deviation to scale the distance. The clusters are presented as a tree diagram called a dendogram. Dissimilarities between observations are shown on the horizontal axis of the dendrogram. The vertical axis shows the observations and clusters. Combinations of clusters are shown on the dendrogram by the splitting of a horizontal line into two horizontal lines. The dissimilarity between two clusters is gauged by the distance on the horizontal position of the split shown by the short vertical bar. In the dendrogram in Figure 6.1, it is easy to identify clusters of states as follows: Group 1 (States within brackets have similar reforms) AK, AL, AR, (CO, WV), CT, (GA, VT), HI, ID, IL, IN, KS, (KY, ME), LA, MA, MI, (MN, MS, NJ), MO, MT, (NC, SC), ND, NE, NM, NY, (NV, WY), OH, OK, OR, PA, RI, SD, TX, UT, VA, WI Group 2 AZ Group 3 CA, NH Group 4 DE, FL Group 5 IA, TN, WA Group 6 MD

By looking at the clusters given in Figure 6.1, it is obvious that that there are similarities among states in the enactments or nonenactments of tort reforms as suggested by the diffusion theory. Role of Courts The state supreme courts play a significant role in the evolution of tort law. According to Thornburgh,10 “reception” statutes delegated the authority to develop tort laws to courts consistent with the public policy formulated by the state legislatures. Therefore, legislatures lead tort law reforms and courts are expected to defer. According to Thornburgh, “ordinary citizens lose their power to express their will in the way they are governed as a result of the supreme court decisions of Kentucky, Illinois, and Ohio to strike down tort reform measures.” However, academic studies do not support the view that courts act as superlegislatures. According to Dugan,11 24 of the 35 state supreme courts have held their state’s tort reform measures constitutional. Based on the classification

Figure 6.1. Dendrogram of states based on similarity of tort reform

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of courts done by Houseman,12 the probability of holding the reforms enacted during the period 1975–1980 constitutional by the judicial selection method is as follows: Elected by partisan ballot

5/8 ⫽ 0.63

Elected by nonpartisan ballot

3/6 ⫽ 0.50 6/10 ⫽ 0.60

Appointed by governor and periodic elections

14/24 ⫽ 0.58

Elected by ballot Appointed by legislature

1/1 ⫽ 1.00

Appointed by governor

4/5 ⫽ 0.80 1/2 ⫽ 0.5

Nominated by governor and appointed by legislature

6/8 ⫽ 0.75

Appointed

20/32 ⫽ 0.63

Total

The preceding results indicate a small bias for justices who are appointed to go along with the state legislatures. Diversity in court decisions can be found from the analysis of decisions of individual reforms. Reform Cap on payments Abolition of collateral source rule Regulation of contingent fees Screening panels Periodic payments Modification of statute of limitations discovery rule Elimination of ad damnum clause Modification of statute of limitations majority rule

Probability of Holding the Reform Constitutional 5/11 ⫽ 0.45 4/8 ⫽ 0.5 5/7 ⫽ 0.71 14/19 ⫽ 0.74 2/4 ⫽ 0.5 15/16 ⫽ 0.94 1/2 ⫽ 0.5 2/6 ⫽ 0.33

In short, the probability of holding a reform constitutional varies from 0.33 to 0.94. According to a survey of state and federal judges done for the American College of Obstetricians and Gynecologists, a majority (more than 50 percent) favored early settlement incentives, mandatory collateral source deductions from awards, court-appointed impartial expert witness selected from a predetermined list or agreed upon by the parties; they opposed the no-fault system, mandatory binding arbitration, caps on noneconomic damages, shortened statute of limitations for minors, elimination of punitive damages, and changing the burden of proof to clear and convincing.13

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REFORMS OF THE 1980s Tort reforms of the 1980s were much more comprehensive than those of the 1970s. Rising premiums and unavailability of liability insurance forced 40 out of 46 states that held legislative sessions in 1986 to enact some form of tort reform. The numbers of states enacting various reforms are as follows: Availability Establish Mutual Assurance Pools (MAPS)

27

Provide for self-insurance

22

Establish joint underwriting associations (JUAs)

14

Risk management

6

Insurance Regulation Grants of immunity and liability limits

21

Cancellation, nonrenewal, or premium change notices

17

Expanded data

12

Cancellation or nonrenewal only with cause

9

Strengthen rate regulation

5

Premium rollbacks

2

Rate changes to reflect tort reforms

2

Flexible rating

1

Civil Justice Cap awards

17

Joint and several liability

14

Frivolous suits

13

Periodic payments

10

Collateral source rule

9

Attorney fees

7

Itemized jury verdicts

5

Prejudgment accrual

5

Unlike the reforms of the 1970s, tort reforms in 1986 focused on insurance availability, insurance regulations, and civil justice. Civil justice reforms adversely affect the injured and trial lawyers; insurance regulations affect insurance companies. Therefore, interest groups could have had significant impacts on the reforms. To see whether interest groups had any impact on the number of regulations, I performed the Spearman rank correlation among availability, insurance regulation, and civil justice reforms:

148

Number of 1975–1980 reforms

Medical Malpractice

Availability

Ins. Reg

Civil Justice

⫺0.002

0.025

⫺0.004

Availability

0.26*

Insurance regulations

0.35** 0.36**

**0.05 and *0.1 level of significance.

Since the number of reforms focusing on availability, insurance regulations, and civil justice are positively related to each other, it is obvious that states that enacted regulations in one area also enacted regulations in other areas. In other words, no interest group was favored by the state legislatures. In addition, a statistically insignificant relationship between the number of 1975–1980 reforms and the number of reforms in 1986 indicates that it is not the same states that were enacting reforms in 1986. TORT REFORMS AT THE FEDERAL LEVEL The Senate and the House of Representatives were able to pass a sweeping liability program including malpractice reform bill HR 956 in 1995. The Senate bills included caps on punitive damages, abolition of joint liability for pain and suffering and noneconomic losses, and a 2-year time limit to bring lawsuits from the date of discovering both the cause of an injury and the injury itself.14 A variety of reform measures were put to vote. Some of them were • Limiting attorney fees in civil action to $50 an hour • Requiring attorneys to provide clients with the estimate of legal costs within 30 days of the first meeting • Imposing restrictions on frivolous lawsuits • Increasing the standard for malpractice to “clear and convincing” evidence in cases when the physician performing labor or delivery is different from the physician who provided prenatal care • Providing access to the National Practitioner Data Bank • Restricting punitive damages to two times their sum of economic and noneconomic awards • Prohibiting attorneys from charging a contingency fee of more than 25 percent for the first $250,000 collected for noneconomic damages in all federal and state civil actions • Limiting noneconomic damages for pain and suffering in malpractice cases to $500,000 • Allowing states to have their own standards for litigation in medical malpractice cases • Establishing an alternate dispute resolution mechanism in each state • Eliminating joint liability • Requiring the Commerce Department to issue a yearly report on the impact of the act on product liability insurance

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Although tort reform measures were passed by the Senate and the House of Representatives, they were vetoed by the president and the veto was not overuled by Congress. Several measures were voted by the Senate, but voting patterns were similar. We therefore consider votes (Senate Votes 136 S 56515) by the Senate on the bill to impose the restrictions and sanction on frivolous lawsuits that existed before 1994 under rule 11 of the Federal Rules of Civil Procedure. This was adopted by a vote of 56–37. The voting was along party lines, with 46 Republicans and 10 Democrats supporting the measures and 31 Democrats and 6 Republicans opposing them. Although rule making by the Senate is considered a process of enacting laws by a majority, in reality this is not true. Typically, senators are elected by a vote of 48 to 60 percent and a bill is passed if it is voted by more than 50 percent of the senators. Since less than 50 percent of eligible voters vote, a bill passed by 51 senators typically represents about 12 to 15 percent of the electorate. However, senators from the same state vote against one another. For example, in Senate vote 136, senators from 16 states voted against one another. Although we assume that only Washington, D.C. is disenfranchised because it does not elect senators, several states disenfranchise themselves because their senators vote against each other. One senator from each of 5 states and both senators from 1 state did not vote. Out of 28 states left, both senators from each of 10 states voted negative and both from each of 18 states voted affirmative. I analyzed votes by various tort reforms in force in different states. Yes and no votes by senators from states having and not having various tort reforms are as follows: Vote Yes

Vote No

Collateral source rule

Yes No

33 23

24 13

Caps on damages

Yes No

20 36

18 19

Periodic payment

Yes No

30 26

25 12

Statute of limitation

Yes No

34 22

23 14

Screening panels

Yes No

26 30

13 24

Attorney fee restriction

Yes No

21 35

20 17

Frivolous lawsuit penalties

Yes No

35 21

17 20

Although collateral source rule is not related to frivolous law suits, the passage of collateral source enactment gives an indication of a state’s receptivity toward

150

Medical Malpractice

tort reforms. Thirty-three senators from states with collateral source rules and 23 without voted for this bill. Twice as many senators from states with collateral source rules as from states without voted against this bill. The likelihood of voting for or against this bill is the same whether or not a senator comes from a state with caps on damage awards. However, senators from states without caps are twice as likely to vote for this bill as against. The likelihood of voting for or against this bill is almost the same whether or not a senator comes from a state that allows periodic payment of damage award. However, the likelihood of voting against the bill is twice as great if a senator comes from a state with periodic payment enactment as from states without. The pattern of voting is similar when it comes to statutes of limitation. However, when it comes to screening panels, almost equal proportions of senators from states with screening panels voted for and against the bill. Thirty senators and 24 senators from states with screening panels voted 30 for and 24 against the bill. Thirty-five of 52 senators from states with frivolous lawsuit penalties voted for the bill. Fifty-five senators voted consistent with their state’s law about frivolous lawsuit penalties and 38 voted inconsistent with their state’s law. I used logistic regression of votes for Senate bill 136 liability overhaul and frivolous lawsuits to identify factors that influence tort reforms. I used state tort laws, annual malpractice claim rates per 1,000 physicians for 1 September 1990 to 31 December 1995, number of trial lawyers per population in 1990, managed care penetration in 1995, proportion of above 65 population in 1994, proportion of urban population in 1990, proportion of people below poverty level in 1990, physicians per 10,000 people for 1995, and surgeons per 100,000 people for 1995 as independent variables. Table 6.2 presents the means of these variables for states whose senators voted for and against the bill. States whose senators voted for the bill have higher malpractice claim rates per physician and per capita trial lawyers. States whose senators voted against the bill have higher per capita surgeons, managed care penetration, per capita income, above 65 population, urban population, people below poverty level and per capita physicians. Table 6.3 shows the logistic regression output. There are two specifications. In the first specification, all variables except dummy variables are expressed in logarithms. Only four variables are statistically significant at the 5 percent level. Physicians per capita, the tort reform imposing caps on damages, and the tort reform restricting attorney fees increase the probability of voting against the bill and the tort reform involving the establishment of screening panels increases the probability of voting for the bill. Since other bills introduced along with this bill involve restrictions on legal fees, it is surprising that senators from states with fee restrictions are more likely to vote against this bill. It seems that senators’ views are not consistent with those of the state tort reform enactment in force. Conventional wisdom is that states with larger numbers of physicians per capita, a proxy for the strength of the medical care community, should support

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this bill. However, I found that senators from states with high per capita numbers of physicians have voted against the bill. Contributions by interest groups to House and Senate members were ignored. Studies indicate significant contributions by opponents and proponents to the members of Congress. For example, according to CQ, 47 senators who voted to limit debate on the product liability bill each received an average of $1,378 from groups such as American Medical Association who support the curbs; those opposing the limit got an average of only $683, not including the contributions of the Association of Trial Lawyers of America.16 According to a recent publication, the Association of Trial Lawyers ranks sixth and the American Medical Association thirteenth in terms of lobbying power.17 CONCLUSIONS In this chapter, I examined the influence of socioeconomic factors on tort reforms. Socioeconomic factors have very little influence on the number of tort reforms enacted in each state. Using cluster analysis, I concluded that there is a tendency for uniformity in the enactment of tort reforms consistent with the diffusion theory. The voting pattern among senators indicates that, contrary to the conventional wisdom, senators from states with high per capita physicians did not vote for the bill. Physicians’ political power may be a bit exaggerated. NOTES 1. Jack L. Walker, “The Diffusion of Innovations among the American States,” American Political Science Review 63 (September 1969): 893.

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2. Virginia Gray, “Innovation in the States: A Diffusion Study,” American Political Science Review 67 (December 1973): 1174. 3. Fred W. Grupp and Alan R. Richards, “Variations in Elite Perceptions of American States as Referents for Public Policy Making,” American Political Science Review 69 (September 1975): 858. 4. Richard H. Salisbury, “The Analysis of Public Policy: A Search for Theories and Roles,” in Political Science and Public Policy, ed. Austin Raney (Chicago: Maarkham Publishing, 1968), 164. 5. Deena Rabinowicz Dugan, The Politics of Medical Malpractice Reform in the American States (Baltimore: Johns Hopkins University Press, 1994). 6. Ibid., 38. 7. Citizens Conference on State Legislatures, State Legislatures: An Evaluation of Their Effectiveness (New York: Praeger, 1971), 40. 8. Dugan, The Politics of Medical Malpractice Reform in the American States, Appendix A–F. 9. C. Brierly and J. McDonald, Malpractice in Focus: A National Problem the States Must Solve (Chicago: American Medical Association, 1975). 10. Dick Thornburgh, “A New Judicial Imperialism,” Wall Street Journal, 18 May 1998, A23. 11. Dugan, The Politics of Medical Malpractice Reform in the American States, 424–9. 12. Gerald L. Houseman, State and Local Government: The New Battleground (Englewood Cliffs, N.J.: Prentice Hall, 1986), 163. 13. Penn and Schoen Associates, Report to the American College of Obstetricians and Gynecologists on Jurists’ Attitudes toward the System Adjudicating Medical Malpractice Cases and Various Proposals for Reform, 2 December 1987. 14. Allan Freedman, “Highlights of Liability Bill,” CQ, 13 May 1995, 1320. 15. “Senate Votes 133, 134, 135, 136,” CQ, 29 April 1995, 1201. 16. Jonathan D. Salant, “Business PAC’s Pick Their Cause,” CQ, 6 May 1995, 1234. 17. Jeffey H. Birnbaum, “Follow the Money,” Fortune, 6 December 1999, 208.

7

Medical Malpractice and the Supply of Physicians INTRODUCTION About 43.4 million or 16.1 percent of Americans do not have health insurance coverage. Another 64.6 million or 24 percent of the population have their health coverage through government-paid Medicare and Medicaid programs.1 However, Medicaid covers only about half of those below the federal poverty level.2 Roughly 2 in 5 Americans live with chronic illnesses.3 According to several surveys and audits, the care they receive fails to comply with well-established guidelines for the critical aspects of care.4 Less than 1 in 4 patients with hypertension have well-controlled blood pressure.5 Of patients with type 1 diabetes, 1 in 5 do not see a physician once a year, 2 in 5 are not tested for glycohemoglobin levels, and more than 2 in 5 do not have annual retinal examinations.6 The persistence of barriers to health care is a major concern of health policy analysts. In this chapter, I examine the impact of malpractice on the supply of physicians and access to medical care. I discuss the geographic distribution of physicians, imbalances among specialties, and the impact of malpractice liability on the supply of obstetricians and gynecologists. To relieve access problems, more states are allowing physician assistants, nurse practitioners, and nurse midwives to practice; I examine the impact of the malpractice system on the extent of deliveries performed by nurse midwives. SUPPLY OF PHYSICIANS The number of physicians in the United States has grown dramatically from 334,028 in 1970 to 737,764 in 1996. The number of physicians per 100,000

156

Medical Malpractice

civilians grew from 161 in 1970 to 278 in 1996, a dramatic 73 percent increase in 26 years. However, patient care physicians, including office-based practitioners, residents, and hospital staff physicians, were only 278,535 in 1970 and 598,924 in 1996. In other words, about 83.4 percent and 81.2 percent of total physicians were in patient care in 1970 and 1996 respectively. The patient care physicians per 100,000 population grew from 134 in 1970 to 226 in 1996, a growth of 69 percent in 26 years. Growth by specialty and state has been uneven. In the period 1970–1996, the number of anesthesiologists, diagnostic radiologists, neurologists, plastic surgeons, and radiation oncologists grew by more than 200 percent although the number of all physicians grew by 120.9 percent. Physicians are concentrated in a few states and metropolitan areas of states. For example, 9 in 10 physicians practice in metropolitan areas. Washington, D.C., has 738 physicians per 100,000 civilians, whereas Mississippi has only 164.7 In 1996, 30 percent of physicians were in the age group of above 55. About 64 percent of physicians are board certified. About 1 in 3 physicians were in primary care specialties, which include general and family practice, internal medicine, obstetrics and gynecology, and pediatrics. There were about 98,000 residents in training in 1994. A large number of them are international medical graduates. Their proportion fell from 40 percent of all residents in 1971 to about 17 percent in 1985 and then rose to 24 percent in 1994. Universal health care, the emergence of new diseases, and the growing elderly population are some of the driving forces that may increase demand for physicians. However, managed care is likely to drive down the demand for physicians. I discuss the impact of the malpractice system on imbalances in physician supplies among states and among specialties. The physician supply should be adequate to provide reasonable access to quality health care at a reasonable price. However, there is no consensus about the adequate number of physicians. A variety of approaches based on need and demand have been used to estimate the appropriate number of physicians. Most studies relating to the supply and requirements of physicians point to the fact that there is an oversupply of physicians.8 The Dartmouth Atlas of Health Care uses three benchmarks to estimate the appropriate number of physicians. Using the Minneapolis hospital region with a managed care penetration of 39.4 percent for the Medicare population in 1995 as a benchmark, excess generalists are 9,951 and specialists 55,395. Using the Wichita, Kansas, hospital referral region with a high fee-for-service Medicare population as a benchmark, the excess generalists are estimated to be 17,704 and specialists 83,066. Using a large prepaid group practice as a benchmark, the estimated excess generalists are 49,600 and specialists 72,898.9 These studies, however, have not taken into account a growing number of physicians’ assistants and nurse practitioners. Despite the excess supply of physicians, a new patient had to wait on an average 9 days for an appointment with a nonfederal physician in 1996. The average wait for a neurologist was 15.4 days and for an obstetrician or gynecologist 12 days. The average wait in various geographic regions varies from

Medical Malpractice and the Supply of Physicians

157

6.8 in the west south central region to 12.6 in the west north central area.10 According to the Dartmouth Medical School, excess supply of physicians increases patient visits per capita and costs and reduces neither underservice nor participation of patients in shared decision making.11 The excess supply of physicians has not resulted in increased competition among physicians. There are also no indications that physician oversupply has adversely affected physicians’ incomes. Although there are studies indicating a positive association between physician supply and health care costs particularly in fee-for-service environments, the relationship between physician supply and health care costs in managed care environments is not clear. There is an oversupply of both generalists and specialists but their distribution is extremely varied and uneven. Allowing easy immigration into the United States to international medical graduates did not improve maldistribution of physicians among states. According to Mullan et al.,12 the distribution of international medical graduates follows the same pattern as that of U.S. medical graduates. I looked for any association between physicians per capita and malpractice stringency measured in claim rates per physician and average claim payment. Massachusetts has one nonfederal physician per 235 civilians, whereas Mississippi has one nonfederal physician per 611 civilians. The ratio of civilians to physician for 1996 and annual claims per 1,000 physicians for the period 1 September 1990 to 1 December 1998 for various states are depicted in Figure 7.1. From the figure, it is hard to find any association between malpractice stringency represented by the claims rates and physician supply denoted by civilians per physician. I also examined the supply of physicians from 1980 to 1996, computing the changes in the ranks (the higher the rank, the lower the supply of per capita

158

Medical Malpractice

nonfederal physicians) of states based on civilians per physician in 1980 and 1996. The top 5 states that have improved their ranks between 1980 and 1996 and their malpractice payment rate ranks (the higher the rank, the higher the claim rate) and average malpractice payments ranks for the period from 1 September 1990 to 31 December 1998 (the higher the rank, the higher the average payment) are as follows. The 5 bottom-ranking states are also shown. Rank in 1980

Rank in 1996

1. Tennessee

30

20

9

32

2. Louisiana

32

22

25

43

3. North Carolina

31

23

12

41

State

Payment Rates

Average Payment

4. Pennsylvania

15

9

41

40

5. West Virginia

39

33

50

35

47. Colorado

10

18

23

10

48. Texas

33

41

43

19

49. Nevada

36

47

44

39

50. Arizona

12

28

36

28

51. Utah

22

38

42

4

Of the five states with most improvements in ranks in physician supply, 2 have claim payment rates above median and 3 below median. However, all five have average payments above median average payment. Similarly, for 5 states with least improvements in ranks in physician supply during 1980–1996, 4 have more than median claim rates and only 2 have more than median average claim payments. Here again, association between increase in physicians per capita and claim rates and average claim payments is mixed. In addition to geographic maldistribution of physicians, there are imbalances in specialties. In a managed care environment, there is a need for a higher proportion of primary care physicians and a lower proportion of specialists. In 1995, about 26.5 percent of federal and nonfederal physicians are in the category of primary care, 10.7 in surgery, and 16.2 in other specialties. Increased use of cost containment strategies and penetration of managed care are likely to reduce demand for physicians and their compensation. Increased demand for primary care physicians and their rising salaries should theoretically increase the number of residents going into primary care. However, because of the large pool of practicing physicians, appreciable change in physician composition will take a long time. According to Kiker and Zeh,13 income is a motivating factor in choosing a surgical specialty. Malpractice concern is positively related to the choice of primary care and negatively influences the selection of surgical specialty. Planned location of practice, length of residency, type of medical school from

Medical Malpractice and the Supply of Physicians

159

which a physician is graduated, score in the science problems of the Medical School Admission Test, working hours, and whether surgery is involved are other factors that influence the specialty choice. After cost, access to care is the most important issue for policy makers. The Institute of Medicine defines access as “the timely use of personal health services to achieve the best possible outcomes.”14 For many years, the lack of an adequate number of physicians was considered the major cause for inadequate access to care. Even though physicians per capita have increased over the past several years, access to physicians has not increased. For example, patient care inputs and outputs during the past 10 years are as follows: 1985 Nonfederal physicians in patient care (in thousands) Employment in offices of MDs (in thousands)

431.5

1995 564.1

1028

1609

Total visits to physicians (million)

496

626

Inpatient days (billion)

227.86

175.83*

% change 30.73 56.52 26.21 ⫺22.8

*1994

The number of physicians in the period 1985–1995 increased by 31 percent and employment in offices of MDs increased by 57 percent. Yet total visits went up by only 26 percent and inpatient days in hospitals fell by 22.8 percent. In other words, physician productivity fell between 1985 and 1995. This is consistent with the findings of Pope,15 who found that total patient contacts did not increase from 1976 to 1986. Instead, physicians’ time and medical services per visit increased, raising the intensity of care. SUPPLY OF OBSTETRICIANS AND GYNECOLOGISTS According to several physician surveys, obstetricians, family physicians, and nurse midwives are abandoning their obstetrical practice because of medical malpractice liability. According to the American College of Obstetrics and Gynecologists Survey,16 8 percent of obstetricians and gynecologists decreased their gynecological surgical procedures and 2.4 percent no longer do major gynecological surgery. The mean professional liability premiums for self-employed physicians in obstetrics and gynecology was $35,200 in 1996, whereas it was $14,100 for all physicians. A physician in the obstetrics and gynecology specialty had a claim rate of 13.1 per 100 physicians in comparison to only 9 for all physicians in 1996. In addition, roughly 2 in 3 physicians in obstetrics and gynecology have been sued compared to only 2 in 5 of all physicians.17 The plans of graduating medical students are a good indicator of whether the cost of malpractice premiums is making obstetrics unattractive as a field of practice. Of graduating medical students, 4.2 percent chose obstetrics and gynecology in 1980. In 1985, this figure grew to 5.4; it fell to 2.5 in 1991, then

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Medical Malpractice

gradually rose to 2.7 in 1992, 3.1 in 1993, 3.8 in 1994, and 4 in 1995.18 Data from the Residency Matching Program indicate that overall match rates for obstetrics and gynecology varied between 94.9 and 98.7 between 1985 and 1995. The match rates for obstetrics and gynecology for graduates of U.S. medical schools varied between 81.1 and 86.2 in the same period, well above the average rates for other specialties. According to the Journal of the American Medical Association, medical education issues, obstetrics and gynecology residents represented 5 to 7 percent of total first-year residents between 1980 and 1994. International medical graduates as a percentage of total residents in obstetrics and gynecology varied between 5.8 and 8.0 percent between 1990 and 1995 although percentage of international medical graduates among total graduates varied between 20 to 25 percent between 1990 and 1995. After radiology, obstetrics and gynecology has the lowest percentage of international medical graduates. These numbers do not indicate hesitation among graduating U.S. students in choosing obstetrics and gynecology as a profession despite professional liability. In this section, I examine the impact of the medical malpractice system on the geographic distribution of obstetricians and gynecologists. I developed a simultaneous equation model to examine the impact of medical malpractice on the supply of obstetricians and gynecologists, fitting data with charges for normal delivery as an endogenous variable to three simultaneous equations as follows: Charges for normal delivery ⫽ f (per capita income, malpractice premiums) Obgyns per 1,000 civilians ⫽ g (birth rate, per capita income, malpractice premiums, charges for normal delivery), Percent of family physicians who practice obstetrics ⫽ h (birth per obgyn, percent of population lacking primary care, percent increase in malpractice premiums for a family physician who practices obstetrics, charges for normal delivery)

Since I had data for only 50 states, I had to be frugal in the number of variables. I modeled charges per normal delivery as a function of per capita income and malpractice premiums. Charges per normal delivery should be positively related to per capita income and malpractice premiums. Obgyns per 1,000 civilians should increase with birth rate, per capita income, and charges for normal delivery and should decrease with malpractice premiums. Percent of family physicians who practice obstetrics should increase with birth per obgyn and percent of people lacking primary care and decrease with percent increase in malpractice premiums for practicing obstetrics. The process begins with a univariate analysis between variables. I give the Spearman rank correlation between various variables in the following:

Medical Malpractice and the Supply of Physicians

Obgyns per 1,000 Civilians

161

% of Family Physicians Practicing Obstetrics

Charges for Normal Delivery

Per capita income

0.53***

⫺0.170

0.51***

Malpractice premiums 1992

0.43***

⫺0.28**

0.72***

Birth rate

0.24*

⫺0.098

0.18

Births per obgyn (birth rate per obgyn per 1,000 civilians)

⫺0.91***

⫹0.60***

⫺0.68***

% people lacking primary care in 1994

⫺0.44***

⫹0.26*

⫺0.33**

⫹0.06

⫺0.60***

⫺0.23

% increase in malpractice premiums for family physician practicing obstetrics Charges for normal delivery

0.73***

⫺0.60***

Premium per birth % family physicians practicing obstetrics Obgyn per 1,000 civilians

1.00*** 0.72***

⫺0.55*** 1.00***

1.00 ⫺0.55***

⫺0.60*** 0.73***

Obgyns per 1,000 civilians is positively related to per capita income, birth rate, and charges for normal delivery consistent with our assumptions. However, the Spearman rank correlation suggests that obgyns per 1,000 civilians is positively related to malpractice premiums. Percent of family physicians practicing obstetrics is positively related to births per obgyn and percent of people lacking primary care, and negatively to malpractice premiums for obstetricians and gynecologists, charges for normal delivery, and obgyn per 1,000 civilians. Charges for normal delivery is positively associated with per capita income, malpractice premiums, and malpractice premium per birth, and negatively to births per obgyn, percent lacking primary care, percent increase in malpractice premiums for family physicians practicing obstetrics, and obgyn per 1,000 civilians. A scatter diagram with obgyn per 100,000 civilians and obgyn malpractice premium in 1991 is presented in Figure 7.2. Based on univariate analysis and Figure 7.2, we can conclude that malpractice premium by itself is not a hindrance for obgyns practicing in a particular state. However, there is a negative association between the percentage of family physicians practicing obstetrics and average malpractice premiums paid by obstetricians. Figure 7.3 is a scatter diagram with percent increase in malpractice premiums a family physician practicing obstetrics has to pay and percent of family physicians practicing obstetrics. There does not seem to be any association between these numbers. Higher malpractice insurance premiums for obstetricians does increase charges for normal delivery. In Table 7.1, statistics relating to various variables are given. The parameters of a three-stage least squared simultaneous equation model are presented in

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163

Table 7.2. Obgyns per 1,000 civilians is positively related to charges for normal delivery with a statistical significance at the 0.01 level. Percent of family physicians practicing obstetrics is positively related to births per obgyn and charges for normal delivery. Although percent increase in malpractice premiums a family physician has to pay to practice obstetrics is negatively related to the percent of family physicians practicing obstetrics, this is not statistically significant even at the 10 percent level. In other words, the percent of increase in malpractice premiums a family physician has to pay to practice obstetrics is not a hindrance. Charges for normal delivery is positively associated with per capita income and malpractice premiums. In summary, malpractice premiums do increase charges for normal delivery; however, they do not act as an impediment to the supply of obgyns or the percentage of family physicians practicing obstetrics. BIRTHS ATTENDED BY MIDWIVES Certified nurse-midwives are registered nurses with training in prenatal, perinatal, postpartum, newborn, and routine gynecological care. Licensure and national certification are required in most states to practice as a certified nurse-midwife. Graduation from an accredited nurse-midwifery program and the passing of an examination conducted by the American College of NurseMidwives are required to obtain national certification. Restrictions on the scope of practice, limitations on prescribing and dispensing medicines, inadequate reimbursements for the services provided, the small number of graduates, physi-

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165

cian opposition, and increased malpractice rates are some of the barriers faced by certified midwives. There were about 7,400 nurse-midwives in 1992, out of which 5,000 were certified.19 According to the Office of the Inspector General, 6 in 10 of them had master’s degrees in 1991.20 Increasing the number of certified nurse-midwives has been proposed as a way increase the access to health care for women. With suitable training and supervision, certified midwives can provide quality medical care. Midwives can attend low-risk deliveries at much lower cost than physicians. Reduced obstetric interventions such as electronic fetal monitoring and epidural analgesia are the major reasons for their lower cost. Births attended by midwives have risen from about 0.9 percent of all births in 1975 to 5.5 percent in 1994.21 Per capita midwives in each state are dependent on the policies of the state relating to certified nurse-midwives.22 State regulations relating to legal status, reimbursement, and authority to prescribe are found to be strongly associated with the number of physicians’ assistants, nurse practitioners, and certified nurse-midwives. Practice environment scores for midwives are highest in Minnesota and lowest in Indiana. Nebraska has the lowest certified midwives to population ratio and Alaska the highest. Western and northwestern states have more favorable practice environments and the south-

166

Medical Malpractice

east has less favorable ones.23 In this section, I examine whether malpractice stringency as measured by the premiums of obstetricians has any impact on the proportion of births attended by midwives. The Spearman rank correlations among the percentage of births attended by midwives, the number of midwives per 100,000 population, and practice environment scores for each state and various variables are as follows:

Variable

% Births Attended by Midwives

% births attended by midwives

Midwives per Practice 100,000 Pop. Environ. Score 0.82***

0.56***

Midwives per 100,000 populations in 1992

0.82***

0.52***

Practice environment score

0.56***

0.52***

Physician charges for normal delivery in 1993 ($)

0.27*

0.33**

⫺0.011

Malpractice premium ($)

0.15

0.24*

0.11

Medicare malpractice cost index 1991

0.18

0.22

0.08

Malpractice premium per birth in 1987

0.10

0.08

⫺0.05

% population lacking primary care in 1993

⫺0.19

⫺0.37***

Family physicians per capita in 1995

⫺0.12

⫺0.20

⫺0.07 0.12

Managed care penetration in 1992

0.37***

0.46***

0.19

Obgyn per capita in 1989

0.24*

0.49***

⫺0.013

0.14

⫺0.018

Health care cost per capita in 1991

0.05

Primary cesarean deliveries per all deliveries

⫺0.28*

⫺0.21

⫺0.36**

Births attended by midwives are high in states with high per capita midwives and practice environment scores. Births attended by midwives are also high in states with high physician charges for normal deliveries without any complications. Malpractice premiums paid by obstetricians in 1992, malpractice index as calculated for the Medicare reimbursement in 1991, and malpractice premiums per birth in 1987, all proxies for malpractice stringency, are found to have statistically insignificant (level of confidence 0.95) impact on the births attended by midwives, per capita midwives, and practice environment scores of different states. States with a high proportion of people lacking primary care have a lower number per capita of nurse-midwives. The practice environment score is not associated with the proportion of people lacking primary care. Managed care penetration is positively associated with per capita midwives and proportion of

Medical Malpractice and the Supply of Physicians

167

births attended by nurse-midwives. This may be because of utilization of midwives by managed care organizations to attend deliveries. Per capita health care cost is not associated with the proportion of births attended by midwives or with per capita midwives and practice environment scores. Multiple regression outputs with the percentage of births attended by nursemidwives in 1989 and various independent variables are given in Table 7.3. The percentage of births attended by midwives are associated with per capita midwives and physician charges for normal delivery, and inversely related to per capita obgyns. The malpractice cost index and malpractice premiums for obgyns are found to have no statistically significant impact on the percentage of births attended by nurse-midwives. Vicarious liability is often considered a barrier for nurse-midwife practice. Vicarious liability holds a person liable for the conduct of some other person. For example, employers are responsible for the conduct of their employees. In order to cover the cost of vicarious liability, physicians are charged an additional premium for working with a certified nurse-midwife. Some insurance companies require a certified nurse-midwife to be an employee of the physician. In addition, insurance companies restrict the scope of practice of midwives and require an insured physician to directly supervise the midwife. Some hospitals are required to pay an additional surcharge in addition to their malpractice premiums if they grant staff privileges to a nurse-midwife. According to Gail Sinquefield,24 physician surcharge is another barrier to practice for a nurse-midwife. Therefore, for states that require a premium for vicarious liability, I introduce a dummy variable that takes a value of 1 for states that require a premium for vicarious liability and 0 for those that do not. According to the regression analysis, the dummy variable is not statistically significant; this indicates that there is no association between states that impose surcharges and the percentage of births attended by midwives in those states. Table 7.4 presents malpractice payments per 10,000 births by state. This is based on the number of malpractice payments from 1 September 1990 to 30 September 1999 for nurse-midwives and payments for obstetrics malpractice reasons for physicians. The numbers of payments are divided respectively by the number of births attended by midwives and by physicians for the years 1994 to 1999. IMPACT OF MALPRACTICE ON PRACTICE PATTERNS Surveys have been used to analyze the impact of malpractice liability on practice patterns. The Office of Technology Assessment25 presented results of selected surveys of physicians on defensive medicine. First, I discuss a few statelevel surveys. According to a survey of physicians in Chicago in 1985, 38.4 percent of physicians stopped performing high-risk procedures in response to malpractice liability threats.26 According to other surveys mentioned by the Office of Technology Assessment,27 51 percent of Kansas state physicians limited their practice to less risky procedures in 1984. In Maryland, 16.2 percent of physi-

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169

cians “eliminated or cut back specific services” because of the malpractice climate, according to a survey conducted in 1989.28 In New York State, 39.5 percent of physicians saw fewer patients or performed fewer clinical procedures in 1989 than they did in 1979.29 In Texas, 33 to 37 percent of physicians limited or eliminated some procedures because of professional liability between 1985 and 1988. Physicians providing obstetrics in Alabama, Georgia, Illinois, Iowa, Kentucky, Louisiana, Michigan, Minnesota, Rural Nevada, Oregon, and Washington have either stopped providing obstetrics services or avoided high-risk procedures between 1984 and 1988 because of malpractice liability risks. The states, percentage of respondents reporting that either they stopped providing obstetrics services or avoid providing high-risk procedures, active nonfederal physician-to-population ratios (per 100,000 women ages 15–44 in the population) of obstetricians and gynecologists, family and general practitioners, total physicians in 1985, and average malpractice premium per delivery in 198730 are given here.

170

Alabama Georgia Illinois

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30.3%

10

25

145

$430

5.6%

13

21

165

$312

13

28

205

$708

20%

Iowa

15%

6

35

137

$410

Kentucky

25.2%

9

29

151

$306

Louisiana

11%

14

23

178

$528

Michigan

48.7%

12

21

178

Oregon

47.3%

12

30

194

$625

Washington

23.6%

11

38

202

$514

13

27

205

Total

These nine states have fewer physicians per capita than the national average and, with the exception of Louisiana, have fewer obstetricians and gynecologists per capita than the national average. The analysis of nine states’ data indicates that states with higher malpractice premiums have higher numbers of obstetricians and gynecologists per capita. A higher proportion of providers in states with fewer obstetricians and gynecologists per capita are likely to respond to malpractice threats by closing or limiting practice to low-risk procedures. If providers respond as they say, malpractice liability has a fairly significant impact on access to obstetrical care. In a survey conducted for the American College of Obstetricians and Gynecologists (ACOG) members, obstetricians and gynecologists were asked to respond to the following question: “Which of the following changes, if any, have you made in your personal practice, as a result of the risk of malpractice? (1) decreased gynecological surgical procedures, (2) no longer do major gynecological surgery, (3) no longer practice obstetrics, (4) decreased the number of deliveries, (5) decreased the level of high-risk obstetric care.” The percentages answering affirmative to at least one of these alternatives were 31.8 percent, 37.1 percent, 43.7 percent, 41.8 percent, and 39 percent in 1983, 1985, 1987, 1990, and 1992, respectively. Responses are significant because almost 2 in 5 obstetricians and gynecologists were negatively responding as a result of malpractice threat. I therefore analyzed the variety of practice parameters to evaluate the impact of the malpractice system. The data presented in Table 7.5 are from various issues of Socioeconomic Characteristics of Medical Practice31 First, the percentage of obstetricians and gynecologists responding negatively to malpractice threat is directly related to professional liability premiums. It is therefore evident that physicians are likely to perceive malpractice threat according to the amount of malpractice payment they are making. Although 31.8 to 43.7 percent of obstetricians and gynecologists were saying that they had reduced surgical procedures or quit obstetrics, their average income continued to rise. Mean net income between 1983 and 1992 rose by 86.9 percent. The 25th percentile net income rose by only 71.4 and the 75th percentile net income rose by 100 percent. The

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mean number of surgical procedures performed per year fell between 1983 and 1985 but remained the same between 1983 and 1992. Mean net income rose by 5.2 percent between 1983 and 1985 even though the mean number of surgical procedures performed decreased by 8.3 percent. Median and 25th percentile income rose by 15.3 and 14.3 percent respectively. The 75th percentile income rose by only 6 percent between 1983 and 1985. This indicates that the reduction

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in surgical procedures performed reduced 75th percentile income growth by a higher percentage than the median and 25th percentile between 1983 and 1985. However, the experience of the subsequent years is different. There is substantially higher growth in income at the 75th percentile than at the median and 25th percentile. A study by Kington32 examined the impact of the malpractice system on the volume of obstetrics practice. He found extremely uneven volumes of practice. The states with high malpractice threats and physicians with high liability claims have higher volumes of obstetrics practice than those states with lower malpractice threats and physicians with lower liability claims. This kind of concentration of volume among few physicians is likely to give rise to a faster growth of income for those who continue with obstetrics practice. In addition, as more physicians quit or reduce their practice of obstetrics, the volume of obstetrics done by a few physicians increases and at the same time their incomes increase at a much higher rate. Malpractice premiums generally vary by specialty and geographic area. They are not volume sensitive. Obstetricians and gynecologists in high-risk deliveries pay the same premium irrespective of the number of deliveries performed, with the exception of part-time or academic physicians. Since the cost of malpractice insurance is fixed and is not affected by the number of patients treated by a physician, an increase in malpractice insurance premiums typically reduces a physician’s income. Therefore, such an increase should encourage a physician to work more hours. Some physicians may stop working altogether as a result of increased premiums. Burghardt33 calls these effects the “wealth effect” and the “fugitive effect,” respectively. Since the wealth and fugitive effect work in opposite directions and their relative impacts are hard to predict, the short-run influence of an increase in medical malpractice insurance premiums is hard to gauge. However, as seen in Table 7.5, obstetricians and gynecologists work more hours to make up for the reduction in income due to increases in malpractice premiums. They also spend a higher proportion of their time in professional activities in patient care. According to Thornton34, increases in malpractice insurance cost have more impact on physicians’ behavior in areas such as services provided and fees than on defensive measures. According to Table 7.5, rising malpractice premiums also make them to be careful with their patients and they spend more time with patients per visit. The total number of patient visits per year falls. This may be because the number of physicians per capita goes up and, consequently, each physician has fewer patients to examine. In order to make up for fewer visits and the longer time they take per patient visit, they charge higher fees for patient visits. Typically, fees for patient visits of established patients rise at a higher rate than those for a new patient. CONCLUSIONS Although the supply of physicians and specialties is extremely uneven, the medical malpractice system is not a significant factor in this supply. Malpractice

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173

insurance premiums do raise charges for normal deliveries but they do not reduce the supply of obstetricians and gynecologists and family physicians who practice obstetrics and gynecology. Additional premiums for vicarious liability of nurse-midwives are imposed in several states, but this is not found to be an obstacle to the number of births attended by midwives. Obstetricians and gynecologists do pass on increased malpractice costs to their patients through increased fees. However, they also increase their time in patient visits and spend more time per visit. NOTES 1. U.S. Census Bureau, Statistical Abstract of the United States, 1999 (Washington, D.C.: Government Printing Office, 1999), 127. 2. U.S. Health Care at the Cross-roads. Health Policy Studies no. 1 (Paris: Organisation for Economic Co-operation and Development, 1992), 63. 3. C. Hoffman, D. Rice, and H. Y. Sung, “Persons with Chronic Conditions: Their Prevalence and Costs,” Journal of the American Medical Association 276 (1996): 1473–9. 4. E. H. Wagner, “Managed Care and Chronic Illness: Health Services Research Needs,” Health Services and Research 32 (1997): 702–14. 5. D. H. Stockwell, S. Mahadhavan, H. Cohen, G. Gibson, and M. H. Alderman, “The Determinants of Hypertension Awareness, Treatment, and Control in an Insured Population,” American Journal of Public Health 84 (1994): 1768–74. 6. D. Anderson, “Managed Care Meets the Diabetes-Management Challenge,” Business and Health 14(1) (1996) Supplement A: 19–21. 7. American Medical Association, Physician Characteristics and Distribution in the U.S., 1997/98 ed. (Chicago: Author, 1997). 8. Institute of Medicine, The Nation’s Physician Workforce: Options for Balancing Supply and Requirements (Washington, D.C.: National Academy Press, 1996), chap. 2. 9. Center for the Evaluative Clinical Sciences, Dartmouth Medical School, “The Quality of Medical Care in the United States: A Report on the Medicare Program,” in The Dartmouth Atlas of Health Care 1999 (Chicago: AHA Press, 1999), 236–7. 10. M. L. Gonzalez, ed., Physician Marketplace Statistics 1996 (Chicago: Center for Health Policy Research, American Medical Association, 1997), 165. 11. Center for the Evaluative Clinical Sciences, Dartmouth Medical School, “The Quality of Medical Care in the United States.” 12. F. Mullan, R. M. Politzer, and C. H. Davis, “Medical Migration and the Physician Workforce: International Medical Graduates and American Medicine,” Journal of the American Medical Association, 273 (1995): 1521–7. 13. B. F. Kiker and Michael Zeh, “Relative Income Expectations, Expected Malpractice Premium Costs, and Other Determinants of Physician Specialty Choice,” Journal of Health and Social Behavior 39 (June 1998): 152–67. 14. Institute of Medicine, Access to Health Care in America, ed. M. Millman (Washington, D.C.: National Academy Press, 1993), 4. 15. Gregory C. Pope, “Physician Inputs, Outputs, and Productivity, 1976–1986,” Inquiry 27 (summer 1990): 151–60. 16. American College of Obstetrics and Gynecologists, Professional Liability and Its

174

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Effects: Report of a 1992 Survey of ACOG’s Membership (Washington, D.C.: Author, October 1992), 41. 17. Socioeconomic Characteristics of Medical Practice (Chicago: American Medical Association), various issues. 18. Association of American Medical Colleges, Medical School Graduation Questionnaire: All Schools Report (Washington, D.C.: Association of American Medical Colleges, various issues). 19. Health Personnel in the United States, 9th Report to Congress (Washington, D.C.: Bureau of Health Professions, U.S. Department of Health and Human Services, 1993), 21. 20. Office of the Inspector General, A Survey of Certified Nurse-midwives (Washington, D.C.: U.S. Department of Health and Human Services, 1992). 21. Sally C. Clarke, Joyce A. Martin, and Selma M. Taffel, “Trends and Characteristics of Births Attended by Midwives,” Statistical Bulletin (January–March 1997): 9–18. 22. Eugene R. Declercq, Lisa L. Paine, Diana R. Simmes, and Jeanne F. DeJoseph, “State Regulation, Payment Policies, and Nurse-midwife Services,” Health Affairs, 17(3) (March–April 1998): 190–200. 23. Edward S. Sekscenski, Stephanie Sansom, Carol Bazell, Marla E. Salmon, and Fitzhugh Mullan, “State Practice Environments and the Supply of Physician Assistants, Nurse Practitioners, and Certified Nurse-midwives,” New England Journal of Medicine 331(19) (10 November 1994): 1266–71. 24. Gail Sinquefield, “Physician Surcharge: Another Barrier to Practice,” Journal of Midwifery 34(1) (January–February 1989). 25. U.S. Congress, Office of Technology Assessment, Defensive Medicine and Medical Malpractice, OTA-H-602 (Washington, D.C.: U.S. Government Printing Office, July 1994), 44–6. 26. S. C. Charles, J. R. Wilbert, and K. J. Franke, “Sued and Nonsued Physician’s Self-reported Reactions to Malpractice Litigation,” American Journal of Psychiatry 142(4) (April 1985): 437–40. 27. U.S. Congress, Office of Technology Assessment, Defensive Medicine and Medical Malpractice, 44–6. 28. C. S. Weisman, L. L. Morlock, M. A. Teilbaum, A. C. Klassen and D. D. Celentano, “Practice Changes in Response to the Malpractice Litigation Climate: Results of a Maryland Physician Survey,” Medical Care 27(1) (January 1989): 16–24. 29. A. G. Lawthers, A. R. Localio, and N. M. Laird, “Physicians’ Perceptions of the Risk of Being Sued,” Journal of Health Politics, Policy, and Law 17(3) (1992): 463–82. 30. Victoria P. Rostow and Roger J. Bulger, eds., Medical Professional Liability and the Delivery of Obstetrical Care, Vol. 1 (Washington, D.C.: National Academy Press, 1989), 61–2. 31. Socioeconomic Characteristics of Medical Practice, various issues. 32. R. S. Kington, School of Medicine, University of California, Los Angeles, Calif., Liability and the Practice Patterns of Obstetricians and Gynecologists, draft working paper provided to the Office of Technology Assessment, March 1994, quoted in U.S. Congress, Office of Technology Assessment, Defensive Medicine and Medical Malpractice, OTA-H-602 (Washington, D.C.: U.S. Government Printing Office, July 1994), 71. 33. G. Burghardt Jr., “Medical Malpractice and the Supply of Physicians,” in The

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175

Economics of Medical Malpractice, Simon Rottenberg (Washington, D.C.: American Enterprise Institute for Public Policy Research, 1978), 103–23. 34. J. Thornton, “The Impact of Medical Malpractice Insurance Costs on Physician Behavior: The Role of Income and Tort Signal Effects,” Applied Economics 31 (1999): 779–94.

8

Malpractice and Defensive Medicine INTRODUCTION The practice patterns of physicians have a significant impact on the quality and cost of the health delivery system. The unlimited liability a physician faces for medical mistakes does influence a physician’s practice behavior. To build up an effective defense, a physician may resort to practicing medicine inappropriately. This change in practice is typically expensive because such behavior may increase costs without improving medical outcome. The Office of Technology Assessment1 defines defensive medicine as follows:

Defensive medicine occurs when doctors order tests, procedures, or visits, or avoid highrisk patients or procedures, primarily (but not necessarily solely) to reduce their exposure to malpractice liability. When physicians do extra tests or procedures primarily to reduce malpractice liability, they are practicing positive defensive medicine. When they avoid certain patients or procedures, they are practicing negative defensive medicine.

Quality-raising defensive medicine is good and quality-reducing defensive medicine is bad and expensive. There is not much information about frequencies of various defensive medicines practiced by physicians. Perceptions about the risk of being sued and financial consequences are major reasons for practicing defensive medicine. The malpractice system, risk management and quality assurance activities, and graduate medical education tend to encourage defensive medicine. Kapp2 laments the medical paradigm of “ethical lobotomy” involving

178

Medical Malpractice

physician decision making predominantly based on avoidance of malpractice lawsuits rather than ethical principles and consequences. Malpractice liability has significant impacts on the practice of obstetrics. Increased testing, more use of written informed consent, consultation with other physicians, providing more information to patients, and increased explanation of potential risks to patients are some defensive strategies obstetricians follow in response to potential liability. According to the American College of Obstetricians and Gynecologists (ACOG) 1992 survey, 22.8 percent of its members surveyed decreased their high-risk obstetric care, 12.3 percent stopped practicing obstetrics, 10.1 percent decreased the number of deliveries, 8 percent reduced gynecological surgical procedures, and 2.4 percent no longer do major gynecological surgery.3 Extremely high rates of cesarean deliveries in the United States are often attributed to the malpractice system; the impact of the system on these rates is examined in this chapter. Another issue examined in this chapter is that of deficient medicine. According to a study by the U.S. General Accounting Office, only 42 percent received an annual eye exam, 53 percent urinalysis, 70 percent cholesterol, and 44 percent flu shots in a sample of 168,000 people with diabetes in the Medicare fee-forservice program.4 Although more than 90 percent of fee-for-service Medicare beneficiaries with diabetes visited their physicians at least twice in 1994, they did not receive services at recommended intervals. Clearly, the real problem may be lack of recommended levels of medicine rather than defensive medicine. I examine in this chapter whether tort reforms encourage underutilization of recommended levels of monitoring services to Medicare beneficiaries. MAGNITUDE OF DEFENSIVE MEDICINE Several factors influence physician practice patterns. Therefore, identifying the impact of changes in practice pattern in response to the malpractice system is difficult. A variety of techniques, including physician surveys, reasons for tests and procedures surveys, clinical scenario surveys, and statistical analysis have been used to measure the extent of defensive medicine. However, these methods have strengths and weaknesses and no one method can provide a precise measure of defensive medicine. In addition, changes in physicians’ practice patterns in response to liability risk are often considered an indicator of defensive medicine. However, the malpractice system also works as a deterrent to suboptimal care. Therefore, in some cases, increased care as a result of the malpractice system may actually represent positive impacts of the system. The important consideration is whether malpractice is causing physicians to provide care for costs that exceed the benefits. The Office of Technology Assessment has summarized a variety of studies done to measure the extent of defensive medicine.5 The first method, based on the survey of physicians, estimates the costs of the malpractice system by aggregating insurance premiums; costs of time spent on defending malpractice claims; and costs of practice changes such

Malpractice and Defensive Medicine

179

as increased record keeping, increased numbers of tests performed, greater time spent with patients, and additional follow-up visits. According to this study, the costs of the malpractice system of $13.7 billion in 1984 consist of $3 billion in premiums, 0.1 billion in other costs of incurring malpractice claims, and $10.6 billion in practice changes. The cost of defensive medicine is estimated to be $4.3 billion of the 13.7 billion in total costs. According to this study, 31 percent of physicians responding resorted to increased record keeping, 20 percent prescribed more tests and procedures, 17 percent increased time spent with patients, and 17 percent increased follow-up visits. According to the survey, average percentage changes in these activities range from 2.4 to 3.2 percent. However, data from the National Ambulatory Medical Care Survey indicated no increase in per capita follow-up visits and less than 1 percent annualized increase in per capita physician office visits in 1981 and 1985. It is therefore possible that physicians answering the survey exaggerate practice changes to respond to increased liability risks. The second method involves estimation of the effects of liability premiums on physician fees and utilization levels of eight services, using multiple regression analysis and projecting them for all services. The eight services used in the analysis include established patient office visit, new patient office visit, followup hospital visit, electrocardiogram, obstetric care (normal delivery), hysterectomy, hernia repair, and cholecystectomy and account for more than 70 percent of the revenues of self-employed physicians in 1984. According to the regression analysis, liability premiums raise fees but reduce demand for most services. If reduction in revenue based on regression analysis is projected for all physicians’ revenues, then reduction in revenue as the result of no malpractice liability would amount to $12.1 billion in 1984. Lewin-VHI researchers added costs of defensive medicine in hospitals by using a proportion similar to that of the second study that used hospital liability premiums; they made adjustments for use of three technologies—electronic fetal monitoring in labor and delivery, skull X rays in emergency rooms, and preoperative laboratory testing—in which utilization may be affected by malpractice liability. They arrived at $5 billion, $10 billion, and $14.9 billion as low, medium, and high final estimates of the costs of defensive medicine in 1991. This represents 0.66 percent, 1.32 percent and 1.97 percent, respectively, of 1991 total health care expenditure. If we project defensive medicine costs to 1998, assuming that they remained the same as in 1991, then the low, medium, and high cost estimates of defensive medicine are $7.58 billion, $15.17 billion, and 22.66 billion, respectively. According to a 1992 Gallup poll, 84 percent of physicians said that they order more tests that they otherwise consider unnecessary, as a result of the threat of malpractice liability. For example, a physician orders, for a patient complaining about chest pain, an isotope angiogram (costing over $2,000) or a cardiac catherization (costing about $3,500) even though these tests do not provide any definitive answers. An exercise stress test and EKG (costing about $200–300) would be sufficient to diagnose a patient complaining about chest pain.6

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Medical Malpractice

IMPACT OF TORT REFORMS ON CESAREAN RATES Pregnancy and birth-related medical expenditures accounted for about 7 percent of total medical expenditures in the United States in 1993.7 They are the most frequent cause of hospital admissions, constituting about four million births annually. Therefore, birth-related expenditures are of significant concern to health administrators and policy makers. High rates of cesarean sections in the United States are of particular interest to those who want to reduce health care costs. Long recovery times, high morbidity rates, and increased medical and surgical costs have caused health care professionals to critically evaluate cesarean section rates. Even though the United States spends the highest percentage of its gross domestic product on health care, it has one of the highest infant mortality rates among the developed countries. High cesarean rates considerably increase health care costs. The average charges for a cesarean birth were $11,000 compared with $6,430 for an uncomplicated vaginal delivery in 1993.8 Therefore, a reduction in cesarean rates by 1 percent (or about 40,000 cesarean births) should have reduced costs nearly $183 million in 1993. Louisiana had a cesarean rate of 27.7 percent and Colorado 15.4 percent in 1993. Therefore, if the national cesarean rate of 23.6 percent can be brought down to the 15.4 percent of Colorado, there is a saving of about $1.5 billion in health care costs per annum, besides a reduction in adverse effects on mothers and children. Colorado’s rate of 15.4 is high considering the fact that the medically justifiable rate is about 12 percent.9 In this section, I analyze the effects of malpractice regulations on the cesarean rates after accounting for nonclinical factors, using statewide cesarean rates for the years 1989 to 1992 to examine the effects of malpractice regulations. Our analysis shows that there is an association between the malpractice system and cesarean rates and physicians tend to perceive the stringency of malpractice systems in terms of malpractice premiums paid rather than tort reforms enacted. This section is organized in subsections. In the next subsection, I discuss historical and international trends in cesarean rates, followed by a review of literature and present regression models with cesarean rates as a dependent variable and nonclinical factors as independent variables. Interpretation of the model is then presented. Historical and International Trends The percentage of all live births that are by cesarean delivery (total cesarean rates) were less than 5 percent in 1965, peaked at 24.7 percent in 1988, and decreased to 22.8 percent in 1993 in the United States. The primary cesarean rate (number of cesareans per 100 live births to women who have not had a previous cesarean) similarly rose from 4.2 percent in 1970 to 17.5 in 1988 and is leveling off at around 16 to 17 percent per annum. Figure 8.1 presents trends

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Medical Malpractice

in both primary and total cesarean rates in the United States. Currently, cesarean deliveries account for about 1 in every 4 births in the United States. The rate is unacceptably high despite efforts to reduce primary and repeat cesareans. Although vaginal births after a previous cesarean (number of vaginal births after previous cesarean delivery per 100 live births to women with a previous cesarean delivery) (VBAC) have been suggested to reduce cesarean rates, their increase has been slow (see Figure 8.1). The cesarean rates have increased in most countries between 1980 and 1990.10 In Australia, cesarean rates rose from 12.8 percent in 1980 to 17.5 percent in 1989. In Italy, cesarean rates increased from 11.2 percent in 1980 to 19.1 percent in 1988. However, in Sweden, cesarean rates fell from 12.1 percent in 1980 to 11.1 percent in 1989. The United States leads most developed countries in cesarean rates; its rate was 16.5 in 1980 and 23.9 percent in 1989. Canada had cesarean rates comparable that of the United States. However, its cesarean rate of 16 percent in 1980 grew only to 19.5 in 1988. Cesarean rates of various countries do not give the full significance of its magnitude. High cesarean rates are also related to high percentages of low weight births and high infant mortality rates. Still, there are significant opportunities to reduce cesarean rates in the United States. The Review of Literature An excellent review of the literature of up to 1993 on variations in the use of cesarean sections can be found in Zorn and Park.11 Sachs12 described causes for rising rates of cesarean sections. Since I am dealing only with total cesarean sections in this chapter, the review is limited to total cesarean rates. Stafford13 analyzed cesarean sections using data from the state of California to identify the impact of sources of payments. De Regt et al.14 analyzed the impact of private or clinic care on cesarean rates using data from four Brooklyn hospitals. These last two papers considered clinical and other factors. Several bivariate studies analyzed relationships between total cesarean rates and various non-clinical factors. Zdeb and Logrillo,15 based on their analysis of New York state birth data, found that cesarean rates were positively related to age, education, and proprietary hospital and negatively to proportion of nonwhite deliveries, county hospitals, and teaching hospitals. Kirby,16 based on an analysis of Wisconsin Vital Statistics registration data, found a positive relationship between cesarean rates and age, and a negative relationship with parity. According to the Missouri Division of Health,17 nonwhite women, unmarried women, and women who lacked prenatal care had a lower likelihood of having a cesarean section and highly educated women have higher likelihood. There are only a few studies relating to the influence of the malpractice system on cesarean rates. A study by the Institute of Medicine18 analyzed this problem comprehensively. However, no consensus could be reached about the effect of

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malpractice regulations on cesarean rates. According to a clinical scenario survey by the U.S. Congress, Office of Technology Assessment,19 of 1,230 physicians, one in four of those who chose cesarean section selected it because of malpractice concerns. According to a well-designed statistical study by Localio et al.,20 cesarean delivery rates were positively associated with malpractice premiums. This study used childbirth data in New York State hospitals and used claim rates and premiums to measure malpractice regulations. The study accounted for both patients’ clinical risk and socioeconomic factors. A study by Rock21 found a statistically significant relationship between cesarean rates and insurance premium rates. However, this study did not account for clinical and socioeconomic factors. A study by Baldwin et al.22 did not find any association between prenatal resource use or cesarean rates for low-risk patients and malpractice suit experience of physicians in Washington State. Unlike other studies, this study was based on actual analysis of medical records rather than physicians’ self-reported changes in practice patterns that typically overestimate the impacts of the malpractice system. A recent study by Glassman et al.23 concluded that malpractice experiences of physicians did not affect defensive clinical practices. Dubay et al.24 examined the impact of malpractice fears on cesarean rates using national birth certificate data from 1990 through 1992. They used obstetricians’ malpractice premiums as a proxy for malpractice claim risk. The study found that the impact of malpractice on increased cesarean rates was minimal. However, the socioeconomic status of the mother did influence the cesarean rates. Several explanations have been given for the increase in cesarean rates. Keeler and Brodie25 argued that higher charges for cesarean section as compared to vaginal delivery drive physicians to perform more cesarean sections. The growing supply of obstetricians per population, slowing fertility rates, higher HMO penetration, and competition from midwives are aggravating the competitive situation. Mathematical Model I present both univariate and multivariate analyses for variations in cesarean rates in different states, using states data from the Vital Statistics Report published by the National Center for Health Statistics for the years 1989, 1990, 1991, and 1992. Several demographic factors affect the incidence of cesarean section deliveries. Maternal age directly affects cesarean rates. Older women typically have higher total cesarean rates than younger women for all years. Women aged 35 years and older had 1.5 times higher cesarean rates than those of women in the age group 20–24 in 1993. As more women delay their childbirth, the cesarean section rate of older women becomes significant. I therefore use proportion of births to women 35 to 49 years old as a percent of 100 live births in my analysis. Race and ethnicity affect cesarean rates. Nonwhites have lower cesarean rates

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than whites. Education, income, and other demographic factors affect cesarean rates. I therefore use the proportion of births to black women as a percentage of 100 live births in my analysis. Since unmarried women have lower cesarean rates than married women, I also include the proportion of births to unmarried women as a percentage of live births in my analysis. Large hospitals typically serve high-risk populations in cities and urban areas. In addition, they have new equipment and special-care facilities. Therefore, large hospitals should have higher cesarean rates than smaller ones. Proprietary hospitals have higher cesarean rates than state and county hospitals and nonprofit hospitals. Economic incentives may be the cause for higher cesarean rates. I use average beds per hospital as a variable in my analysis. Different regions have different average cesarean rates. States in the Northeast and South have higher cesarean rates than states in the Midwest and West. Low-birth-weight babies are usually associated with cesarean deliveries. Low birth weight is associated with the incidence of cerebral palsy. In malpractice cases, plaintiffs claim that failure to perform the cesarean section in a timely fashion is the cause of cerebral palsy and, according to Sachs,26 this is the major reason for physicians’ need to perform cesarean sections. I account for the impact of low birth weights by selecting the proportion of births of low birth weight (less than 2,500 grams or 5 pounds 8 ounces) as a percentage of 100 live births in my analysis. Births per ob-gyn have been falling since 1970. However, the incomes of these physicians were rising until 1991. During the same time, cesarean rates also rose. This might lead us to conclude that ob-gyns increased their incomes by performing unnecessary procedures such as cesareans. Such hypotheses have been presented by several authors.27 To examine whether the financial incentive is driving physicians to do cesarean sections, I use increase in charges for cesarean deliveries over vaginal deliveries as a percentage of vaginal deliveries for the year 199328 in my analysis. Typically, if a physician has more deliveries to attend, financial incentives will be lower. We therefore calculate births per obgyn as a measure of competition. Birth data are from the Vital Statistics Report from the National Center for Health Statistics and ob-gyn data are from the American Medical Association. I measure the stringency of malpractice regulations in various ways: geographic practice cost indices corresponding to malpractice compiled for Medicare payments29 and malpractice premiums per birth for various states calculated for the year 1987.30 Univariate Analysis In this section, I present bivariate relationships between total cesarean rates and various variables using the data of 1991. The Spearman rank correlations between total cesarean rates and various variables are as follows:

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Average beds per hospital

0.3968***

Proportion of births with low birth weight

0.6174***

Proportion of births to unmarried women

0.4482***

Proportion of births to teenage mothers

0.4650*** ⫺0.3925***

Proportion of births to 35–40-year-old women Proportion of births to black women

0.7036***

Repeat cesarean

0.8757***

Per capita health care spending in 1991

⫺0.0967

Births per ob-gyn

⫺0.2521*

Percentage increase in charges for cesarean compared to normal deliveries

⫺0.5641***

Malpractice index for 1991

⫺0.0437

Expected malpractice costs (claim rates times average payments)

0.2256

OBGYN malpractice premiums for 1992

0.1866

Premiums per birth in 1992

0.2483*

(The level of significance: *** .01; ** .05; * .1).

The Spearman correlation coefficient between average hospital beds and total cesarean rates in 1992 is 0.3968. The null hypothesis of no association can be rejected at the 1% significance level. The proportion of teen births to total live births is positively related to cesarean rates. The proportion of births with low birth weight, proportion of black births, and proportion of births to unmarried women are positively related to total cesarean rates. All these relationships are statistically significant at the 1 percent level. Malpractice premium per delivery, malpractice cost index for 1991, and births per ob-gyn are inversely related to cesarean rates, but only births per ob-gyn are statistically significant at the 5 percent level. The Spearman correlations between various malpractice related parameters are as follows: Malpractice Malpractice Ob-gyn Index 1991 Payments Premiums per Ob-gyn in 1992 Percentage increase cesarean charges

in ⫺0.102

⫺0.109

Malpractice payments per ⫺0.109 ob-gyn

0.466***

Ob-gyn premium in 1992

0.6317***

0.466***

Premium per birth

0.6413***

0.4266***

(The level of significance: *** .01; ** .05; *.1).

⫺0.259

Premiums per Birth ⫺0.388*** 0.4266*** 0.925***

0.925***

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Since univariate relationships do not take into account impacts of other variables, these relationships should be interpreted cautiously. Multivariate Analysis I performed a multivariate analysis using the generalized estimation equation method. Total cesarean rates in percentage for each state is the dependent variable. Colorado, Minnesota, Wisconsin, Utah, and Idaho had less than 18 percent total cesarean rates in 1991; Texas, Arkansas, and Louisiana had more than 27 percent. The independent variables in addition to tort reform measures include average number of beds per hospital, low-birth-weight births per 100 live births, percentage of births to unmarried women, percentage of births to teens, percentage of births to women over 35, percentage of births to black mothers, percentage repeat cesarean, per capita health expenditures for 1991, births per ob-gyn, and increases in charges for cesarean over normal as a proportion of charges for normal in 1993. Table 8.1 presents a Poisson regression output using a generalized estimating equation model with state as subject and autoregressive as correlation matrix type. The dependent variable is the percentage of total cesarean deliveries. I used percentage of births with low weight, percentage of repeat cesarean, percentage of births to black mothers, average beds per hospitals, per capita health expenditure in 1991, births per ob-gyn, and percentage increase in charges for cesarean over normal delivery in 1993 as independent variables to account for differences among states. I used dummy variables for regions and years to account for regional and time variations. The states belonging to region 1 are CT, MA, ME, NH, NJ, NY, PA, RI, and VT. The states in region 2 include IA, IN, KS, MI, MN, MO, ND, NE, OH, SD, and WI. The region 3 states are AL, AR, DE, FL, GA, KY, LA, MD, MS, NC, OK, SC, TN, TX, VA, and WV. Region 4 states include AK, AZ, CA, CO, HI, ID, MT, NM, NV, OR, UT, and WA. For states with a tort reform enactment, the dummy variable takes a value of 1 and 0 otherwise. Two specifications are presented in Table 8.1. In the second specification, all variables except categorical are expressed in logarithms. In the first specification, births with low weight, percentage of repeat cesarean, and average beds per hospital positively impact the cesarean delivery rates. The percentage of births to black mothers has a negative association with cesarean delivery rates. Regions 1 and 3 have higher cesarean rates than regions 2 and 4. Cesarean rates fall steadily from 1989 to 1992. Only five (mandatory collateral source offsets, mandatory period payment of awards, mandatory pretrial screening panels, voluntary pretrial screening panels, maximum percent attorney fee) out of nine tort reform measures are statistically significant at the 5 percent level. Frivolous lawsuit penalties is statistically significant at the 10 percent level. Only mandatory collateral source rules and maximum percent attorney fees reduce cesarean rates. In the second specification, average beds per hospital increases cesarean rates. Births per ob-gyn is statistically significant at the 5 percent level. If higher births per physician represent higher incomes, the “agency theory hypothesis” that

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physicians are likely to perform cesareans to increase their incomes in the face of falling demand is contradicted by the positive association between births per ob-gyn and cesarean rates.31 In cesarean deliveries, physicians have to do less waiting; the time of delivery is more certain. Consequently, a busy physician might decide to go for a cesarean so that he or she has better control over scheduling. In addition, there could be a learning effect. As a physician performs more cesareans, he or she may become more proficient and therefore perform even more cesareans. According to the second specification, caps on economic and noneconomic damages, discretionary periodic payment of awards, and maximum percent attorney fee reduce cesarean rates and patient compensation funds, mandatory and voluntary pretrial screening panels, frivolous lawsuit penalties, and joint and several liabilities increase cesarean rates. I verify whether the percent increase in charges for cesarean deliveries over vaginal deliveries motivate physicians to perform more cesarean deliveries. This variable is not statistically significant at the 5 percent level in both specifications even though they have two different signs. Therefore, I cannot be confident about the relationship between cesarean rates and proportion increase in charges for cesarean deliveries over vaginal deliveries. To summarize, mandatory collateral source offsets, caps on economic and noneconomic damages, discretionary periodic payment of awards, and maximum percent attorney fees reduce cesareans by at least one specification. Since only 4 out 17 reforms have any impact on reducing cesarean rates, the impact of tort reforms on cesarean rates can be considered insignificant. In a generalized estimation equation, the endogenous dependent variable is a function of the exogenous independent variable. However, if an independent variable is endogenous, the parameters estimated could be biased. Since malpractice premiums are dependent on total cesarean rates and cesarean rates are influenced by the malpractice premiums, two simultaneous equations are formulated as follows: Malpractice premiums ⫽ f (cesarean rates, other variables) Cesarean rates ⫽ g (malpractice premiums, other variables)

We use the two-stage least squares method to estimate the parameters. The results are presented in Table 8.2. The malpractice premium varied significantly among states. South Carolina, Arkansas, Oklahoma, and Nebraska had malpractice premiums less than $18,000 and Missouri, Maryland, New York, Florida, and Michigan had malpractice premiums more than $55,000 in 1992. Total cesarean rates are positively associated (at the .05 significant level) with percentage of low-weight births, repeat cesarean, and ob-gyn malpractice premiums for 1992. This indicates that malpractice premiums increase total cesarean rates. Ob-gyn premiums are dependent on per capita health expenditures and the average of cesarean and normal delivery costs. Region 1 has lower ob-gyn pre-

188

189

190

191

192

Medical Malpractice

miums. Caps on economic and noneconomic damages, discretionary periodic payments, and sliding-scale attorney fees reduce ob-gyn premiums. Mandatory and discretionary collateral source offsets, caps on noneconomic damages, statutes of limitation, and mandatory pretrial screening panels increase ob-gyn premiums. The malpractice claims history of a physician by itself does not provide any indication about the quality of care provided by that physician. Entman et al.32 found that prior malpractice claims experience of a physician had no relationship to the technical quality of practice of Florida obstetricians. However, Hicson et al.33 found a negative association between patients’ satisfaction with care and prior malpractice experience of physicians. Women who were treated by physicians with most frequent claims without high payments complained about being rushed, not having tests explained, and being ignored. In addition, women treated by physicians with high malpractice claims complained more often then women treated by physicians with no claims. The day of the week should not have any impact on cesarean rates. However, according to Shelton Brown,34 physicians’ demands for leisure influence cesarean rates after controlling for related clinical variables. The total percentages of cesarean and vaginal births after previous cesarean as a percentage of births with a previous cesarean delivery by day of week of birth for the year 1989 for 45 reporting states and the District of Columbia are as follows:35

Total Cesarean Delivery Rate

Rate of Vaginal Birth after Previous Cesarean

Sunday

17.1

34.2

Monday

23.8

16.4

Tuesday

24.5

16.8

Wednesday

24.4

17.0

Thursday

24.4

16.8

Friday

25.4

15.4

Saturday

18.1

32.0

Total

22.8

18.9

It is obvious that cesarean rates are high on weekdays and low on weekends. Similarly, vaginal births after previous cesarean delivery as a percent of births to women with a previous cesarean delivery are high on weekends and low on weekdays. Similar patterns can be seen on holidays as well. This tends to indicate that cesarean deliveries are more likely to be scheduled on weekdays. In addition, in order to schedule deliveries physicians may be tempted to perform cesarean sections. To summarize, malpractice premium rates have a positive impact on cesarean

Malpractice and Defensive Medicine

193

rates. Four tort reforms—mandatory collateral source offsets, caps on economic and noneconomic damages, discretionary periodic payment of awards, and maximum percent attorney fee—reduce cesareans by at least one specification. In other words, malpractice stringency measured in premium rates affects physicians’ decisions about performing cesarean sections; however, 13 out of 17 tort reform measures do not. This may be because physicians perceive malpractice stringency in terms of malpractice premiums and not in enactments of laws that are in force in their states. Physicians who perform cesarean sections in response to malpractice pressure are likely to allow patients longer stays in the hospital. I examined the length of stay in days for cesarean as well as vaginal deliveries. The length of stay, defined as the period from admission to discharge, has been declining. The average stay for a vaginal delivery decreased from 3.2 days in 1980 to 2 days in 1993. For a cesarean section, the average stay decreased from 6.5 days in 1980 to 3.9 in 1993.36 Studies on relationship between lengths of stay and adverse outcomes are not conclusive. Several studies use hospital readmission as a proxy for an adverse outcome. In one study, which examined more than 123,000 vaginally delivered babies, no association between length of stay in the hospital and the readmission rate was found. The readmission rates for an infant with a 1-day stay was 1.7 percent, for a 2-day stay, 1.9 percent, and for a 3day stay, 2.0 percent. However, the same study, which examined 32,000 cesarean section deliveries, found a significant relationship between length of stay and readmission rates. The readmission rates were 4.3 percent for a 1-day stay and 1 to 1.4 percent for stays 2 days or more.37 According to another study, readmission probability for a 1-day stay was 30 to 40 percent higher than for a 2-day stay.38 Studies about association between the length of stay and adverse outcomes are not conclusive, but this does not mean that shorter stays are without any adverse outcomes. Therefore, I analyzed the impacts of the malpractice system on length of stays with from the data Metropolitan Life Insurance Company for the year 1993.39 The average length of stay for vaginal deliveries in different states varies from 1.2 to 2.4, with a national average of 1.9, and cesarean 2.8 to 4.6 with a national average of 3.4. The Spearman correlations between various malpractice stringency variables and length of stay for cesarean and vaginal deliveries are as follows: Length of Stay for Vaginal Claims per physician 1992 Malpractice index 1991 Total malpractice payment

0.003 ⫺0.07 ⫺0.032

Malpractice premium 1992

0.02

Length of Stay for Cesarean 0.001 0.056 0.046 ⫺0.02

None of the above relationship is statistically significant. No relationship was found between malpractice stringency and length of stay.

194

Medical Malpractice

IMPACT OF TORT REFORMS ON DEFICIENT CARE Defensive medicine gets most of the publicity because those who oppose malpractice use it to move forward their agenda. However, deficient medicine is a serious issue as it severely reduces the quality of care received by patients. Although the United States Task Force on Preventive Disease has recommended that women of 65 to 69 years of age receive mammograms at least once every two years, only 12 to 15 percent of women in the different hospital referral regions received breast cancer screening. Compliance with guidelines for immunization against pneumococcal pneumonia was only between 9 and 38 percent of those eligible as Medicare enrollees in fee-for-service Medicare programs in 1995–1996. The percentage of enrollees who received screening for colorectal cancer varied from 2 to 22 percent.40 The purpose of this section is to examine the impact of malpractice risk on deficient care. The U.S. General Accounting Office has collected data of 68,255 diabetes Medicare beneficiaries and the percentage of them that had obtained recommended services of eye exam, glycohemoglobin, urinalysis, cholesterol, and flu shot.41 Although 94 percent of patients had visited physicians at least twice a year, only 42 percent received an eye exam, 21 percent glycohemoglobin, 53 percent urinalysis, 70 percent cholesterol, and 44 percent flu shot. These data are available by states. I analyze the impact of malpractice liability risks on the underutilization of medical care, using malpractice claim rates for 1990– 1994, malpractice cost index for 1991, premium for 1994, and claim payments per physician as a measure of stringency of malpractice. The Spearman rank correlations among these variables are as follows:

% Receiving

Claim Malpractice Claim Rate Payment per Index 1991 per Physician Physician

Malpractice Premiums 1994

Eye exam

0.106

0.108

0.149

⫺0.135

Glycohemoglobin

0.488***

⫺0.056

⫺0.003

0.118

Urinalysis

0.234

⫺0.107

0.015

0.082

Cholesterol

0.630***

0.143

0.242

0.561***

Flu shot

⫺0.05

⫺0.179

⫺0.266*

⫺0.392**

All tests

0.487***

⫺0.012

0.107

0.230

% visiting physician twice in a year

0.302**

⫺0.201

0.213

0.214

Number of states

50

47

41

50

(Level of significance*** .01, ** .05, * .10).

The malpractice cost index for 1991 had a positive impact on the percentage of patients who received glycohemoglobin, cholesterol, and all four tests. How-

Malpractice and Defensive Medicine

195

ever, claim rates per physician and claim payments per physician do not have any statistically significant impact on the percentage of patients for whom recommended tests were done. Malpractice premiums have a direct impact on the proportion of patients who had cholesterol measurements and flu shots. In short, fear of potential malpractice lawsuits has a limited impact on physicians in providing appropriate medical care. To examine the impact of tort reforms on the recommended tests done, I used the categorization of tort reforms into direct and indirect reforms done by Kessler and McClellan.42 They categorized reforms involving caps on damage awards, abolition of punitive damages, no mandatory prejudgment interest, and collateral source as direct reforms and caps on contingency fees, mandatory periodic payments, joint-and-several liability, and patient compensation funds as indirect reforms. I used the percentage of people who received all four tests as a dependent variable and percentage of state urban, percentage of people who made visits to physicians at least twice, direct reforms, and indirect reforms as independent variables. The regression outputs, with t-values in parentheses are as follows: % four tests ⫽ ⫺49.46 ⫹ 1.17 direct ⫹ 0.98 indirect ⫹ 3.37 % urban ⫹ 9.76% made two visits (0.532) (1.322) (1.106) (1.85*) (0.47)

Except direct and indirect, all variables are expressed as logarithm (F value 2.461*; Number of observations 50). According to the regression analysis, urban patients are likely to receive all four tests. Direct and indirect tort reforms do not have any statistically significant impact on performing recommended tests.

APPROPRIATENESS OF CARE It is hard to separate careful and thorough care from “defensive” care. Several countries have much lower per capita health care expenditure than the United States, yet they have better health care delivery systems in terms of health care outcomes such as life expectancy. This does not mean that whatever per capita excess dollars the United States spends on health care represent the costs of defensive medicine. In addition, whether a test is warranted or unwarranted will depend on the circumstances existing before it is done and a negative test result by itself does not make a test unnecessary. The issue is whether the malpractice system encourages poor outcomes. There are not many studies that examine whether medicine practiced in response to liability fears is optimal care or defensive medicine. Sloan et al.43 analyzed obstetrical outcomes in Florida. They examined the impact of the malpractice system on fetal death, low Apgar scores, death within 5 days of birth, infant death, and adverse outcome within 5 years of birth. The malpractice pressures measured in physician claims per year, average number of claims per physician in the county, and county average total

196

Medical Malpractice

payment per year per physician had very little impact on the birth outcomes excluding fetal deaths. To examine the impact of malpractice stringency on quality of care, I analyzed statewide standardized mortality ratios. These ratios are computed by taking the ratio of the standardized mortality rate that accounts for the severity of patients’ diseases to actual mortality rates for Medicare beneficiaries hospitalized during 1986.44 These ratios vary from 0.832 to 1.146; lower ratios represent better quality. The Spearman rank correlations between the standardized ratios and malpractice stringency variables such as claims per physicians in 1992 and expected malpractice payment in 1992 are given here. Malpractice claims per 100 physicians in 1992

0.05

Average malpractice payment per physician in 1992

0.165

Per capita income in 1991

⫺0.179

None of these correlations is statistically significant at the 5 percent level. Appropriateness of care is more important from the patient point of view than excessiveness of care. For example, according to a recent study, nearly one in four noninstitutionalized elderly patients took prescription drugs that were not suitable for their age group even though alternative drugs with the same therapeutic benefit and with fewer side effects were available.45 According to some studies, as much as 59 percent of acute patient care is unnecessary. Figure 8.2 shows projected unnecessary care and HMO penetration for some cities using

Malpractice and Defensive Medicine

197

the data published in Business and Health.46 It is obvious from the figure that even managed care does not have much impact in reducing inappropriate care. Medical practice patterns differ significantly across and within countries. Large differences in procedures and surgeries among regions, hospitals, and physicians cannot be explained in terms of patient needs.47,48 Prescribing varies significantly among countries. The average number of medicines per person in 1990 was 38 in France, whereas it was only 7.8 in the United Kingdom.49 In some instances, waiting may be an option preferred to active intervention. According to Wennberg,50 4 out of 5 patients with severe prostate symptoms who were given an informed choice preferred waiting. In many conditions including angina pectoris, gallstones, cataracts, arthritis of hip or knee, and herniated disc, options include surgery, medical management, and, in some cases, waiting. However, new technologies, fee-for-service, and willingness of insurers to pay for treatment encourage excessive medicine. Inappropriate care is estimated to be as much as 30 percent of health care in the United States.51 One in 5 hysterectomies, 1 in 10 carpal tunnel; operations in 10 ear, nose, and throat procedures; 1 in 10 dilation and curetage procedures; and 1 in 12 laminectomies were estimated to be inappropriate procedures in 1991 and 1992.52 According to the National Roundtable on Healthcare Quality, overuse of discretionary surgery varied from 17 percent of cases for coronary angiography to 32 percent for endarterectomy.53 There is considerable uncertainty in medical treatment. According to Commissariat General du Plan of France, 4 out of 5 procedures and 2 out of 3 medical goods have never been evaluated for their effectiveness or cost.54 Therefore, they provide only marginal relief. Medical practice guidelines based on rigorous outcome analysis is a step in the right direction to reduce inappropriate care. Analysis of various options based on outcomes should be done. However, random trials on patients may be considered unethical. If empirical study based on physician survey is correct, defensive medicine is substantially increasing physicians’ income. Physicians’ mean incomes and expenses for 1984 and 1995, along with the impact on net income are as follows:55,56

Gross income

1984

1995

201

397.10

% Change 97.56

Total professional expenses

92.6

201.6

Nonphysician payroll

30.6

72.6

137.3

Office expenses

24.0

57.1

137.9

Medical supplies

10.5

20.4

94.3

Professional liability

8.4

15.0

78.6

Medical equipment

5.5

10.2

85.5

108.4

195.5

80.35

Net income

77.10

198

Medical Malpractice

If malpractice liability is reduced to zero, gross income falls to $175,800 in 1984 and $352,100 in 1995 (assuming reduction of 3 times the professional liability). The net incomes are $88,000 in 1984 and $165,500 in 1995, a reduction of 15.5 percent and 15.3 percent in 1984 and 1995, respectively. CONCLUSIONS Defensive medicine is hard to define and measure. Estimates of defensive medicine done by various empirical studies represent a small part of the nation’s health expenditures. In addition, defensive medicine accounts for a substantial part of a physician’s income. Therefore, it is not clear whether defensive medicine will disappear if malpractice risks are reduced. If malpractice risks are reduced, negligent adverse outcomes are likely to go up dramatically. Since malpractice risks cannot be eliminated, defensive medicine will continue to be discussed for a long time to come. NOTES 1. U.S. Congress, Office of Technology Assessment, Defensive Medicine and Medical Malpractice, OTA-H-602 (Washington, D.C.: U.S. Government Printing Office, July 1994), 3. 2. Marshall B. Kapp, Our Hands Are Tied: Legal Tension and Medical Ethics (Westport, Conn.: Auburn House, 1998), x. 3. American College of Obstetricians and Gynecologists, Professional Liability and Its Effects: Report of a 1992 Survey of ACOG’s Membership, Survey conducted by Opinion Research Corporation, Washington (Washington, D.C.: Author, October 1992), Table 41. 4. U.S. General Accounting Office, Medicare: Most Beneficiaries with Diabetes Do Not Receive Recommended Monitoring Services, GAO/HEHS-97–48 (Washington, D.C.: Author, 1997). 5. U.S. Congress, Office of Technology Assessment, Defensive Medicine and Medical Malpractice, 48. 6. The Cost of the Legal System: Hearing before the Subcommittee on Administrative Oversight and the Courts of the Committee on the Judiciary United States Senate, Serial no. J-104-19, S.Hrg. 104–695 (Washington, D.C.: U.S. Government Printing Office, 1996), 15. 7. Health Insurance Association of America, Sourcebook of Health Insurance Data (Washington, D.C.: Author, 1995), 121. 8. Margaret Mushinski, “Average Charges for Uncomplicated Cesarean and Vaginal Deliveries, United States, 1993,” Statistical Bulletin (December 1994): 27. 9. Elizabeth L. Shearer, “Cesarean Section: Medical Benefits and Costs,” Social Science and Medicine 37(10) (1993): 1223–31. 10. Organization for Economic Co-operation for Development, U.S. Healthcare at the Cross-Roads, Health Policy Studies no. 1 (Paris: Author, 1992), 75. 11. Joanna Heilbrunn Zorn and Edward Rolla Park, Variations in the Use of Cesarean Sections: Literature Synthesis (Santa Monica, Calif.: Rand Corporation, 1995).

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12. Benjamin P. Sachs, “Is the Rising Rate of Cesarean Sections a Result of More Defensive Medicine?” in Medical Professional Liability and the Delivery of Obstetrical Care, Vol. 2, Institute of Medicine (Washington, D.C.: National Academy Press. 1989), 27–40. 13. Randall S. Stafford, “Cesarean Section Use and Source of Payment: An Analysis of California Hospital Discharge Abstracts,” American Journal of Public Health 80(3) (March 1990): 313–16. 14. Roberta Haynes de Regt, Howard L Minkoff., Joseph Feldman, and Richard H. Schwarz, “Relation of Private or Clinic Care to the Cesarean Birth Rate,” New England Journal of Medicine, 315(10) (4 September 1986): 619–24. 15. Michael S. Zdeb and Vito M. Logrillo, “Cesarean Childbirth in New York State: Trends and Directions,” Birth 16(4) (December 1989): 203–7. 16. Russel S. Kirby, “Trends in Cesarean Section Rates among Wisconsin Residential Births: 1968–1985,” Wisconsin Medical Journal 86(10) (October 1987): 11–15. 17. Missouri Division of Health, Department of Social Services, Missouri Monthly Vital Statistics 16(6) (August 1982). 18. Institute of Medicine, Medical Professional Liability and the Delivery of Obstetrical Care, Vols. 1–2 (Washington, D.C.: National Academy Press, 1989). 19. U.S. Congress, Office of Technology Assessment, Defensive Medicine and Medical Malpractice, 129. 20. A. R. Localio, A. G. Lawthers, J. M. Bengston, L. E. Herbert, S. L. Weaver, T. A. Brennan, and J. R. Landis, “The Relationship between Malpractice Claims and Cesarean Delivery,” Journal of the American Medical Association 269(3) (20 January 1993): 366–73. 21. S. M. Rock, “Malpractice Premiums and Primary Cesarean Section Rates in New York and Illinois,” Public Health Reports 103(5) (September–October 1988): 459–63. 22. Laura-Mae Baldwin, Gary Hart, Michael Lloyd, Meredith Fordyce, and Roger A. Rosenblatt, “Defensive Medicine and Obstetrics,” Journal of the American Medical Association 274(20) (22–29 November 1995): 1606–10. 23. Peter A. Glassman, John E. Rolph, Laura P. Peterson, Melissa A. Bradley, and Richard L. Kravitz, “Physicians’ Personal Malpractice Experiences Are Not Related to Defensive Clinical Practices,” Journal of Health Politics, Policy, and Law 21(2) (summer 1996): 219–41. 24. Lisa Dubay, Robert Kaestener, and Timothy Waidmann, “The Impact of Malpractice Fears on Cesarean Section Rates, Journal of Health Economics 18 (1999): 491– 522. 25. Emmett B. Keeler and Mollyann Brodie, “Economic Incentives in the Choice between Vaginal Delivery and Cesarean Section,” Milbank Quarterly 71(3) (1993): 365– 404. 26. Sachs, “Is the Rising Rate of Cesarean Sections a Result of More Defensive Medicine?” 27. Keeler and Brodie, “Economic Incentives in the Choice between Vaginal Delivery and Cesarean Section.” 28. Mushinski, “Average Charges for Uncomplicated Cesarean and Vaginal Deliveries.” 29. Federal Register 56, no. 106 (5 June 1991): 25972–3. 30. Institute of Medicine, Medical Professional Liability and the Delivery of Obstetrical Care, 61–2.

200

Medical Malpractice

31. Jonathan Gruber and Maria Owings, “Physician Financial Incentives and Cesarean Section Delivery,” Rand Journal of Economics 27(1) (1996): 99–123. 32. Stephen S. Entman, Cheryl A. Glass, Gerald B. Hickman, Penny B. Githens, Kathryn Whetten-Goldstein, and Frank A. Sloan, “The Relationship between Malpractice Claim History and Subsequent Obstetric Care, Journal of the American Medical Association 272(20) (20–30 November 1994): 1588–91. 33. Gerald B. Hicson, Ellen W. Clayton, Stephen S. Entman, Cynthia S. Miller, Penny B. Githens, Kathryn Whetten-Goldstein, and Frank A. Sloan, “Obstetricians’ Prior Malpractice Experience and Patients’ Satisfaction with Care, Journal of the American Medical Association 272(20) (20–30 November 1994): 1583–7. 34. H. Shelton Brown III, “Physician Demand for Leisure: Implications for Cesarean Section Rates, Journal of Health Economics 15 (1996): 233–42. 35. U.S. National Center for Health Statistics, Vital Statistics of the United States, (Hyattsville, MD: U.S. National Center for Health Statistics, various years). 36. Centers for Disease Control and Prevention, National Hospital Discharge Survey (Hyattsville, Md.: National Center for Health Statistics, 1993). 37. Dave Foster and Linda Schneider, Hospital Length of Stay and Readmission Rates for Normal Deliveries and Newborns: Relationship to Hospital, Patient, and Payer Characteristics (Baltimore, Md.: HCIA Inc., July 1995). 38. U.S. General Accounting Office, Maternity Care: Appropriate Follow-Up Services Critical with Short Hospital Stays (Washington, D.C.: Author, September 1996), 7, quoted from R. Schwartz, Q. Zhao, and R. Kellogg, data presented at Implications for Early Discharge of Mothers and Neonates from Hospitals (Bethesda, Md.: Maternal and Child Health Bureau, 2 December 1994). 39. Mushinski, “Average Charges for Uncomplicated Cesarean and Vaginal Deliveries,” 27–36. 40. The Center for the Evaluative Clinical Sciences, Dartmouth Medical School, “The Quality of Medical Care in the United States: A Report on the Medicare Program,” in The Dartmouth Atlas of Health Care, 1999 (Chicago: AHA Press, 1999), 213–4. 41. U.S. General Accounting Office, Medicare: Most Beneficiaries with Diabetes Do Not Receive Recommended Monitoring Services. 42. Daniel P. Kessler and Mark McClellan, Do Doctors Practice Defensive Medicine? NBER Working Paper 5466 (Washington, D.C.: National Bureau of Economic Research, February 1996). 43. F. A. Sloan, K. Whetten-Goldstein, P. B. Githens, and S. S. Entman, “Effects of the Threat of Medical Malpractice Litigation and Other Factors in Birth Outcomes,” Medical Care 33: 700–14. 44. David W. Smith, Stephanie L. McFall, and Michael B. Pine, “State Rate Regulation and Inpatient Mortality Rates,” Inquiry 30 (spring 1993): 23–33. 45. S. M. Wilcox, D. U. Himmelstein, and S. Woolhandler, “Inappropriate Drug Prescribing for the Community-dwelling Elderly,” Journal of the American Medical Association 272, no. 4 (27 July 1994): 292–6. 46. “Appropriateness and the Effect of Guidelines,” Business and Health 12(3) (Special report on guidelines, 1994): 4. 47. K. McPherson, International differences in medical care practices in OECD, Health Care Systems in Transition (Paris: Organisation for Economic Co-operation and Development, 1990). 48. M. R. Chassin, J. Kossecoff, R. E. Park, C. M. Winslow, K. L. Kahn, N. J.

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Merrick, J. Keesey, A. Fink, D. H. Solomon, and R. H. Brook, “Does Inappropriate Use Explain Geographic Variations in Health Care Services?” Journal of the American Medical Association 258, no. 18 (13 November): 2533–7. 49. Organization for Economic Cooperation for Development, U.S. Health Care at the Cross-Roads, 96. 50. J. E. Wennberg, “Innovation and the Policies of Limits in a Changing Health Economy,” in Technology and Health in an Era of Limits, ed. A. C. Gelijns, (Washington, D.C.: Academy Press, 1992), 16–17. 51. J. A. Meyer, S. Silow-Carroll, and J. B. Garrett, Setting Priorities in Health Care (New York: Milbank Memorial Fund, 1993), 28–29. 52. “Appropriateness and the Effect of Guidelines.” 53. The Center for the Evaluative Clinical Sciences, Dartmouth Medical School, The Quality of Medical Care in the United States, 223. 54. Organisation for Economic Co-Operation and Development, New Directions in Health Care Policy, Health Policy Studies no. 7 (Paris: Author, 1995), 35. 55. Socioeconomic Characteristics of Medical Practice (Chicago: American Medical Association, 1985), 112, 116, 118. 56. Ibid., 88, 92, 94, 96, 98, 100.

9

Malpractice and Health Care Costs INTRODUCTION The health delivery system should be equitable, efficient, and at the same time should not consume too large a share of the gross domestic product. Everyone should have access to some minimum level of health care. The care should maximize patient satisfaction. Unfortunately, the U.S. health delivery system falls short on these criteria. The United States spent about $1.149 trillion, or about $4,094 per person on health care in 1998.1 This represents 13.5 percent of GDP. Individuals, business organizations, and federal and state governments bear these growing health care costs. The rising costs of health care are adversely affecting U.S. competitiveness and reducing wage increases. According to Chrysler, health care costs increase the price of a car manufactured in the United States by $700, whereas the increase in Germany is $350 and Japan $225.2 Although the United States spends the highest proportion of its gross domestic product on health care, its health care system is not serving a large proportion of its people very well. About 16.1 percent or 43.4 million Americans are uninsured and millions more are underinsured.3 High costs and uneven accessibility of health care are a major concern of the federal and state governments. Although the free market works splendidly in many areas, certain unique characteristics of the health care market in the free market system lead to increased costs and reduced patient satisfaction. First, most patients do not have adequate information to make informed decisions about their health care needs. As a result, patients are forced to depend on health care professionals who also supply the services; this creates a conflict of interest. Since patients do not fully

204

Medical Malpractice

pay for service because of third-party payment systems, there is a problem of moral hazard. These two problems result in increased demand as well as supply. HEALTH CARE EXPENDITURES AND THEIR DETERMINANTS The total and per capita health care expenditures in the United States, along with consumer price indices (1982–1984 ⫽ 100) from 1980 to 1996 are as follows:4 Consumer Price Index Year

Total

Annual % Change

Per Capita Total

Annual % Change

14.9

1,002

13.9

82.4

74.9

Medical Care

Total

1980

247.3

1985

428.7

9.9

1,668

9.3

107.6

113.5

1990

699.5

12.2

2,596

11.1

130.7

162.8

1991

766.8

9.6

2,825

8.8

136.2

177

1992

836.6

9.1

3,050

8.0

140.3

190.1

1993

895.1

7.0

3,233

6.0

144.5

201.4

1994

945.7

5.6

3,384

4.7

148.2

211.0

1995

991.4

4.8

3,521

4.0

152.4

220.5

1996

1035.1

4.4

3,645

3.5

156.9

228.2

Health care expenditures rose faster than the consumer price index from 1980 to 1996. An analysis of components of health expenditures indicates the same trend. Per capita physician services rose from $192 in 1980 to $563 in 1990 and $756 in 1996.5 Hospital expenditures per capita rose roughly threefold from $437 in 1980 to $1,308 in 1996 although the consumer price index rose only approximately twofold during the same time. Hospital discharges per 1,000 people fell from 168 in 1980 to 116 in 1996. Average days of stay fell from 7.3 in 1980 to 5.2 days per discharge in 1996.6 Several explanations are suggested for such a significant increase in the hospital component of health care expenditures despite the decrease in discharges and length of stay. An increase in outpatient visits was the major reason for decreased admissions. Hospitals reduced their capacity in response to lower admissions and length of stay. Still, costs per admission grew because hospital operating costs were spread over fewer admissions. According to a report by the U.S. General Accounting Office, rapid adoption of new technologies, reimbursement on the basis of costs, higher labor costs as a result of increased complexity, and higher administrative costs are major reasons for rising hospital costs.7 According to Doyle,8 there are more magnetic resonance imaging machines in Orange County, California, than there are in all of Canada. The GAO

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205

study also found that medical malpractice costs were an insignificant portion of hospital costs. At their peak, malpractice insurance costs accounted for only about one five hundredth part of average annual hospital cost growth. Total health expenditure as a percentage of gross domestic product is highest in the United States in comparison to other developed countries. Total health expenditures as a percentage of gross domestic product for some developed countries in 1992 are as follows:9 Australia

8.8

Germany

8.7

Japan

8.5

United Kingdom

7.1

United States

14.0

The U.S. health care cost as a percentage of GDP is almost twice that of most developed countries. DETERMINANTS OF HEALTH EXPENDITURES Demographic change is one of the major causes for rising health care costs. As health care advances, curing diseases and improving life expectancy, more people need health care. Since people do not die easily, we have a problem of prevalence of diseases rather than incidence. This dramatically changes the care from acute services to rehabilitative services. Therefore, the proportion of elderly people in the population has a significant impact on health care expenditures. Technology is another factor that drives up health care costs. Many technologies are being adopted without adequate evaluation. Several technologies have been found to have little or no effects on health outcomes. New tests and procedures have dramatically increased the demand for health care services. Technology has also increased the intensity and complexity of services requiring highly skilled employees. This has increased wages and overall costs. The rising standard of living also increases demand for health services. The rising productivity and rising incomes have changed expectations about health care. The association between the number of physicians per capita and health care costs per capita is not very obvious across industrialized countries.10 However, a study by the U.S. General Accounting Office11 indicates that the number of physicians in a state has an impact on state health care expenditures. To evaluate the impact of malpractice premiums on per capita health expenditure, I performed a regression analysis. I used per capita U.S. health expenditure as a dependent variable and the number of physicians per 100,000 population, percentage of population above 65, per capita income, malpractice premiums, and a dummy to represent the introduction of magnetic resonance

206

Medical Malpractice

imaging for years subsequent to 1981 using data from 1960 to 1996. The per capita health expenditures, physicians per 100,000 population, per capita income, and malpractice premiums (from 1976) are from various issues of the Statistical Abstract of the United States. Malpractice premiums per physician for the years 1960 to 1974 are estimated by dividing malpractice insurance paid reproduced in Kendall12 by the number of physicians and inflating the resulting data with the factor that would make malpractice premium per physician estimated identical to the one published in Socioeconomic Characteristics of Medical Practice13 for the year 1974. The results of regression analysis with t-values in parentheses are presented below: (***level significance 0.01, **.05, and *.10). Change per capita health expenditures ⫽ ⫺3.44 ⫹ 1.05 change per capita income (2.48**) (4.7***) ⫹0.48 change physicians per population (0.67) ⫺0.02 change malpractice premium (0.61) ⫹2.93 change in proportion of above 65 in pop. (1.86*) ⫺0.01 dummy representing introduction of MRI

Number of observations 30; F-value 201.14***; Durbin-Watson 1.243; Rsquared .9767. All changes are calculated by taking the ratios of observations for the current period to the previous period. When data are not available and can reasonably be interpolated, I have done it. However, since I do not have malpractice data for years 1975, 1977, 1978, and 1979, I ignore these years. According to our regression results, change in per capita income, physicians per population, and proportion of population over 65 positively influence the change in per capita health care costs and malpractice premiums and dummy representing the introduction of MRI negative influence them. However, only change in per capita income and change in proportion of population over 65 are statistically significant at the 10 percent level. According to Arnett et al.,14 inflation, growth and change in composition of population, per capita patient days, and intensity of health services account for the rise in health care costs from 1974 to 1984. According to Newhouse,15 aging, spread of insurance, and income growth from the demand side, and supplier-induced demand, slow productivity growth, medical malpractice insurance premiums, and technological changes from the supply side account for growth in medical expenditure. My dataset contains only 30 observations and data before 1975 are not of high quality. The analysis shows that population above 65 and per capita income are major causes for the increase in health care costs. This is consistent with the results of a more detailed regression analysis presented by Gerdtham and Jonsson.16 My analysis

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207

shows that there is very little impact of the malpractice system on per capita health care costs. IMPACT OF PHYSICIANS’ INCOMES ON HEALTH CARE COSTS Physicians’ services accounted for 20.14 percent of the U.S. health care expenditures in 1996. Growth in various health expenditures from 1980 to 1997 is as follows: Growth in total health expenditures

315 percent

Growth in hospital care

261 percent

Growth in physician services

381 percent

Growth in private health insurance for physician services

538 percent

Growth in government payments for physician services

435 percent

Growth in out-of-pocket payments toward physician services

132 percent

Growth in Medicare

480 percent

Growth in Medicaid

528 percent

As a result, Medicare and Medicaid have become major sources of income for physicians. According to Medical Economics,17 the percentages of physician payment received from Medicare and Medicaid for selected specialties in 1992 are as follows: Cardiologists

51 percent

Cardio/thorasic surgeons

56 percent

Family practice

33 percent

Gastroenterologists

46 percent

General practice

36 percent

General surgeons

36 percent

Pediatrician

25 percent

Neurosurgeons

29 percent

All surgical specialties

38 percent

All nonsurgical specialties

38 percent

All M.D.s

36 percent

Medicare and Medicaid payments account for 24.7 percent and 26.9 percent of physician services in 1990 and 1995 respectively. Growth in physician services outstripped growth in total health expenditures and hospital care. Most of this growth was financed through health insurance and government funds. Growth in physician services directly affects total health care growth rates. Physicians

208

Medical Malpractice

have complete discretion in deciding the volume of all health care services. It is estimated that physicians control 70 to 90 percent of all health care spending.18 In addition, out-of-pocket payments are typically made for physicians’ services. Out-of-pocket expenses for physician service rose from $14.7 billion in 1980 to $34.1 billion in 1997.19 Therefore, control of costs of physicians’ services is a major target of lawmakers. In addition to physicians, physicians services are provided by the laboratories, suppliers of medical equipment, prosthetics, ambulance services, and limited license practitioners such as psychologists, physical therapists, and so on. However, physicians provide a significant portion of physician services. Therefore, costs of services provided by physicians have been the subject of numerous analyses by government agencies and academic researchers. Physician salaries have been the envy of all other professions. Between the years 1930 and 1995, the physician’s net income has gone up 40-fold (see various issues of the Statistical Abstract of the United States). During the same period, the consumer price index has gone up by about 91⁄2 times. Such a rise in income (see Figure 9.1) has forced policy makers to consider limiting physicians’ incomes. A comparison of physicians’ income in various countries indicates that physicians in the United States make the highest salaries in absolute dollar amounts and as a ratio to average incomes. A physician in the United States earned 5.66 times the income of an average worker in 1989. In Switzerland, a physician earned 4.22, in Canada 3.8, in Germany 3.57, and in France 1.96 times the earnings of an average worker.20 Physicians’ average incomes as a multiple of compensation per employee in health services in various countries are as follows: Country

Year

Multiple

Finland

1990

2.11

Sweden

1989

2.46

United Kingdom

1988

2.18

United States

1989

5.62

In addition, the percentage of money going to physician services was 19 percent in the United States in 1990, whereas it was 16 percent in Canada in 1987, 12 percent in France in 1990, and 17 percent in Germany in 1989.21 The market for physician services may be viewed as competitive because there are hundreds of physicians listed on the yellow pages of a telephone book. Patients can choose doctors based on their price and quality of service. However, several problems inhibit real competition. First, there are barriers to entry into the medical profession. Restricted acceptance into medical schools regulates the supply of physicians. Difficulty in getting into the residency program of one’s choice limits physician supplies to various specialties. Immigration restrictions

210

Medical Malpractice

and residency requirements for foreign doctors limit the supply of foreign doctors significantly. These restrictions on the supply of physicians significantly limit price competition among physicians. Poor consumer information about physicians is another root cause for reduced competition among physicians. Typically, a consumer can know about only a few physicians. However, information about the quality and cost of physicians is not reliable. Therefore, patients do not have adequate data to make trade-offs between price and quality and physicians can easily raise prices or reduce costs of service without their patients defecting to another physician. Imperfect consumer information helps physicians to raise prices at a faster rate than the rate at which costs of their inputs are rising; this increases incomes year after year. Insurance is another cause for imperfect competition among physicians. Insurance policies that cover 100 percent of physician charges discourage patients from switching to low-priced physicians. This also encourages overuse of medical services. Medigap insurance policies issued to those eligible for Medicare typically cover deductible, coinsurance and balance bills. During the past 30 years, federal and state governments were very liberal in providing medical coverage to poor people and seniors. Therefore, medical care has been made available with no out-of-pocket payments by patients. Lack of co-payments has led to significant overconsumption of medical services and therefore has resulted in increased income for physicians. Tax policies have led to increased consumption of medical services. Employers get tax exemptions on medical expenses of their employees. Medical benefits received from employers are exempt from income tax to employees. Therefore, the cost of medical benefits to employees has risen at a faster rate than their wages. According to a recent estimate, the government lost $111.2 billion in tax revenue in 1998 alone as a result of tax policies for health insurance costs.22 The per capita increase in physicians and their incomes have significant impacts on health care costs. According to Table 9.1, total physicians in patient care increased by 29.7 percent between 1985 and 1995. Per capita patient care physicians during the same period increased by 20 percent. However, total practice revenue per physician and total practice revenue rose by a significant 94.31 percent and 152.03 per cent respectively. Although mean professional liability premiums per physician rose by 42.85 percent during the 1985–1995 period, physicians’ net incomes grew by 74.24 percent. During this period, per capita hospital discharges fell by 19.6 per cent and days of care by 43.8 percent. Patient visits per physician fell by 8.12 per cent. Surgical procedures per 1,000 population also fell. In spite of reductions in services, physicians’ revenues and incomes rose. Patient contacts per year grew by 11.4 percent and contacts by female patients per year by 13.1 percent. Physicians increased their revenues by increasing charges per visit and increasing number of patient contacts at a greater rate than their expenses. Although costs of physicians’ services have increased along with malpractice premiums, the inference cannot be made that malpractice premiums caused these increases.23 Another way to evaluate the impact of phy-

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211

sicians’ incomes on health care expenditure is to examine the costs of some frequently done procedures. For example, it costs about $2,500 or higher and $7,500 or more in an outpatient setting for an operation for the implantation of an intraocular lens, which takes about fifteen minutes to perform. According to Baker, the U.S. government was paying more for this operation than the next four most frequent operations.24

212

Medical Malpractice

It is argued that physicians need to spend several years in order to become licensed. Given the tremendous debt burden incurred by these physicians, some might justify their high income. The mean debt in 1997 of 83.2 percent of graduating medical students who incurred debt is $80,462.25 In addition, some argue that admissions to medical schools are competitive. However, the grade point average in 1987–1988 of first-year entrants to medical schools was 3.44 and 10 percent of applicants had a GPA of less than 3.0. In addition, students once admitted to medical school rarely fail.26 Returns on medical education are very high. Percentage yearly returns from medical training for various specialties are extremely high; they are given below, along with average malpractice premiums as a multiple of the average malpractice premium of a physician ($15,000 for 1995).27,28 Pediatrics

1.3

General family practice

0.53

4.1

0.60

Psychiatry

10.8

0.37

Pathology

20.4

0.63

General surgery

22.4

1.49

Radiology

30.5

0.79

Obstetrics/gynecology

35.1

2.57

Anesthesiology

39.1

0.85

The expenditure on physician services and total physicians’ net incomes (obtained by multiplying physician’s net income by the number of active nonfederal patient care physicians) for various years are as follows: Year

Physician Services

Net Income

Net income as a % of Physician Services

1990

146.3 billion

80.15 billion

54.8%

1995

201.9 billion

110.3 billion

54.6%

1996

208.5 billion

115.6 billion

55.4%

If physicians’ net income as a percentage of total physician income remains stable around 55 percent, then as the number of physicians as well as their incomes rise, expenditures on physician services are likely to increase accordingly. UNIVARIATE ANALYSIS FOR CHARGES FOR PROCEDURES In this section, I examine the relationship between the malpractice system and costs of various procedures. I use the Spearman rank correlation after accounting

Malpractice and Health Care Costs

213

for per capita incomes of each state to evaluate the influence of malpractice systems on the costs of various procedures. The malpractice index for 1991 compiled for Medicare reimbursement purposes is used as an indicator of malpractice stringency.29 Other indicators include the claim rates per physician for 1 September 1990 to 31 December 1994. Average malpractice payment per physician for the same period is also used as an indicator. St. Paul Fire and Marine Insurance Company proposed physician and surgeon average rates on an annual basis after 1 July 1993 based on Class 3 doctor per mature claimsmade rates at $1 million and 3 million limits is the fourth indicator. I use physician as well as total charges. These charges are from the various issues of the Statistical Bulletin published by the Metropolitan Life Insurance Group Health Claims. The Spearman rank correlations between malpractice stringency indicators and costs of various procedures are given in Table 9.2. Only 16 out of 60 correlations are statistically significant; this indicates that there is less likelihood of adverse impacts of malpractice stringency on costs. ANALYSIS OF GROWTH IN PER CAPITA HEALTH SPENDING In this section, I analyze the impact of malpractice premiums on the changes in per capita health care spending between 1980 and 1993. The Spearman rank correlations between annual percentage changes in per capita health care expenditures and spending on physician services for states and annual percentage changes in demographic and economic changes between 1980 and 1993 are as follows: % Changes in % Changes Per Per Capita Capita Physicians’ Health Spending Services ⫺0.104

Change in per capita beds (1982–1992)

0.271*

Change in per capita Income (1980–1990)

0.578***

0.749***

0.706***

0.498***

Change in per capita Physicians (1980–1990) Health Rank 1990

⫺0.11

Malpractice premium 1985

⫺0.26*

⫺0.046

Managed Care 1993

⫺0.200

0.154

0.198

The impact on changes in per capita physicians is as follows: Change in per capita income 1980–1990

0.356**

Malpractice premium 1985

⫺0.277**

Proportion urban 1990

⫺0.5488**

Malpractice and Health Care Costs

215

Average annual change in per capita expenditures for personal health care in the period 1980–1993 varied significantly among states. It increased by 11.3 percent for New Hampshire and 6.8 percent for Alaska. The top five states in the increase include New Hampshire, New Jersey, Kentucky, South Carolina, and Connecticut. The bottom five states are Alaska, Nevada, California, Michigan, and Kansas. I analyzed annual changes in per capita health care expenditure and physician services of individual states. I modeled change in per capita health care and physician services expenditure during 1980–1993 as dependent variables and changes in beds per capita, changes in per capita income, changes in per capita physicians, rate regulation dummy, health score 1990, malpractice premiums 1985, and managed care penetration 1993 as independent variables. Changes in per capita health care expenditure and physician services influences the per capita physicians; I treat per capita physicians as an endogenous variable. I treat changes in per capita physicians as a function of per capita incomes, malpractice premiums 1985, percentage urban, and managed care penetration. I therefore write changes in per capita health expenditure and changes in per capita physicians as two functions: Changes in health expenditure ⫽ f (changes in beds per capita, changes in per capita incomes, changes in per capita physicians, rate regulation dummy, health score 1990, malpractice premium 1985, managed care penetration 1993) Changes in per capita physicians ⫽ g (changes in per capita income, malpractice premiums 1985, percentage urban, managed care penetration 1993)

I fitted a two-stage least squares simultaneous equation model to identify factors that influence annual changes in per capita spending on health care and physician services for each state. The dependent variable is the annual changes in these expenditures during the period 1980–1993. I calculated changes by taking ratios. Since there are only 50 observations, I was forced to limit the number of independent variables. I also used ReliaStar state health scores as a proxy for the health of the people.30 I used malpractice premiums for 1985 as a proxy for stringency of the malpractice system. In addition, Maryland, New Jersey, New York, Massachusetts, Connecticut, and Washington have implemented mandatory rate regulations. To account for rate regulations, I introduced a dummy variable that takes a value of 1 for these states and 0 for others. Health maintenance organizations do reduce health care costs. According Lewin/ICF, states with high HMO enrollment have reduced growth in hospital expenditures per capita between 1986 and 1989 more than the U.S. average.31 Therefore, we use HMO enrollment for 1993 as an independent variable. Increase in per capita physicians increases competition. Increased number of physicians per capita is likely to increase the intensity of medical care. Since

216

Medical Malpractice

physicians tend to move to states with high growth in health spending, per capita changes in physicians are treated as an endogenous variable. Percentage changes in the number of physicians per capita is modeled as a linear function of per capita income change between 1980 and 1990, malpractice premium for 1985, proportion urban, and managed care penetration for 1993. To allow for possible nonlinearities, I also produce outputs using all variables in logarithmic form. The results are presented in Table 9.3. Changes in per capita physicians are influenced by per capita income changes and managed care penetration. Change in per capita income is the major driving force in increasing per capita physician changes. Managed care penetration significantly reduces growth in per capita physicians. Malpractice premiums have very little impact on per capita physician growth. Growth in per capita health care expenditures varied significantly between states with an average annual growth of 9.3 and ranging from 6.8 percent in Alaska to 11.3 percent in New Hampshire. The top five states in growth are New Hampshire, New Jersey, South Carolina, Kentucky, and North Carolina and the bottom five are Alaska, Nevada, California, Kansas, and Michigan. Changes in per capita income have the greatest impact on the growth in per capita expenditures. Health score and malpractice premiums have a mild negative impact on the growth. Figure 9.2 presents a scatter diagram with the annual growth in per capita health expenditures from 1980 to 1993 and average malpractice premiums of 1985. Average annual change in per capita expenditures for physician services for the period 1980–1993 varied significantly among states. Although the national average was 9.7 percent, New Hampshire had an annual growth of 13.1 and Alaska had 5.8 percent. The top five and bottom five states in average annual change in per capita expenditures for physician services for 1980–1993, along with their per capita expenditures for physician services in 1993 and their rank are as follows: Top 5 New Hampshire

13.1

695

12

Massachusetts

12.0

738

7

Connecticut

11.6

789

3

New Jersey

11.2

735

8

Alabama

11.0

629

20

Alaska

5.8

503

39

Wyoming

7.3

340

50

Hawaii

7.5

661

16

Montana

7.8

466

43

Michigan

8.0

588

26

Bottom 5

Malpractice and Health Care Costs

219

The increases in per capita health expenditures and physician services are again significantly affected by the increase in per capita income. Malpractice premiums have hardly any effect on per capita health expenditures and physician services. Therefore, based on the simultaneous equations model, we can say that the malpractice system stringency measured in malpractice premiums has insignificant impact on the growth of per capita health care costs. CONCLUSIONS In this chapter, I analyzed the impact of the malpractice system on health care costs. Per capita income is the major driving force for per capita health care expenditures. As the number of physicians along with their net income rise, expenditures on physician services are likely to rise. An analysis of charges for procedures indicates very little impact of malpractice stringencies. An analysis of growth in health care expenditures in various states indicates that malpractice premiums do not have much impact on the growth in expenditures. NOTES 1. Katharine Levit, Cathy Cowan, Helen Lazenby, A. Sensenig, P. McDonnell, J. Stiller, and A. Martin, “Health Spending in 1998: Signals of Change,” Health Affairs (January–February 2000): 124–132. 2. L. Graig, Health of Nations: An International Perspective on United States Health Care Reform (Washington, D.C.: Wyatt Company, 1991). 3. Statistical Abstract of the United States: 1999 (Washington, D.C.: U.S. Census Bureau, 1999), Table 165, p. 127. 4. Statistical Abstract of the United States: 1998 (Washington, D.C.: U.S. Census Bureau, 1998), Tables 164, 166, 772. 5. Statistical Abstract of the United States: 1998, Tables 166, 205. 6. Statistical Abstract of the United States: 1998, Table 205. 7. U.S. General Accounting Office, Hospital Costs: Adoption of Technologies Drives Cost Growth, GAO/HRD-92–120 (Washington, D.C.: Author, 1992). 8. Rodger Doyle, “Healt Care Costs,” Scientific American, April 1999, 36. 9. Brian Abel-Smith, “The Escalation of Health Costs: How Did We Get There?” in Organisation for Economic Co-Operation and Development, The Health Care Reform: The Will to Change, Health Policy Studies, no. 8 (Paris: Author, 1996), 18. 10. Organisation for Economic Co-Operation and Development, U.S. Health Care at the Cross-roads. Health Policy Studies, no. 1 (Paris: Author, 1992), 25. 11. U.S. General Accounting Office, Health Care Spending: Nonpolicy Factors Account for State Differences, GAO/HRD-92–36 (Washington, D.C.: Author, 1992). 12. Mark C. Kendall, “Expectations, Imperfect Markets, and Medical Malpractice Insurance,” in The economics of medical malpractice, ed. Simon Rottenberg (Washington, D.C.: American Enterprise Institute for Public Policy Research, 1978), 176. 13. American Medical Association, Socioeconomic Characteristics of Medical Practice, annual (Chicago: Author, 1974). 14. R. H. Arnett, D. R. McKusick, S. T. Sonnefeld, and C. S. Cowell, “Projections of Health Care Spending to 1990,” Health Care Financing Review 7(3)(1986): 1–36.

220

Medical Malpractice

15. J. P. Newhouse, “Medical Care Costs: How Much Welfare Loss?” Journal of Economic Perspectives 6(3)(Summer 1992): 179–189. 16. Ulf Gerdtham and Bengt Jonsson, New Directions in Health Care Policy (Paris: Organisation for Economic Co-operation and Development, 1995), 71–85. 17. Ken Terry, “Where More of Your Income Is Coming From?” Medical Economics, 22 November 1993. 18. E. C. Feil, H. G. Welch, and E. S. Fisher, “Why Estimates of Physician Supply and Requirements Disagree?” Journal of the American Medical Association 269(1993): 2659–63. 19. Statistical Abstract of the United States: 1999, Table 169, p. 120. 20. Organisation for Economic Co-operation and Development, U.S. Health Care at the Cross-roads, 88–9. 21. Ibid., 23. 22. John Sheils and Paul Hogan, “Cost of Tax-exempt Health Benefits in 1998,” Health Affairs 18(3) (March–April 1999): 176–81. 23. U.S. General Accounting Office, Health Care Spending. 24. Robert C. Baker, Subcommittee on Economic and Commercial Law, Committee on the Judiciary, U.S. House of Representatives, 22 June 1994. 25. R. L. Berar and G. E. Lawson, “Medical Student Financial Assistance, 1996– 1997,” Journal of the American Medical Association 280(1998): 819–20. 26. Lee Benham, “Licensure and Competition in Medical Markets,” in Regulating Doctors’ Fees: Competition, Benefits, and Controls under Medicare, ed. H. E. Frech III (Washington, D.C.: AEI Press, Publisher for the American Enterprise Institute, 1991), 80. 27. William D. Marder and Richard J. Willke, “Comparisons of the Value of Physician Time by Specialty,” in Regulating Doctors’ Fees: Competition, Benefits, and Controls under Medicare, H. E. Frech III ed. (Washington, D.C.: AEI Press, Publisher for the American Enterprise Institute, 1991), 267. 28. American Medical Association, Socioeconomic Characteristics of Medical Practice. 29. Federal Register 56, no. 106, 5 June 1991: 25972–3. 30. The ReliaStar State Health Rankings, 1997 ed. (St. Paul, Minn.: ReliaStar Financial Corporation, 1997), 14. 31. Lewin/ICF, Analysis of Hospital Expenditures and Revenues, 1979–1989, April 1991.

10

Closing Statement INTRODUCTION Although medical malpractice accounts for a small percentage of tort cases and of liability insurance premiums, medical malpractice is one of the most researched topics in health administration. A search of articles in the National Library of Medicine’s MEDLINEplus system conducted in July 2000 for the words “malpractice” or “tort” produced 69,167 articles and this search does not include articles published in many social science and statistical journals. According to the civil justice survey of state courts in the nation’s 75 largest counties in 1992, malpractice, with 18,452 cases, accounts for just 4.9 percent of all tort cases.1 Auto torts account for 3 in 5 cases. Medical malpractice has the highest proportion of cases going for trial (6.9 percent). For all tort cases, that percentage is 2.9. Even though the plaintiff won in 51.8 percent of all tort cases, in medical malpractice cases, that percentage is only 30.3 percent. The median amount awarded by a civil jury in malpractice cases is $201,000, compared to $51,000 in all tort cases. Product liability cases have the highest median payment awarded among tort cases. Medical malpractice cases have the highest mean payment of $522,000 when the defendant is an individual and $857,000 when the defendant is a hospital among all tort payments by civil jury.2 Net medical malpractice premiums written by all property and casualty companies in 1997 totaled $4.89 billion. This constitutes a mere 1.77 percent of all premiums written by all property and casualty companies in 1997. Auto liability accounts for almost half of all premiums written in 1997. All premiums written

222

Medical Malpractice

grew by 2.8 percent; the growth rate of malpractice premiums was only 0.3 percent.3 Malpractice insurance is also criticized for its low payout rate. The adjusted loss ratio, which represents the incurred loss to earned premium ratio, was 0.691 for medical malpractice in 1998. This ratio is close to the average of 0.662 for all property and casualty insurance in 1998. Allocated loss adjustment expense ratio, which represents the ratio of expenses associated with the settlement of claims to earned premium is 0.248 for medical malpractice.4 This ratio is 0.276 for product liability even though product liability cases are less complex than medical malpractice. It is therefore obvious that except for the fact that the parties involved in the medical malpractice system are rich and powerful in the society, medical malpractice and tort reforms would not have been a topic of so much interest. NATURE AND EXTENT OF MEDICAL ERRORS Without medical errors, there would be no medical malpractice. Nevertheless, our understanding of the epidemiology of errors is very limited despite many studies relating to errors. A comprehensive review of literature on medical errors can be found in chapter 2 of a report prepared by the Institute of Medicine.5 This report includes both error of execution and error of planning within its definition of an error. Error of execution represents “failure of planned action to be completed as intended” and error of planning “the use of a wrong plan to achieve an aim.”6 According to psychologists, errors of execution are “slips of actions” or “lapses of memory” and errors of planning are “mistakes.” Prescribing penicillin without finding out whether the patient is allergic is an error of planning and knowing, but forgetting that the patient is allergic is an error of execution.7 An injury caused by medical management is called an adverse event. An injury caused by the underlying condition of the patient is not an adverse event. A preventable adverse event can be attributed to an error. When an adverse event occurs because the care fails to satisfy the standard criteria of care, such an event is termed a negligent adverse event. One of the earliest studies of injuries was done for a sample of 23 California nonfederal hospitals in 1974.8 This project (CMA/NAIC study) was sponsored by the California Medical Association and the California Hospital Association to study the feasibility of the introduction of a no-fault system of compensation for medical injuries. The study included adverse events as a result of treatment, incomplete diagnosis or treatment, and incomplete prevention or protection. An analysis of 20,864 records indicated an injury rate of 4.65 percent of the hospitalizations. Of these injuries, 80 percent were temporary and 9.7 fatal. Seventeen percent of all injuries were negligent. However, for fatal injuries, that percentage was 43 percent. Another extensive study of adverse events involved an analysis of 30,000 randomly selected discharges from 51 randomly selected hospitals in New York

Closing Statement

223

State in 1984.9,10 According to this study (Harvard Medical Practice Study), 3.7 percent of hospitalizations involved adverse events: 58 percent of adverse events were preventable and 27.6 percent were negligent; 2.6 percent of all adverse events were permanent disability and 13.6 percent fatal. If we project the number of disability cases caused by adverse events using the estimates of this study11 for hospital discharges of 33.6 millions in 1997, the estimates for various levels of disability are as follows: Disability

Negligent Adverse Events

Recovery within 1 month

156,910

Recovery 1 to 6 months

41,689

Recovery more than 6 months

10,315

Permanent 1–50 percent disability

10,972

Permanent ⬎50 percent disability

11,073

Death

87,053

Not determinable

25,112

Total

343,124

If we consider death, permanent disability, and injury requiring more than 6 months for recovery as serious injuries requiring compensation, 119,413 serious negligent injuries occur in a year in the United States. A recent study of adverse events done in the states of Colorado and Utah sheds more light on adverse events in hospitals.12 This study of 15,000 random samples of discharges in 1992 from a representative sample of 28 hospitals in Colorado and Utah came up with 2.9 percent adverse events per hospitalizations in each state. According to this study, more than four out of five of these adverse events occurred in the hospitals. Of the adverse events, 29.2 percent were due to negligence and 53 percent were preventable. The likelihood of adverse events in surgical care should not be more than in nonsurgical care. However, about 2 in 3 adverse events in this study were surgical.13 Among surgical adverse events, 54 percent were preventable. Of all surgical adverse events, 5.6 percent resulted in death and nearly 1 in 7 in permanent disability or death. Technique-related complications wound infections and postoperative bleeding accounted for about half of all surgical adverse events. Adverse events in hysterectomy, spinal surgery, Coronary Artery Bypass Graft (CABG)/valve replacement accounted for more than 1 in 4 surgical adverse events. Summary results of some studies relating to medical errors presented in the Institute of Medicine report14 are as follows: Study Description 44,603 major operations at a medical center Preventable iatrogenic cardiac arrests

% Adverse % Negligent 5.4 14

2.65 8.87

% Negligent Deaths 0.13

224

Study Description

Medical Malpractice

% Adverse % Negligent

Preventable deaths Iatrogenic illness Anesthesia in surgical mortality

% Negligent Deaths 14–27

36

2 0.064–0.187

If the results of the Colorado and Utah study and the Harvard study were extrapolated to the more than 33.6 million hospital admissions in 1997, this implies 44,000 to 98,000 deaths in U.S. hospitals due to medical errors.15 These error rates are likely to be underestimated because only patients with a specified level of harm are considered, standards set to evaluate an adverse event as preventable or negligible are high, and only errors documented in patient records are considered.16 Fewer hospital stays and shorter length of stays, and increase in outpatient care may also affect the number of adverse events likely to included in hospital patient records. High costs may make reducing preventable adverse events less cost-effective. Physicians may not agree with the classification of adverse events into preventable or not preventable. It is hard to make judgments about medical error reliably from medical records.17 There are several studies about the incidence of adverse drug reactions in hospitalized patients. According to a meta-analysis of 39 studies, the incidence rate of serious adverse drug reactions is estimated to be 6.7 percent and the rate of fatal reactions is estimated to be 0.32 percent of hospital admissions. Extrapolating this to all hospital admissions, it is estimated that 2.2 million hospitalized patients had serious adverse drug reactions in 1994 and 106,000 of these reactions were fatal.18 However, many of these adverse events are not preventable. Starfield estimates that total deaths from iatrogenic causes not associated with recognizable errors are 225,000.19 We do not know much about outpatient medical errors, although about 1 in 5 adverse events are estimated to occur outside hospitals.20 COSTS OF MEDICAL ERRORS There are not many studies about the economic consequences of medical injuries. An injured patient in addition to physical suffering is subjected to economic consequences such as additional medical costs, lost wages, lost household production, and so on. Based on interviews of a random sample of 794 injured patients from the Harvard Medical Practice Study, Johnson et al.21 estimated that the total undiscounted costs of both initial illness and iatrogenic injury for New York State in 1984 were $21.4 billion, consisting of $2.6 billion in lost wages, $3.4 billion in lost household production, and $15.4 billion in medical care expenditures. Thomas et al.22 estimated that the total costs of 459 adverse events identified by reviewing 14,732 randomly selected 1992 discharges from 28 hospitals in Colorado and Utah were $662 million (in 1996 dollars), out of which health

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care costs accounted for $348 million, or 53 percent. Total costs of 265 preventable adverse events were $308 million, out of which $159 million, or 52 percent, were health care costs. By extrapolating these expenses for all admissions, the Thomas et al. study estimated those costs to be $37.6 billion for all adverse events and $17 billion for preventable adverse events. According to Thomas et al.,23 outpatient care accounts for 57 percent of adverse event health care costs and 46 percent of preventable adverse event costs. Surgical complications, adverse drug events, and delayed or incorrect diagnoses and therapies are the most expensive types of adverse events. CLAIMS An injured person cannot be compensated unless he or she files a claim. However, not all injuries result in a claim. According to the CMA/NAIC study, the ratio of malpractice claims to negligent injury is a mere 0.1. Permanent injuries are more likely to result in claims than temporary injuries. Little more than 1 in 17 negligent deaths are likely to result in a claim. Overall, about 2 in 5 claims and 1 in 26 negligent injuries resulted in payment through the malpractice system. In death cases, about 2 in 7 claims and 1 in 50 negligent deaths resulted in compensation.24 According to the Harvard Medical Practice Study, the ratio of malpractice claims to projected negligent injuries for the state of New York is about 13 percent. The overall rate of claims per discharge is 0.13 percent. However, the proportion of negligent injuries in the sample that resulted in a malpractice claim is 1.53 percent. This indicates that a significant proportion of events that resulted in claims did not satisfy the criteria used for adverse events.25 According to a survey of physicians, the annual average number of professional liability claims filed against a physician in 1996 was 0.09.26 Based on 580,706 nonfederal physicians in patient care, the total number of malpractice claims filed in the United States in 1996 was 52,264. The total number of malpractice payment reports against physicians to the NPDB in 1998 was 14,406.27 Assuming that 3.72 percent of these payments were as a result of verdict, the total number of paid verdicts was 536. According to the civil jury survey of state courts, the plaintiff wins in 30.3 out of 100 cases.28 Therefore, the total number of cases that went to trial were 1,769. The disposal of malpractice claims against physicians, along with percentage of claims, ratio of claims to serious negligent injuries, and ratio of claims to total negligent injuries are as follows: Total claims Paid settlements Paid verdicts Plaintiff lost Claims dropped

52,264 13,870 536 1,233 36,625

100% 26.5 1.03 2.36 70.1

43.8 11.6 0.45 1.03 30.7

15.2 4.0 0.16 0.36 10.65

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The ratios of total claims to serious negligent injuries and to total negligent injuries are 43.8 percent and 15.2 percent, respectively. The ratios of paid claims to serious negligent injuries and total negligent injuries are, respectively, 12.05 and 4.16 percent. In other words, paid claims represent only 1 in 8 serious negligent injuries and 1 in 25 total negligent injuries. Several studies show that the elderly and the poor file fewer lawsuits than the general public. Mills found that Medicare patients are more susceptible to injuries than younger patients.29 According to the Harvard Medical Practice Study, the patients above 65 are twice as likely to suffer medical injuries as those between 16 and 44 years of age.30 The rate of negligent injuries was also higher among those over 65. Nevertheless, malpractice claims per 100,000 hospitalizations for patients above 65 were 9.1 as compared to 40.1 claims for patients below 65, based on a study of 756 medical malpractice claims in Wisconsin in 1983 and 1984.31 The Utah and Colorado study confirms that Medicare and Medicaid recipients, and poor people in general, are less likely to sue for malpractice.32 Several explanations are suggested for the fact that negligently injured patients file few claims. First, patients may not be aware that the injury was the result of negligence. The physician or hospital has no incentive to inform patients about negligent injuries. Costs of filing lawsuits are extremely high. Many of the injuries may be minor. Since Medicare pays for health care costs of the elderly and they do not earn an income, the malpractice payment an elderly person can get from a lawsuit is small. According to a report by the General Accounting Office, the mean malpractice payment averaged $28,352 to Medicare beneficiaries compared to $105,250 for patients with private insurance.33 A study by Burstin et al.34 found that the poor and the uninsured are less likely to sue than others. I examined the costs. The average malpractice premium paid by a physician in 1996 was $14,100.35 Assuming that all nonfederal physicians in patient care paid for such a policy; the total premium paid would have been $8.188 billion. This is substantially more than $4.892 billion net premiums written by property and casualty companies in 1997.36 The total malpractice payments in 1998 were $3.12 billion: 14,406 payments with a mean of $216,617.37 According to Sloan et al.,38 more than 4 in 5 cases are taken by the plaintiff’s lawyers on a contingency basis. Assuming contingency payment of one-third to plaintiffs’ lawyers (the median is about 40 percent), the injured gets $2.08 billion and plaintiffs’ lawyers $1.04 billion. The insurance companies and defendants’ lawyers get $5.068 billion. Roughly for every $1 that goes to the injured, the plaintiff’s lawyer gets $0.5 and the insurance companies’ and defendants’ lawyers get $2.50. Any tort reform that reduces payments to the injured will only increase the share of insurance companies’ and defendants’ lawyers. This analysis does not include time and anxiety costs of litigants and costs of so-called defensive medicine.

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Several authors have challenged the accuracy of the litigation system. Many physicians claim that patients file meritless claims irrespective of the quality of the care they received and the litigation process is chaotic.39 According to Brennan et al.,40 malpractice payment is predominantly dependent on the severity of the injury and not the occurrence of an adverse event or an adverse event due to negligence. Based on the analysis of 46 malpractice claims from the files of patients identified in the Harvard Medical Malpractice Study, the payment probabilities and mean payments for different types of injuries are as follows: # and Mean Payment # of No Payment Prob. of Payment No adverse event

10 ($28,760)

14

0.42

Adverse Event

6 ($98,192)

7

0.46

Negligent adverse event

5 ($201,250)

4

0.56

Probabilities of payments are the same irrespective of whether an adverse event is present. However, mean payments rise for adverse events and negligent adverse events. Anderson41 challenges this study because grave and minor events are lumped together whether or not the physician is at fault, the method simply averaged reviewers’ evaluations about the likelihood of negligence, and classification of events into no adverse event, adverse event, and negligent adverse event is subjective and inconsistent. According to Rubin,42 the determination from medical records of whether or not an event is due to negligence is difficult when the physician and the patient are in dispute about the facts of the adverse outcome. Rubin’s study is based on a sample of patients discharged from hospitals in New York State who subsequently filed malpractice claims. In other words, the study is injury oriented. Taragin et al.,43 using a sample of 8,231 malpractice claims closed from a New Jersey insurance company from 1977 to 1992, by contrast, concluded that the defensibility and not the severity of patient injury determined whether any payment was made. Each claim was classified into defensible, indefensible, and unclear based on physician care; severity of injury was divided into low, medium, and high by the insurance company, using a standard process. The payment probabilities by physician care are as follows: Physician care

All

Defensible (25%)

21%

Settled 6%

Jury 21%

Indefensible (62%)

91%

93%

42%

Not clear (13%)

59%

69%

30%

A jury awarded payments in 2 in 10 defensible claims, 4 in 10 indefensible claims, and 3 in 10 not clear claims. For claims resolved through settlements, 1 in 16 defensible claims, more than 9 in 10 indefensible claims, and 7 in 10 not clear claims resulted in payments. This clearly indicates that juries do not

228

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favor the injured even in indefensible cases. In short, juries are not engaged in malpractice in cases involving medical malpractice.44 The percentage of payments based on severity of injury are as follows: Severity

All

Jury

Low (28%)

39%

23%

Medium (47%)

43%

25%

High (25%)

47%

23%

It is evident that the jury is not swayed by the severity of injury. The likelihood of a jury favoring the injured is less than half of the likelihood of an insurance company settling with the injured in indefensible cases. If we examine the number of defensible and indefensible payments, the percentage of defensible payments is only 8.51 percent, or 1 in 12 payments. Similarly, 9 percent, or 1 in 11 cases in indefensible cases are not paid. According to a letter to the editor of the Wall Street Journal, about 1 in 5 medical malpractice settlements involve negligent care according to a study published in the New England Journal of Medicine.45 The letter goes on to say that about three-quarters of reports in the NPDB are settlement reports. However, this study, with a much bigger sample of 8,231 claims, contradicts this finding. The truth is that not all physicians who provide negligent care are disciplined or successfully sued. As a result, a large number of poor-quality physicians are neither identified nor penalized by the current system. A summary of studies relating to injuries in hospitalized patients is given in Table 10.1. Table 10.2 summarizes studies relating to claims. These studies should be viewed with caution as they are not without criticism and the judgment about negligence is made by either the authors of this study or the providers of data; in no study is the judgment by the injured or the physicians involved in the treatment. In addition, both the Harvard Medical Practice Study and the Utah and Colorado studies consider the demand for compensation by a patient for alleged injury from medical treatment as a claim. About 7 in 10 such claims are often dropped. As a result, the number of claims in these studies may be overestimated. DISCIPLINARY ACTIONS Disciplinary action is one of the ways states remove unfit physicians. Through licensing procedures, medical boards grant the privilege of practicing medicine to someone who is competent to provide safe care. However, licensure does not guarantee continuing competence in view of advancing medical knowledge. Although some authors estimate that as high as 10 percent of our physicians are professionally incompetent to practice medicine46 only about 3,580 licensure adverse actions were taken against physicians in 1998. The extent of disciplinary

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actions taken by state boards depends on state laws and regulations and also on the intensity with which laws are applied. As a result, there are significant variations in proportions of physicians disciplined. Even for the same conduct, the punishment may vary from case to case and as a result no consistency in disciplinary actions can be expected within states and among states. Licensure adverse actions from 1 September 1990 to 30 September 1999 indicated that more than 1 in 10 were for actions taken by other states. Only 1 in the 10 disciplinary actions other than for actions of other states or 1,832 are for incompetence or malpractice or negligence. According to Sloan and others, sanctions by the Florida Medical Board against physicians with poor or excellent claim histories were not severe even though physicians with poor claim histories are more likely to have complaint filed against them.47 Considering the more than 113,045 malpractice payments between 1 September 1990 and 31 December 1998 by physicians, this is significantly low. One in 4 disciplinary actions other than for actions of other states are for violating laws such as alcohol and substance abuse, felony, and so on. The Health Care Quality Improvement Act of 1986 that established the NPDB requires hospitals to report to the NPDB disciplinary actions relating to “reduction, restriction, suspension, or revocation of clinical privileges for at least 31 days; the voluntary resignation of clinical privileges either while peer review of a potential quality concern is taking place or in lieu of the peer review process.” About 1 in 10 adverse clinical privileges actions were for alcohol and substance abuse, felony, fraud, and so on. One in 4, or 1,825 between 1 September 1990 and 30 September 1999, are for incompetence or malpractice or negligence. This is significantly low considering the fact that there were more than 113,045 malpractice payments between 1 September 1990 and 31 December 1998 by physicians. This conclusion is supported by the analysis of Baldwin et al.48 According to Baldwin and others, hospital reporting rates varied from 0.4 to 52.27 per 100,000 admissions with an average of 2.36 per 100,000 admission between 1991 and 1995. After accounting for other factors, urban hospitals tended to report more actions than rural hospitals. Low quality of care is not the real reason for low level of reporting. States with strong penalties have significantly higher reporting. Hospitals tend to impose penalties that do not require reporting to the NPDB. Loss of privileges as a result of licensure action need not be reported to the NPDB. This substitution of licensing board actions for privileges actions may be another reason for lower reporting by hospitals. Whatever is the cause, it is obvious that a significant proportion of performance shortfalls is being condoned through underreporting.

230

231

232

233

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Medical Malpractice

QUALITY OF THE U.S. HEALTH CARE SYSTEM “The most expensive is not always the best” is the signal the U.S. health care system is sending. The World Health Organization ranks the U.S. health system 37 out of 191 countries based on its performance, even though the U.S. health care delivery system consumes a higher portion of its gross domestic product than any other country in the world does.49 The performance of the health care delivery system is measured in terms of achievement in the level of health, the distribution of health, the level of responsiveness, the distribution of responsiveness, and the fairness of financial contribution. Even though the United States is rated number 1 in responsiveness, it ranks 3 to 38 in distribution of responsiveness. The United States ranks 24 in health level measured in disability adjusted life expectancy and 32 in health level distribution. In fairness of financial contribution, the United States ranks 54 to 55. The overall performance of the U.S. health system is ranked 37—one of the lowest among the developed countries. Although many may not agree with all findings, this study highlights areas that need attention in order to improve the performance of our health system. Another recent study based on 16 health indicators ranks the United States 12 out of 13 developed countries.50 Countries by rank based on their average health indicators are Japan, Sweden, Canada, France, Australia, Spain, Finland, the Netherlands, the United Kingdom, Denmark, Belgium, the United States, and Germany. An analysis of the rankings among 24 OECD countries that include Japan, Australia, New Zealand, Canada, and western European countries, the United States is ranked as follows: 17–18 in female life expectancy 19 in male life expectancy 12–14 in female life expectancy at age 60 9 in male life expectancy at age 60 2 in female life expectancy at age 80 2 in male life expectancy at age 80 18 in perinatal mortality 21–22 in infant mortality 23 in female potential years of life lost 23 in male potential years of life lost

in 1992 or the latest year for which data is available.51 With the exception of life expectancy at 80, the United States ranks at the bottom based on most health outcome indicators. Another recent study that examined the quality of preventive, acute, and chronic care in the United States found a widespread gap between the care

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people should receive and the care they actually received.52 The focus of this study was the percentage of people who received recommended care or contraindicated care. Recommended care is the care that “should have been delivered and was delivered,” and contraindicated care is the care that “should not have been delivered but was delivered.” According to this study, only about 1 in 2 received recommended preventive care. About 70 percent of patients received recommended acute care and 30 percent received contraindicated acute care. Only 6 in 10 patients received recommended care for chronic conditions and 2 in 10 received contraindicated care. These numbers are not precise, but they do provide a measure of shortfall in the quality of care provided by the U.S. health delivery system. To summarize, information about problems in the health care delivery system has been accumulating. The Institute of Medicine’s National Roundtable on Health Care Quality concludes that “serious and widespread quality problems exist throughout American medicine.”53 According to White, the medically related cost of a claim for negligence is $135,000.54 Medical malpractice liability is a powerful deterrent to substandard care. Abolition of malpractice liability is likely to result in sharply increased injuries and deaths. UNINSURED PERSONS The lack of affordability of health care is a major stumbling block for those who need health care in the United States. The proportion of those without health insurance coverage continues to rise and was 16.1 percent in 1997. More than 1 in 5 blacks and 1 in 3 Hispanics are without health insurance coverage compared to 1 in 7 whites in 1997. Without Medicaid, more than 1 in 2 Hispanics and roughly 9 in 20 blacks would be without health insurance coverage compared to roughly 1 in 4 whites. We have a Medicare program that covers those over 65. However, 15 percent of those below 18 were without health insurance in 1997.55 Most people have their health insurance coverage through their employer. As a result, those with jobs that do not provide health insurance, and the unemployed are likely to be uninsured. Uninsured persons, if they are employed, contribute toward Medicare, which finances health care for the elderly. The government through its tax policies subsidizes more than $111.2 billion of health care expenses. The subsidy is only $71 for a family with an annual income of less than $15,000, whereas it is more than $2,357 for a family with an annual income of more than $100,000.56 Even though there has been concerted effort to provide health insurance to the uninsured, most programs instituted are not affordable to the uninsured. Uninsured people usually receive care through the emergency departments of hospitals. However, such care is expensive, as the emergency departments are not designed to provide primary care at low cost. In addition, uninsured people tend to go to a hospital when their illnesses are serious. As a result, they require more expensive treatment. For example, early detection of heart disease, cancer, and stroke can substan-

236

Medical Malpractice

tially reduce bypass surgeries, which required $30,000 per patient, lung cancer treatment, which required $29,000 per patient, and stroke treatment, which required $22,000 per patient in 1992.57 Several studies have found that the uninsured receive substandard care compared to what is received by the insured.58 No wonder the United States is rated 24th in disability adjusted life expectancy. According to Christopher Murray, Director of World Health Organization’s Global Programme on Evidence on Health Policy, “you die earlier and spend more time disabled if you’re an American rather than a member of most other advanced countries.”59 Native Americans, rural African Americans, and the inner-city poor have extremely poor health, similar to that in Third World countries rather than in a rich developed country. The consumption of health care is extremely skewed. According to Aaron, 5 percent of the population consumed about 50 percent of health care services and half consumed 96 percent in the United States in 1980.60 We used to joke that the United States can reduce its health care costs by about half a trillion dollars by simply sending 13 million of these people to Canada. Another interesting characteristic of the U.S. health care system is that health care costs increase dramatically just before death.61 Since it is difficult to know when someone is going to die, this fact is not useful in reducing health care costs. Because health care costs are so skewed, it is impossible for any one person to finance his or her health care costs and that is why universal health care becomes a necessity. Exorbitant medical bills account for 4 in 10 bankruptcies filed in the United States in 1999.62 Although persons without health insurance coverage constitute about 16.1 percent of the population, extending coverage to them will not increase the nation’s health care costs by 16.1 percent because the uninsured are young and healthy, some do buy health care, and the care they currently receive through hospital emergency departments is very expensive. Therefore, estimates of care for the currently uninsured should be substantially low. TORT REFORM The justification for tort reforms typically begins by saying that the current system is broke, proposing a new system in vague terms, and then saying that we need, in the short run, tort reforms to improve the current system. Typical drawbacks of the current system cited include the following: The current liability system does not reduce medical injuries The current liability system does not compensate injured patients The current liability system encourages the practice of defensive medicine The legal system is inefficient, costly, and takes long time to resolve claims Compensation is not consistent, timely, or proportionate to losses Only a few injured persons seek compensation Noneconomic damage payments are subjective and variable

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Uncertainty of damage payments reduce settlements The discovery process, trial process, and use of expert witnesses increase costs.

Therefore we must adopt schedules for noneconomic damages, schedules for attorney’s contingency fees, modification of the collateral source rule, restriction on joint and several liability, periodic payments of large awards for future damages, reductions in statutes of limitations for minors, use of punitive damage awards for quality improvement purposes, raising of standards for punitive damage awards, certificates of merit, pretrial evaluation panes shifting attorney’s fees to the losing party, and so on.63 All matters relating to medical malpractice are construed from the perspective of health care providers. The modifications to tort laws to reduce claim frequencies and payments are called “reforms” even though they represent no improvements to the system; rather they make it difficult and expensive for the injured to collect compensation. A summary of the impact of tort reforms on payment rates, the likelihood of settled payment, mean claim severity physician’s premiums, hospital premiums, cesarean rates, and delay is presented in Table 10.3. Reforms that decrease payments or legal fees reduce the frequency of payments. Lower payments reduce the incentive to file claims and low legal fees decrease a lawyer’s incentive to take high-risk cases. Periodic payments reduce overall payments. The same reforms also reduce the probability of settlement. Since going through a trial is expensive, a significant number of potential claim payments are dropped. Since the jury or bench trial process is time consuming, injured patients are forced to settle at lower amounts. Payment caps have significantly hurt the most severely injured because capped awards do not fully compensate them for monetary losses. Lawyers for injured persons with a high severity of injury typically like to negotiate settlements. Since the payments involved are high in these cases, insurance companies have an incentive to delay payments. However, tort reforms involving caps of damages and restriction on legal fees have encouraged insurance companies to go for trial. The cumulative proportion of claims resolved by severity of injury at various stages of litigation is given in the following:64 Stage of resolution

Low

Medium

High

Before suit is filed

38

14

11

After suit, before discovery is complete

78

64

59

After discovery, more than 45 days before trial

81

69

66

Within 45 days of trial

87

79

77

During trial, before verdict

91

86

86

Verdict or after

99

99

100

Claims with high severity of injuries involve higher payments and they are resolved at much slower rates than others.

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According to Johnson et al.,65 a large proportion of injured patients suffer small losses and a few suffer extensive losses. For example, Johnson et al. found that more than half of all injured persons suffered less than $4,000 in lifetime medical care costs and more than 85 percent of the injured suffered less than $4,000 in lost wages and household production. However, about 3 percent of the injured suffered more than $100,000 in medical treatment costs and about the same suffered losses in wages and household production. Capping damages affects those with the most serious injury. Based on an analysis of injuries in general, Marquis and Manning66 found that only 55 percent of the costs of injuries are reimbursed by private and public programs and the long-term and disabling injuries are reimbursed at the lowest rate by current compensation programs. According to Studdert and others,67 the malpractice related parameters for Colorado and Utah for 1992 were as follows: Colorado

Utah

Number of negligent injuries

3,179

1,828

Significant or major negligent injuries

1,552

1,028

Claims filed

476

361

Claims paid

160

120

Economic costs of preventable injuries

$308 million

Estimated malpractice payments

$26.7 million

The ratio of claims filed to significant negligent injuries was 1 out of 3 and that of claims paid to significant injuries was 1 out of 18. The total costs of preventable adverse events in Utah and Colorado were $308 million. The estimated payments in Colorado and Utah for malpractice that occurred in 1992 and claims closed by 30 September 1999, using data from the NPDB, were $26.7 million. For every dollar of negligent injuries, the malpractice system pays only 11.5 cents. It is not easy to win an injury claim in the United States even though the popular press portrays the situation otherwise. The inability of people injured by smoking tobacco to recover damages through the liability system indicates the extent of difficulty in recovering damages. The fact that states like Texas, Ohio, Louisiana, and Florida used lawyers on a contingency basis to recover health care costs of tobacco smoking indicates the need for an effective access to lawyers on a contingency basis.68,69 Currently, a patient injured negligently during medical treatment has difficulty in finding a lawyer to represent him or her on a contingency basis. He or she has to wait from 3 years in Wyoming to 7.3 years in New York, with an average 4.18 years, to resolve the claim. If the claim goes to trial, 7 out of 10 times he or she will lose. So even if the injured believes that he or she has strong case, he or she is forced to settle at a fraction of the cost. We currently have what Abel70 in 1987 called “the real tort crisis with too

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few claims.” It is worse now with fewer claims and lower payments. It is therefore time to relax some of the caps on damages and reduce legal barriers to recover damages. It is unacceptable that an injured person has to wait several years to recover damages. The states could require courts to resolve malpractice cases within at least 1 year of filing. The jury trial is one of the best methods for resolving disputes despite all its drawbacks. Any proposal to sidestep jury trial should therefore be viewed with a jaundiced eye. However, to facilitate recovery of damages of lower amounts, the states may introduce arbitration boards with randomly selected attorneys as arbitrators. Of course, these boards should have powers similar to those of the courts, including the power to subpoena documents. Law should be written so as to respond to all types of cases. A New York City woman died of a botched surgery because doctors used equipment that they were neither authorized nor trained to use. The hospital where this surgery was performed tried to hide the details of the surgery from state regulators and family members.71 A violation like this calls for not only punitive damages but also criminal prosecution. Even though so much is written and said against punitive damage awards, they are awarded in only 1.1 percent or roughly 1 of 100 cases involving medical malpractice payments. However, they serve a useful purpose by encouraging settlements and penalizing flagrant negligence. They also help severely injured people to settle claims in more reasonable terms. THE NATIONAL PRACTITIONER DATA BANK The NPDB is a repository of records and reports of malpractice payments and adverse licensure, clinical privileges, professional membership, and Drug Enforcement Agency reports (adverse actions) against physicians, dentists, and other licensed health care professionals. Hospitals are required to query the data bank before they make any new staff appointments, and at least once every two years for all existing medical staff. Critics of NPDB challenge the utility of such a repository as an indicator of quality of medical care and oppose public access to it. The disciplinary actions taken by state medical boards, peer review activities, and malpractice payments are three major activities through which the health delivery system weeds out poor performers. However, all these actions are legal processes that depend on the judgment of people rather than having any scientific basis. In addition, licensure and privileges adverse actions are taken for other than quality of care reasons. More than 19 out of 20 malpractice payments are as a result of settlements. Malpractice payments below $50,000 could be made for economic reasons rather than for genuine negligence. Malpractice payments even if they reflect poor quality of care may not reflect incompetence in a physician. Even the best physicians are sued. In Massachusetts, about 35.08 percent of obstetricians and gynecologists have been sued during the past 10 years. Of 42 obstetricians and gynecologists mentioned in the Best Doctors in

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America, 11 (26.2 percent) have been sued. I would therefore be hesitant to make the NPDB data available to the public. However, this debate is becoming irrelevant because consumers can find on web sites information about malpractice claims paid by physicians in California, Florida, Idaho, Massachusetts, and Tennessee and information about discipline by state boards in 40 states and the District of Columbia. Permitting public access to NPDB information may also delay malpractice settlement payments because physicians will refuse to settle cases in order to delay and sometimes avoid being reported to the NPDB. Since average delay from occurrence of malpractice to payment is more than 3 years, the malpractice data contained in NPDB files are old and incomplete. For example, with a delay of 4.12 years, 85.5 potential payments per 1,000 physicians will not be shown by the NPDB. Therefore, the NPDB should collect data from the claims stage. In order to make the records complete, the NPDB should collect data about all malpractice including claims made against health care providers such as hospitals and nursing homes. MEDICAL MALPRACTICE INSURANCE PREMIUMS Only a few states require physicians to buy medical malpractice insurance. Our analysis shows that no adverse selection is taking place as a result of a lack of this requirement. According to a survey of physicians, 6.5 percent of physicians either discontinued their insurance coverage completely or self-insured through an individual trust or escrow account in 1983.72 Malpractice judgment is dischargeable in bankruptcy. Therefore, states should make it mandatory to purchase malpractice insurance. Most insurance companies do not use experience rating (charging premiums based on prior claims) in setting premiums. Most policies have neither deductibles nor co-insurance. However, premiums vary by specialty and geographic regions. The distribution of claim payments is extremely skewed with a very few payments accounting for a significant percentage of all payments. As a result, experience rating schemes will increase the premiums of a physician with a single claim significantly. An analysis by Ellis, Gallup, and McGuire73 indicates that ratings based on Bayesian conditional means using 5 years of payment experience would increase the premium of a physician with one payment fourfold for most specialties. Therefore, experience rating may either drive out physicians from practicing medicine or force physicians to practice medicine without malpractice insurance. DENTAL MALPRACTICE National health expenditures for dental services totaled $53.8 billion in 1998—about 4.7 percent of total health expenditures. Currently, less than 1 in 2 persons have dental insurance and this is a significant barrier to oral health. In addition, out-of-pocket spending for dental care is too high.

242

Medical Malpractice

Accreditation and training in dental schools, and state licensing boards are two significant mechanisms to ensure the quality of dental care by protecting the public from poorly trained, incompetent, or unethical dental practitioners. Unfortunately, both dental schools and licensing boards are significantly falling short in achieving their goals. Although the accreditation system for dental schools is intended to ensure high-quality training, according to the committee on the Future of Dental Education,74 the accreditation process “tolerates some inferior educational programs, although data to document this are not publicly accessible.” This is the same as saying that the accreditation process is broke and needs repair. The licensure process also is not in good shape. In the name of competency, licensing boards require graduates of accredited U.S. dental schools to take a two-part written examination, a written and clinical examination requiring a live patient, a “jurisprudence” examination to prove familiarity with the practice laws of the state, and so on. In addition, some states require a licensed dentist from another state to go through the clinical examination to practice dentistry. One reason offered by states for not granting licensure by credentials is that the system offers adequate assurance of the competency of out-of-state dentists seeking licensure. They also argue not allowing licensure by credentials prevents “bad apples” moving from state to state. However, this creates barriers for a licensed dentist to move from one to another state and serves no useful purpose. In addition, this requirement hurts African Americans, because more than one-third of them graduate from dental schools in Washington, D.C., and the state of Tennessee.75 Therefore, the states should be forced to license by credentials. Most dentists work in isolation and as a result, malpractice claims and complaints are the only indicators of any problem with their competency. It is therefore essential to strengthen the disciplinary process. The annual licensure and privileges actions per 1,000 dentists vary from just 0.301 in Vermont to 22.80 in Arizona. It is, therefore, essential to strengthen the licensure actions by the states. Malpractice payments vary significantly for dentists. It is, therefore, essential for dentists to buy malpractice insurance coverage. According to a survey of dentists, 4 percent of dentists do not buy malpractice insurance.76 States should make it mandatory to have dental malpractice insurance to practice dentistry. POLITICS OF MALPRACTICE There is a malpractice crisis. According to those who oppose the current malpractice system, there is a litigation explosion. According to James Griffith, a malpractice defense attorney, juries “act like Santa Claus, handing out millions of dollars in cases involving comparatively minor injuries.”77 According to those supporting the medical malpractice system, there is a crisis in that there are too few claims. It really does not matter who is right. What really matters is what the public thinks and what legislatures are going to do. The public opinion polls

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support reforms. Juries render judgments in favor of the negligently injured only in 3 out of 10 claims. Republican members of Congress introduce bills in almost every session to make recovery difficult and to limit damages. In view of the growing public concern, the Japanese government is drawing up guidelines that require physicians to notify police about medical accidents involving death or injury. In the case of unexpected death, the burden of proof is on the doctor to prove that he or she was not at fault.78 Of course, such measures are unlikely to be implemented in the United States. To summarize, the politics will determine the fate of tort law and not the facts.

SUPPLY OF PHYSICIANS Access to care depends on the availability of physicians and the costs of care. However, the supply of physicians has not been a factor in the access to care. Although there is no consensus about the optimal number of physicians required, there is consensus that there is an oversupply of physicians in the United States. The increases from 1995 to 2005 in nurse practitioners from 58,000 to 116,153, in physicians’ assistants from 26,900 to 62,109, and in nurse-midwives from 5,150 to 9,766 are likely to exacerbate the condition.79 Dartmouth Medical School estimates the excess generalists to be between 9,951 and 49,600 and specialists between 55,395 and 83,066. Excess supply of physicians increases costs and patient visits but neither reduces underservice nor encourages patients’ participation in shared decision making.80 In addition, a new patient has to wait 9 days on an average to get an appointment with a physician. Neurologists required 15.4 days of wait and obstetricians and gynecologists 15 days in 1996.81 In view of the fact that 1 in 4 U.S. physicians is an international medical graduate, there is a call to reduce the flow of international medical graduates into the U.S. physician work force. However, 1 in 2 international medical graduates was either a U.S. citizen or a permanent resident in 1993.82

DEFENSIVE MEDICINE Defensive medicine is any treatment decision that a physician makes to avoid a malpractice claim. Defensive medicine will never go away. Any responsible physician wants to provide the best possible care to his patient whether or not there is a threat of litigation. So-called defensive medicine is essentially a risk reduction technique; if liability is eliminated, the chances of defensive medicine going away are still low, but negligent injuries are likely to rise sharply. Overuse, underuse, and misuse of care are more prevalent than defensive care. More money cannot reduce underservice. According to the Dartmouth Atlas of Health Care 1999, increased Medicare spending does not result in lower underservice.83 Clinical practice guidelines may be one way to reduce underuse and overuse and encourage appropriate care.

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HEALTH CARE COSTS Several factors, including the malpractice system, have been considered to contribute to rising health care costs, the significant reasons for increases in costs are technology and economic growth. Health care fraud and abuse accounts for a major portion of our health care costs. Tobacco, alcohol abuse, and other social ills also increase health care costs. TO SUMMARIZE Although several maladies of health care are attributed to the medical malpractice system, its impact on the health care delivery system is minimal. Only a few negligent injuries are detected and compensated through the liability system. A significant proportion of negligent injuries is undetected and is not corrected through the physician disciplining system. A focus on adverse events and steps to correct them can significantly improve the quality of the health care delivery system. However, for a very long time to come, our mortality rate will continue to be 100 percent. Society cannot expect a higher level of integrity from a system than its own level. Fair-minded people can improve the working of a poor judicial system. However, even a good judicial system cannot work well when people are not so fair-minded. Laws do not always reflect fairness. It is with these perspectives that we should judge the medical malpractice and physician disciplining system in the United States. NOTES 1. Carol DeFrances, S. K. Smith, P. A. Langan, B. J. Ostrom, D. B. Roltman, and J. A. Goerdt, Civil Justice Survey of State Courts, 1992, Civil Jury Cases and Verdicts in Large Counties, NCJ-154346 (Washington, D.C.: U.S. Department of Justice, Office of Justice Programs, July 1995), 2. 2. Ibid., 7. 3. Insurance Information Institute, The I.I.I. 1999 Fact Book (Washington, D.C.: Author, 1999), 15. 4. Best’s Review, P/C, August 1999, 78–9. 5. Institute of Medicine, To Err Is Human: Building a Safer Health System, ed. Linda T. Kohn, Janet M. Corrigan, and Molla S. Donaldson, Committee on Quality of Health Care in America (Washington, D.C.: National Academy Press, 2008), Chap. 2. 6. James T. Reason, Human Error (Cambridge, UK: Cambridge University Press, 1990). 7. R. E. Ferner and J. K. Aronson, “Medication Errors, Worse Than a Crime,” Lancet 355 (18 March 2000): 947–8. 8. Patricia M. Danzon, Medical Malpractice: Theory, Evidence, and Public Policy (Cambridge: Harvard University Press, 1985), Chap. 2. 9. T. A. Brennan, L. L. Leape, N. M. Laird, L. Hebert, A. R. Localio, A. G. Lawthers,

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J. P. Newhouse, P. C. Weiler, and H. H. Hiatt, “Incidence of Adverse Events and Negligence in Hospitalized Patients: Results of the Harvard Medical Practice Study I,” New England Journal of Medicine 324(6) (1991): 370–6. 10. L. L. Leape, T. A. Brennan, N. Laird, A. G. Lawthers, A. R. Localio, B. A. Barnes, L. Hebert, J. P. Newhouse, P. C. Weiler, and H. H. Hiatt, “The Nature of Adverse Events in Hospitalized Patients: Results of the Harvard Medical Practice Study II,” New England Journal of Medicine 324(6) (7 February 1991): 377–84. 11. P. C. Weiler, H. H. Hiatt, J. P. Newhouse, W. G. Johnson, T. A. Brennan, and L. L. Leape, A Measure of Malpractice: Medical Injury, Malpractice Litigation, and Patient Compensation (Cambridge: Harvard University Press, 1993), 42. 12. E. J. Thomas, D. M. Studdert, H. R. Burstin, E. J. Orav, T. Zeena, E. J. Williams, K. M. Howard, P. C. Weiler, and T. A. Brennan, “Incidence and Types of Adverse Events and Negligent Care in Utah and Colorado,” Medical Care 38(3) (March 2000): 261–71. 13. A. A. Gawande, E. J. Thomas, M. J. Zinner, and T. A. Brennan, “The Incidence and Nature of Surgical Adverse Events in Colorado and Utah in 1992,” Surgery 126(1) (1999): 66–75. 14. Institute of Medicine, To Err Is Human, Appendix C, 183–209. 15. Institute of Medicine, To Err Is Human, p. 26. 16. Ibid. 17. T. A. Brennan, “The Institute of Medicine Report on Medical Errors—Could It Do Harm?” New England Journal of Medicine 342(15) (13 April 2000): 1123–5. 18. J. Lazarous, B. H. Pomeranz, and P. N. Corey, “Incidence of Adverse Drug Reactions in Hospitalized Patients: A Meta-analysis of Prospective Studies,” Journal of the American Medical Association 279, no. 15 (15 April 1998): 1200–5. 19. B. Starfield, “Is US Health Really the Best in the World?” Journal of the American Medical Association 284(4) (26 July 2000): 483–5. 20. Thomas et al., “Incidence and Types of Adverse Events and Negligent Care in Utah and Colorado.” 21. W. G. Johnson, T. A. Brennan, J. P. Newhonse, L. L. Leape, A. G. Lawthers, H. H. Hiatt, and P. C. Weiler, “The Economic Consequences of Medical Injuries: Implications for a No-fault Insurance Plan,” Journal of the American Medical Association 267(18) (13 May 1992): 2487–92. 22. E. J. Thomas, D. M. Studdert, J. P. Newhouse, B. I. W. Zbar, K. M. Howard, E. J. Williams, and T. A. Brennan, “Costs of Medical Injuries in Utah and Colorado,” Inquiry 36 (fall 1999): 255–64. 23. Ibid. 24. Danzon, Medical Malpractice, 22–5. 25. A. R. Localio, A. G. Lawthers, T. A. Brennan, N. M. Laird, L. E. Hebert, L. M. Peterson, J. P. Newhouse, P. C. Weiler, and H. H. Hiatt, “Relation between Malpractice Claims and Adverse Events due to Negligence: Results of the Harvard Medical Practice Study III,” New England Journal of Medicine 325(4) (July 25, 1991): 245–51. 26. Socioeconomic Characteristics of Medical Practice, 1997/98 (Chicago: American Medical Association, 1998), 40. 27. Division of Quality Assurance, Bureau of Health Professions, Human Resources and Services Administration, National Practitioner Data Bank, 1998 Annual Report (Rockville, Md.: U.S. Department of Health and Human Services, 1999), Table 4. 28. DeFrances and others, Civil Justice Survey of State Courts, 1992, 4.

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29. D. Mills, ed., Report on the Medical Insurance Feasibility Study (San Francisco: California, Medical Association and California Hospitals Association, 1977). 30. T. A. Brennan, L. L. Leape, N. M. Laird, L. Hebert, A. R. Localio, A. G. Lawthers, J. P. Newhouse, P. C. Weiler, and H. H. Hiatt, “Incidence of Adverse Events and Negligence in Hospitalized Patients: Results of the Harvard Medical Practice Study I,” New England Journal of Medicine 324(6) (1991): 370–6. 31. Mark Sager, S. Volks, P. Drinka, E. Langer, and P. Grimstad, “Do the Elderly Sue Physicians?” Archives of Internal Medicine 150 (1990): 1091–3. 32. D. A. Studdert, E. J. Thomas, H. R. Burstin, B. I. W. Abar, E. J. Orav, and T. A. Brennan, “Negligent Care and Malpractice Claiming Behavior in Utah and Colorado,” Medical Care 38(3): 250–260. 33. U.S. General Accounting Office, Medical Malpractice: Characteristics of Claims Closed in 1984, GAO/HRD-87–55 (Washington, D.C.: Author, April 1987). 34. H. R. Burstin, W. G. Johnson, S. R. Lipsitz, and T. A. Brennan, “Do the Poor Sue More? A Case-control Study of Malpractice Claims and Socioeconomic Status,” Journal of American Medical Association 270(14)(13 October 1993): 1697–1701. 35. Socioeconomic Characteristics of Medical Practice, 1997/98, 43. 36. Insurance Information Institute, The I.I.I. 1999 Fact Book, 15. 37. Division of Quality Assurance, Bureau of Health Professions, Human Resources and Services Administration, National Practitioner Data Bank, 1998 Annual Report, Tables 4, 11. 38. F. A. Sloan, P. B. Githens, E. W. Clayton, G. B. Hickson, D. A. Gentile, and D. F. Partlett, Suing for Medical Malpractice (Chicago: University of Chicago Press, 1993), 77. 39. E. D. Kinney, “Malpractice Reform in the 1990s: Past Disappointments, Future Successes?” Journal of Health Politics, Policy, and Law 20(1995): 99–135. 40. T. A. Brennan, Colin M, Sox, and H. R. Burstin, “Relation between Negligent Adverse Events and the Outcomes of Medical-Malpractice Litigation,” New England Journal of Medicine 335(1996): 1963–7. 41. Richard E. Anderson, “Outcomes of Medical-Malpractice Litigation,” Letter to the editor, New England Journal of Medicine 336(23) 5 June 1997: 1680. 42. Robert I. Rubin, “Outcomes of medical-malpractice litigation,” Letter to the editor, New England Journal of Medicine 336(23) 5 June 1997: 1680. 43. Mark I. Taragin, L. R. Willett, A. P. Wilczek, R. Trout, and J. L. Carson, “The Influence of Standard of Care and Severity of Injury on the Resolution of Medical Malpractice Claims,” Annals of Internal Medicine 117(1992): 780–4. 44. Neil Vidmar, Medical Malpractice and the American Jury: Confronting Myths about Jury Incompetence, Deep Pockets, and Outrageous Damage Awards (Ann Arbor: University of Michigan Press, 1998). 45. Thomas Reardon, “Doctor Deadly,” Letter to the Editor, Wall Street Journal, 7 August 2000, A15. 46. Lee Benham, “Licensure and Competition in Medical Markets,” in Regulating Doctors’ Fees: Competition, Benefits, and Control under Medicare, ed. H. E. Frech III (Washington, D.C.: AEI Press, 1991), 78. 47. F. A. Sloan, P. M. Mergenhagen, W. B. Burfield, R. R. Bovbjerg, and M. Hassan, “Medical malpractice experience of physicians. Predictable or haphazard?” Journal of American Medical Association 262(23) (15 December 1989): 3291–7. 48. L. M. Baldwin, L. G. Hart, R. E. Oshel, M. A. Fordyce, R. Cohen, and R. A.

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Rosenblatt, “Hospital Peer Review and the National Practitioner Data Bank: Clinical Privileges Action Reports,” Journal of American Medical Association 282(4) (28 July 1999): 349–55. 49. The World Health Report 2000: Health Systems: Improving Performance (Geneva: World Health Organization, 2000). 50. B. Starfield, Primary Care: Balancing Health Needs, Services, and Technology (New York: Oxford University Press, 1998). 51. New Directions in Health Care Policy, Health Policy Studies, no. 7 (Paris: Organization for Economic Co-operation and Development, 1995), 27. 52. M. A. Schuster, E. A. McGlynn, and R. H. Brook, “How Good is the Quality of Health Care in the United States,” The Milbank Quarterly 76(4)(1998): 517–563. 53. M. R. Chassin, R. W. Galvin, and the National Roundtable on Health Care Quality, “The Urgent Need to Improve Health Care Quality,” Journal of American Medical Association 280(1998): 1000–1005. 54. Michelle J. White, “The Value of Liability in Medical Malpractice,” Health Affairs (fall 1994): 75–87. 55. U.S. Census Bureau, Statistical Abstract of the United States: 1999, 127. 56. John Sheils and Paul Hogan, “Cost of Tax-Exempt Health Benefits in 1998,” Health Affairs 18(3)(March–April 1999): 176–181. 57. HIAA, Sourcebook of Health Insurance Data (Washington, D.C.: Health Insurance Association of America, 1992). 58. M. B. Wenneker, J. S. Weissman, and A. M. Epstein, “The Association of Payer with Utilization of Cardiac Procedures in Massachusetts,” Journal of American Medical Association 264(8) (September 12, 1990): 1255–60. 59. WHO, WHO Issues New Healthy Life Expectancy Rankings, Press Release, Released in Washington, D.C., and Geneva, Switzerland, 4 June 2000. 60. H. J. Aaron, Serious and Unstable Condition: Financing America’s Health Care (Washington, D.C.: The Brookings Institution, 1991). 61. J. Lubitz and R. Prihoda, “The Use and Costs of Medicare Services in the Last 2 Years of Life,” Health Care Financing Review 5(3) (1984): 117–131. 62. Scott Gottlieb, “Medical Bills Account for 40% of Bankruptcies,” British Medical Journal, International Edition 320, Issue 7245(May 13, 2000): 1295. 63. “Medical Liability Reform,” Chap. 15 in Annual Report to Congress, 1995 Physician Payment Review Commission (Washington, D.C.: Physician Payment Review Commission, 1995). 64. M. I. Taragin, L. R. Willett, A. P. Wilczek, R. Trout, and J. L. Carson, “The Influence of Standard of Care and Severity of Injury on the Resolution of Medical Malpractice Claims,” Annals of Internal Medicine 117(9) (1 November 1992): 780–4. 65. Johnson et al., “The Economic Consequences of Medical Injuries.” 66. M. S. Marquis and W. G. Manning, “Lifetime Costs and Compensation for Injuries,” Inquiry 36 (fall 1999): 244–54. 67. Studdert et al., “Negligent Care and Malpractice Claiming Behavior in Utah and Colorado.” 68. “Fat Fees in Tobacco Deals Signal New Foe for States: The Lawyers,” New York Times, 9 February 1998. 69. Sam Howe Verhovek, “$6,700 an Hour? Lawyers’ Tobacco-suit Fees Invite Revolt,” USA Today, 22 May 2000.

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70. R. L. Abel, “The Real Tort Crisis: Too Few Claims,” Ohio State Law Journal 48 (1987): 443–67. 71. J. Steinhauer, “Hospital Accused of Hiding Details of Woman’s Death,” New York Times, Late Ed., 10 November 1998, B4, col. 1. 72. S. Zuckerman, “Medical Malpractice: Claims, Legal Costs, and the Practice of Defensive Medicine,” Health Affairs 3(3) (fall 1984): 107–12. 73. R. P. Ellis, C. L. Gallup, and T. McGuire, “Should Medical Professional Liability Insurance Be Experience Rated?” Journal of Risk and Insurance 57(1) (March 1990): 66–78. 74. Marilyn J. Field, ed., Dental Education at the Crossroads: Challenges and Change, Division of Health Care Services, Institute of Medicine (Washington, D.C.: National Academy Press, 1995), 9. 75. Bureau of Health Professions, Division of Disadvantage Assistance, Minorities and Women in the Health Fields, 1994 ed., HRSA-P-DV 94–2 (Washington, D.C.: U.S. Department of Health and Human Services, Public Health Service, Health Resource and Services Administration, August 1994), 76–7. 76. P. Milgrom, C. Whitney, D. Conrad, L. Fiset, and D. O’Hara, “Tort Reform and Malpractice Liability Insurance,” Medical Care 33(8) (August 1995): 755–64. 77. J. Griffith, “What Will It Take to Solve the Malpractice Crisis?” Medical Economics, 17 September 1982, 195. 78. Jonathan Watts, “Japan’s New Guidelines to Expose Doctors’ Errors,” Lancet 356(9223) (1 July 2000): 54. 79. Medical Economics, 20 March 2000, 162. 80. The Center for the Evaluative Clinical Sciences, Dartmouth Medical School, “The Quality of Medical Care in the United States: A Report on the Medicare Program,” in The Dartmouth Atlas of Health Care 1999 (Chicago: AHA Press, 1999), 236–8. 81. M. L. Gonzalez, ed., Physician Marketplace Statistics 1996 (Chicago: Center for Health Policy Research, American Medical Association, 1997), 165. 82. F. Mullan, R. M. Politzer, and C. H. Davis, “Medical Migration and the Physician Workforce: International Medical Graduates and American Medicine,” Journal of the American Medical Association 273(19) (17 May 1995): 1521–7. 83. The Center for the Evaluative Clinical Sciences, Dartmouth Medical School, “The Quality of Medical Care in the United States,” 220.

Appendix I: Statistical Methods Since I use samples of data to identify relationships, I use statistical methods. Since different samples are likely to point to different conclusions, conclusions are uncertain. My reliance on my conclusions is expressed in confidence levels. Confidence levels represent the probability of our conclusion being right. I indicate confidence levels of 0.9 by *, 0.95 by **, and 0.99 percent by ***. The level of significance represents 1 minus the confidence level.

UNIVARIATE METHODS Univariate methods are used to identify relationships between two variables. Since they do not take into account the impact of other variables, univariate results should be interpreted with caution. The typical univariate statistical method used in this book is the Spearman rank correlation. Unlike other univariate measures, the Spearman rank correlation does not make any assumption about the probability distribution of the variables. The Spearman rank correlation value varies from ⫺1 to ⫹1. Values near 1 and ⫺1 represent perfect association between variables. Values close to 0 indicate least association. Positive values indicate that when one variable increases, the other also increases and negative values indicate that when one variable increases, the other decreases.

MULTIVARIATE METHODS Multiple Linear Regression (MREG) analysis identifies a relationship between one dependent variable and several independent variables. The R-squared value, which varies between 0 and 1, indicates the strength of the relationships. A value close to 0 represents lack of association and 1 indicates perfect association. T-values indicate the confidence

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I have in the association between the dependent and the independent variables. Multiple linear regression analysis expresses the dependent variable y in terms of independent variables x’s as follows: Y ⫽ a0 ⫹ a1 ⫻1 ⫹ a2 ⫻2 ⫹ a3 ⫻3 ⫹ . . . . . . ⫹ εi where εi is a residual for each observation i. Multiple linear regression imposes several restrictions on εi, including normality, independence, constant variance, and a mean value of 0. Multiple linear regression analysis assumes that there are no correlations between residuals. The Durbin-Watson (DW) test statistic provides a measure of correlation between residuals. A value close to 2 is considered to indicate no correlation between residuals. When there are data of states for various years, data from the same states and the same years are likely to be correlated. This correlation can be accounted for by rewriting the multiple linear regression as follows: Y ⫽ a0 ⫹ a1 ⫻1 ⫹ a2 ⫻2 ⫹ a3 ⫻3 ⫹ . . . . . . ⫹ εit ⫹ vi ⫹ et where vi and et has mean values of 0. This specification is called the time-series crosssectional (TSCS) model. For the purpose of statistical analysis, factor effects are classified as fixed and random. The fixed effect indicates that I am going to make inferences about all levels of the factor from the model. The random effect indicates that only a random sample of potential levels is used in the study to make inferences. All variables used in multiple linear regression analysis represent fixed effects. When specifications include both fixed and random variables, such specifications are called mixed (MIX) models. The mixed model can be expressed as: Y ⫽ a1 ⫻1 ⫹ a2 ⫻2 ⫹ . . . ⫹ b1 z1 ⫹ b2 z2⫹ . . . ⫹ ei where x’s represent fixed effects and z’s random effects. When data come from independent clusters (subjects), there could be correlation between observations within clusters. This is accounted for in random coefficient models (RCM). These models are also called multilevel linear models and hierarchical linear models. I use states as subjects and year as within subjects. I generally try an unstructured and first-order autoregressive covariance structure. I decide the covariance structure by Akaike’s Information Criteria and use a chi-squared test to use specifications with higher degrees of freedom. When the dependent variables take only positive and integer values, I use Poisson regression analysis (POI) to model the data. The claim frequency, cesarean birth rates and other events typically follow Poisson distribution. The ratio of Pearson chi-square to degrees of freedom should be close to 1 to have Poisson dispersion. When observations belong to clusters and dependent variables are count data, I account for correlations among data using generalized estimating equations (GEE). I use states as subjects and year as within subjects. Multiple linear regression analysis is likely to give erroneous results if used to fit

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simultaneous equations. I use seemingly unrelated regressions (SUR) and two-stage least squares to model simultaneous equations (2SLS). When the dependent variable takes values of 0 and 1, I use logistic regression (LOGIT) to model the dependent variables. ⫺2 log likelihood is used to measure the statistical significance of the model. The concordant values give a measure of relationship between dependent and independent variables. I used SAS威 software to estimate parameters. The references for the preceding statistical methods follow. Multiple Linear Regression (MREG) The REG Procedure, Chap. 36, SAS/STAT威 User’s Guide, Version 6, 4th ed., Vol. 2, 1351–1456. Time-Series Cross Sectional Regression (TSCS) The TSCS Procedure, Chap. 18, SAS/ETS威 User’s Guide, Version 6, 2d ed., 869–94. Mixed Models (MIX) The Mixed Procedure, Chap. 18, SAS/STAT威 Software: Changes and Enhancements through Release 6.12, 1997, 571–702. Random Coefficient Model (RCM) The Mixed Procedure, Chap. 18, SAS/STAT威 Software: Changes and Enhancements through Release 6.12, 1997, 571–702. Poisson Regression (POI) The Genmod Procedure, Chap. 10, SAS/STAT威 Software: Changes and Enhancements through Release 6.12, 1997, 247–348. Generalized Estimating Equations (GEE) The Genmod Procedure, Chap. 10, SAS/STAT威 Software: Changes and Enhancements through Release 6.12, 1997, 247–348. Logistic Regression (LOGIT) The Logistic Procedure, SAS/STAT威 User’s Guide, Version 6, 4th ed., Vol. 2, 1071– 1126. We feel that it is important that readers understand the limitations of statistical methods. Statistical methods by themselves cannot help us to understand the complex relationships involved. The conclusions drawn from the models depend on the assumptions. If assumptions are not true, the conclusions based on the results may not be close to reality. Statistical models only help us to find patterns in data and understand relationships.

Appendix II

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255

256

257

258

259

260

261

262

Selected Bibliography Abel, R. L. “The Real Tort Crisis: Too Few Claims.” Ohio State Law Journal 48 (1987): 443–67. Brennan, T. A., L. L. Leape, N. M. Laird, L. Hebert, A. R. Localio, A. G. Lawthers, J. P. Newhouse, P. C. Weiler, and H. H. Hiatt, “Incidence of Adverse Events and Negligence in Hospitalized Patients: Results of the Harvard Medical Practice Study I,” New England Journal of Medicine 324(6) (1991): 370–6. Brennan, T. A., Colin M. Sox, and H. R. Burstin. “Relation between Negligent Adverse Events and the Outcomes of Medical-malpractice Litigation.” New England Journal of Medicine 335 (1996): 1963–7. The Center for the Evaluative Clinical Sciences, Dartmouth Medical School. “The Quality of Medical Care in the United States: A Report on the Medicare Program. In The Dartmouth Atlas of Health Care, 1999. Hanover, NH: The Center for the Evaluative Clinical Sciences, 1999. Danzon, Patricia. Medical Malpractice: Theory, Evidence, and Public Policy. Cambridge: Harvard University Press, 1985. Gawande, A. A., E. J. Thomas, M. J. Zinner, and T. A. Brennan. “The Incidence and Nature of Surgical Adverse Events in Colorado and Utah in 1992.” Surgery 126(1) (1999): 66–75. Institute of Medicine. Dental Education at the Crossroads: Challenges and Change. Washington, D.C.: National Academy Press, 1995. Institute of Medicine. To Err Is Human: Building a Safer Health Systems. Edited by Linda T. Kohn, Janet M. Corrigan, and Molla S. Donaldson, Committee on Quality of Health Care in America. Washington, D.C.: National Academy Press, 2000. Johnson, W. G., T. A. Brennan, J. P. Newhouse, L. L. Leape, A. G. Lawthers, H. H. Hiatt, and P. C. Weiler, “The Economic Consequences of Medical Injuries: Implications for a No-fault Insurance Plan. Journal of the American Medical Association 267(18) (13 May 1992): 2487–92.

264

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Kapp, Marshall B. Our Hands Are Tied: Legal Tensions and Medical Ethics. Westport, Conn.: Auburn House, 1998. Leape, L. L., T. A. Brennan, N. Laird, A. G. Lawthers, A. R. Localio, B. A. Barnes, L. Hebert, J. P. Newhouse, P. C. Weiler, and H. H. Hiatt, “The Nature of Adverse Events in Hospitalized Patients: Results of the Harvard Medical Practice Study II,” New England Journal of Medicine 324(6) (7 February 1991): 377–84. Localio, A. R., A. G. Lawthers, T. A. Brennan, N. M. Laird, L. E. Hebert, L. M. Peterson, J. P. Newhouse, P. C. Weiler, and H. H. Hiatt, “Relation between Malpractice Claims and Adverse Events due to Negligence: Results of the Harvard Medical Practice Study III,” New England Journal of Medicine 325(4) (July 25, 1991): 245–51. Mohr, James C. “American Medical Malpractice Litigation in Historical Perspective.” Journal of the American Medical Association 283(13) (4 April 2000): 1734–7. Rostow, Victoria P., and Roger J. Bulger, eds. Medical Professional Liability and the Delivery of Obstetrical Care. Vols. 1 and 2. Washington, D.C.: National Academy Press, 1989, 61–2. Sloan, Frank A., Randall R. Bovberg, and Penny B. Githens. Insuring Medical Malpractice. New York: Oxford University Press, 1991. Sloan F. A., P. B. Githens, E. W. Clayton, G. B. Hickson, D. A. Gentile, and D. F. Partlett, Suing for Medical Malpractice (Chicago: University of Chicago Press, 1993), 77. Studdert, D. A., E. J. Thomas, H. R. Burstin, B. I. W. Abar, E. J. Orav, and T. A. Brennan, “Negligent Care and Malpractice Claiming Behavior in Utah and Colorado,” Medical Care 38(3): 250–260. Taragin, Mark I., L. R. Willett, A. P. Wilczek, R. Trout, and J. L. Carson, “The Influence of Standard of Care and Severity of Injury on the Resolution of Medical Malpractice Claims,” Annals of Internal Medicine 117 (1992): 780–4. Thomas, E. J., D. M. Studdert, J. P. Newhouse, B. I. W. Zbar, K. M. Howard, E. J. Williams, and T. A. Brennan, “Costs of Medical Injuries in Utah and Colorado,” Inquiry 36 (fall 1999): 255–264. Thomas, E. J., D. M. Studdert, H. R. Burstin, E. J. Orav, T. Zeena, E. J. Williams, K. M. Howard, P. C. Weiler, and T. A. Brennan, “Incidence and Types of Adverse Events and Negligent Care in Utah and Colorado,” Medical Care 38(3) (March 2000): 261–71. U.S. General Accounting Office. Medical Malpractice: Six State Case Studies Show Claims and Insurance Costs Still Rise Despite Reforms. GAO/HRD-87–21. Washington, D.C.: Author, December 1986. U.S. Congress, Office of Technology Assessment. Impact of Legal Reforms on Medical Malpractice Costs. OTA-BP-H-119. Washington, D.C.: U.S. Government Printing Office, 1993. U.S. Congress, Office of Technology Assessment. Defensive Medicine and Medical Malpractice. OTA-H-602. Washington, D.C.: U.S. Government Printing Office, July 1994. Vidmar, Neil. Medical Malpractice and the American Jury: Confronting Myths about Jury Incompetence, Deep Pockets, and Outrageous Damage Awards. Ann Arbor: University of Michigan Press, 1998. Weiler, P. C. Medical Malpractice on Trial. Cambridge: Harvard University Press, 1991. Weiler, P. C., H. H. Hiatt, J. P. Newhouse, W. G. Johnson, T. A. Brennan, and L. L.

Selected Bibliography

265

Leape, A Measure of Malpractice: Medical Injury, Malpractice Litigation and Patient Compensation. Cambridge: Harvard University Press, 1993. White, Michelle J. “The Value of Liability in Medical Malpractice.” Health Affairs (fall 1994): 75–87. The World Health Report 2000: Health Systems: Improving Performance. Geneva: World Health Organization, 2000.

Author Index Aaron, H. J., 236, 247 Abar, B.I.W., 27, 231, 245, 246 Abel, R. L., 239, 248 Abel-Smith, Brian, 219 Adams, E. K., 52, 70 Alderman, M. H., 173 Altman, Lawrence K., 26 American College of Obstetrics and Gynecologists (ACOG), 7–8, 26, 146, 159, 170, 173, 178, 198 American Dental Association (ADA), 113, 130, 136 American Medical Association, 9, 20, 29, 30, 33,34, 46, 69, 70, 71, 75, 110, 111, 152, 153, 160, 173, 174, 201, 219, 201, 219, 245, 246, 247, 248 Anderson, D., 173 Anderson, J., 69 Anderson, R. E., 246 Arnett, R. H., 206, 219 Aronson, J. K., 244 Association of American Medical Colleges, 174 Baird, Bruce C., 28 Baker, Robert C., 220

Baldwin, Laura-Mae, 65, 71, 183, 199, 229, 246 Barker, D., 100, 106, 110, 111 Barnes, B. A., 27, 69, 231, 244, 245 Bazell, Carol, 174 Bebchuck, L., 11, 27, 38, 40, 69, 70 Benham, Lee, 220, 246 Berar, R. L., 220 Berenson, R., 29 Berlin, Leonard, 28 Berul, Lawrence, 28 Best’s Review, 244 Birnbaum, Jeffey H., 153 Blackmon, Glenn, 100, 106, 110 Bloom, B., 136 Blumstein, J., 29 Boulier, Bryan L., 137 Bovbjerg, R. R. , 21, 28, 29, 49, 69, 70, 93, 110, 246 Bradley, Braden, Jr., 27 Bradley, Melissa A., 199 Brant, M., 28 Brennan, T. A., 27, 28, 69, 227, 231, 233, 244, 245, 246 Brierly, C., 143, 153 Brodie, Mollyann, 183, 199

268

Brook, R. H., 201, 247 Brown, Shelton H., III, 192, 200 Bulger, Roger J., 174, Bulycheva, Maria, 70, 93 Burfield, W. B., 246 Burghardt, G., Jr., 172, 174 Burstin, Helen R., 27, 70, 226, 231, 233, 246 Business and Health, 200 Calabresi, Guido, 27 California Hospital Association, 69 Caplan, R. A., 233 Carson, J. L., 69, 233, 246, 247 Carter, C., 103, 111 Celentano, D. D., 174 Census Bureau, U.S., 29, 136, 153, 247 Center for Disease Control and Prevention, 137, 200 Charles, S. C., 174 Chassin, M. R., 200, 247 Cheney, F. W., 233 Clarke, Sally C., 174 Clayton, E. W., 28, 200, 246 Cohen, H., 173, 246 Cohen, R., 71 Colin, M., 246 Conrad, D., 136, 248 Corey, P. N., 245 Corrigen, Janet M., 244 Council of State Government, 137 Cowan, Cathy, 219 Cowell, C. S., 219 Cowley, G., 28 Coyte, P. C., 75 Crescenzi, C., 69 Cromwell, J., 104, 111 Cullen, Tom, 136 Damiano, P. C., 136 Danzon, Patricia, 9, 15, 21, 26, 28, 39, 52, 69, 70, 77, 86, 93, 231, 244 Dartmouth Medical School, 156, 173, 200, 201, 243, 248 Davidson-Johnson, Ilene, 110 Davis, C. H., 173, 248 Declercq, Eugene R., 174 Defrances, Carol J., 27, 93, 244, 245

Author Index

Dehlendorf, C. E., 71 DeJoseph, Jeanne F., 174 Department of Health and Human Services, U.S., 129, 132, 136, 137, 174, 248 de Regt, Roberta Haynes, 182, 199 Devwees, D. N., 75 Dietz, Stephen K., 28 Donaldson, Molla S., 244 Doyle, Rodger, 219 Drinka, P., 70, 246 Dubay, Lisa, 183, 199 Dugan, Deena Rabinowicz, 140, 141, 153 Edwards, Frank J., 26 Ellis, Randall P., 49, 70, 241, 248 Entman, Stephen S., 29, 192, 200 Epstein, A. M., 247 Faber, H. S., 233 Feil, E. C., 220 Feldman, Joseph, 199 Feldman, R., 15, 39, 69 Ferner, R. E., 244 Ferrara, Michael, 17, 28 Field, Marilyn J., 137, 248 Fink, A., 201 Fiset, L., 136, 248 Fisher, E. S., 220 Fordyce, M. A., 71, 199, 246 Foster, Dave, 200 Fournier, Gary M., 64, 71 Franke, K. J., 174 Frech, H. E., III, 220 Freedman, Allan, 153 Freeman, H., 26 Gallup, Cynthia L., 20, 29, 70, 241, 248 Galvin, R. W., 247 Garrett, J. B., 201 Gavzer, B., 28 Gawande, A. A., 245 Gentile, D. A., 28, 246 Gerdtham, Ulf, 206, 220 Gertman, P. M., 69 Getz, T., 136 Geyelin, Milo, 27, 29 Gibson, G., 173

Author Index

Gift, H. C., 136 Githens, Penny B., 28, 200, 246 Gius, Mark Paul, 100, 110 Glass, Cheryl A., 200 Glassman, Peter A., 183, 199 Goerdt, John, 27, 70, 93, 244 Gonzales, Marlin L., 27, 110, 173, 248 Gottlieb, Scott, 247 Grace, Martin F., 110 Graig, L., 219 Gray, Virginia, 139, 153 Greene, Richard, 27 Griffith, J., 248 Grimstad, P., 70, 246 Gron, Anne, 110, 111 Grove, Elizabeth A., 17, 28 Gruber, Jonathan, 200 Grupp, Fred W., 139, 153 Hart, Gary, 71, 199, 246 Hassan, Mahmud, 98, 110, 246 Hastings, K., 29 Havighurst, C., 22, 29 Health Insurance Association of America (HIAA), 137, 198, 247 Herbert, L. E., 27, 231, 244, 245, 246 Hiatt, H. H., 27, 69, 70, 231, 244, 245 Hickson, Gerald B., 28, 29, 192, 200, 246 Himmelstein, D. U., 200 Hofflander, Alfred E., 49, 70 Hoffman, C., 173 Hogan, Paul, 220, 247 Houseman, Gerald L., 153 Howard, K. M., 231, 245 Hughes, James W., 89, 94 Huycke, L. I., 28 Huycke, M. M., 28

269

Johnson, W. G., 27, 69, 224, 239, 245 Jonsson, Bengt, 206, 220 Jury Verdict Research Inc., 26, 33 Kaestener, Robert, 199 Kahn, K. L., 200 Kapp, Marshall B., 26, 177,198 Karns, M. E., 69 Kavaler, Florence, 7, 26 Keeler, Emmett B., 183, 199 Keesey, Merrick J., 201 Kessler, Daniel P., 195, 200 Kiker, B. F., 158, 173 King, J. H., 14, 28 Kingston, Raynard S., 27, 174 Kinney, Eleanor D., 28, 246 Kirby, Russel S., 182, 199 Klassen, A. C., 174 Knox, Richard A., 26 Kohn, Linda T., 244 Kossecoff, J., 200 Kravitz, Richard L., 199 Kritzer, Herbert M., 17, 28

Institute of Medicine, 57, 69, 70, 134, 137, 159, 173, 182, 199, 222, 223, 244, 245, 247, 248 Insurance Information Institute, 27, 244, 246

Lagan, Patrick A., 27 Laird, N. M., 27, 174, 231, 244, 245, 246 Langans, P. A., 70, 93, 244 Langer, E., 70, 246 Lawson, G. E., 220 Lawthers, A. G., 27, 174, 231, 244, 245 Lazarous, J., 245 Lazenby, Helen, 27, 219 Leape, L. L., 27, 69, 231, 244, 245, 246 Levinson, W., 69 Levit, Katharine R., 27, 219 Liang, K. Y., 39, 70 Lillard, L., 69 Lipsitz, S. R., 70, 246 Lloyd, Michael, 199 Localio, A. R., 9, 15, 27, 174, 183, 231, 244, 245 Logrillo, Vito M., 182, 199 LRP Publications, 29, 69, 71, 111, 136 Lubitz, J., 247

Jack, S. S., 136 Jensen, Gail A., 49, 70, 88, 93 Johnson, J. D., 136

MacKenzie, Ellen J., 27, 28 Mahadhavan, S., 173 Manning, W. G., 239, 247

270

Marder, William D., 220 Marquis, M. S., 239, 247 Martin, Joyce A., 174 Maxwell, Hope, 110 McClellan, Mark, 195, 200 McDonald, J., 143,153 McFall, Stephanie L., 200 McGlynn, E. A., 247 McGuire, Thomas G., 70, 241, 248 Mcinnes, Melayne Morgan, 64, 71 McKusick, D. R., 219 McPherson, K., 200 Mendelson, Daniel N., 51, 70 Mergenhagen, Paula M., 93, 110, 246 Meyer, J. A., 201 Miers, T. I., 136 Milgrom, P., 116, 136, 248 Miller, Cynthia S., 200 Miller, Natalie, 27 Mills, D., 226, 246 Minkoff, Howard L., 199 Mirabella, A., 136 Missouri Division of Health, Department of Social Services, 182, 199 Mohr, James C., 5, 7, 26 Morlock, L. L., 174 Mullan, Fitzhugh, 157, 173, 174, 248 Mullooly, J. P., 69 Mushinski, Margaret, 198, 200 National Association of Insurance Commissioners, 39, 78, 111 National Center for Health Statistics, 136, 183, 184, 200 Newhouse, J. P., 27, 69, 206, 220, 231, 244, 245 Nye, Blaine F., 49, 70 O’Connell, J., 29 O’Hara, David, 136, 248 Olsen, Reed Neil, 5, 26, 75 Orav, E. J., 27, 231, 245, 246 Organisation for Economic Co-operation and Development (OECD), 173, 198, 200, 201, 219, 220, 234, 247 Oshel, R. E., 71, 246 Ostrom, B. J., 27, 70, 93, 244 Owings, Maria, 200

Author Index

Paine, Lisa L., 174 Park, Edward Rolla, 182, 198, 200 Partlett, D. A., 28, 246 Pauly, Mark V., 27 Penn and Schoen Associates, 153 Peterson, L. M., 27, 231, 245 Peterson, Laura P., 199 Petronis, Kenneth R., 49, 70 Pine, Michael B., 200 Png, I.P.L., 11, 27, 40, 70 Politzer, R. M., 173, 248 Pomeranz, B. H., 245 Pope, Gregory C., 159, 173 Posner, K., 233 Posner, R., 11, 27, 38, 40, 69, 70 Prihoda, R., 247 Reardon, Thomas, 246 Reason, James T., 244 Reliastar, 6, 26, 220 Rice, B., 27 Rice, Dorothy P., 27, 173 Richards, Alan R., 139, 153 Rock, S. M., 183, 199 Rolph, John E., 49, 70, 199 Roltman, D. B., 27, 70, 93, 244 Rosenbach, M. L., 111, 247 Rosenberg, D., 28 Rosenblatt, Roger A., 71, 199 Rostow, Victoria P., 174 Rottenberg, Simon, 137, 174 Rubin, Robert I., 227, 246 Rudov, M. H., 136 Sachs, Benjamin P., 182, 184, 199 Sage, W., 22, 29 Sager, Mark, 70, 246 Salant, Jonathan D., 153 Salisbury, Richard H., 153 Salmon, Marla E., 174 Sasam, Stephanie, 174 Savoca, Elizabeth, 89, 94 Schimmel, Elihu, 69 Schneider, Linda, 200 Schuster, M. A., 247 Schwartz, Richard H., 51, 199, 200 Schwartz, William B., 70 Sekscenski, Edward S., 174

Author Index

271

Shearer, Elizabeth L., 198 Sheils, John, 220, 247 Shugars, D.A., 136 Siegel, B., 26, Silow-Carroll, S., 201 Simmes, Diana R., 174 Sinquefield, Gail, 167, 174 Sloan, Frank A., 20, 27, 28, 29, 39, 69, 70, 78, 86, 89, 93, 94, 100, 110, 195, 200, 229, 246 Smith, David W., 200 Smith, Steven K., 27, 70, 93, 244 Solomon, D. H., 201 Sonnefeld, S. T., 219 Sox, Collin M., 233, 246 Spiegel, Allen D., 7, 26 Spurr, Stephen J., 70, 93 Stafford, Randall S., 182, 199 Starfield, B., 245, 247 Steel, K., 69 Steinhauer, J., 248 Stewart, James B., 71 Stockwell, D. H., 173 Stone, Ashley G., 111 Stout, Emily M., 29 Studdert, D. M., 27, 231, 239, 245, 246 Sweeney, Patrick M., 110

Verhovek, Sam Howe, 247 Vidmar, Neil, 246 Volks, S., 70, 246

Taffel, Selma M., 174 Tancredi, L., 22, 29 Taragin, M. I., 37, 69, 227, 232, 246, 247 Teilbaum, M. A., 174 Terry, Ken, 220 Thomas, E. J., 27, 224, 225, 231, 245, 246 Thornburgh, Dick, 144, 153 Thornton, J., 172, 174 Tillinghast-Towers Perrin, 9, 28, 103, 111 Trebilock, M. J., 75 Trout, R., 69, 233, 246, 247

Zbar, B.I.W., 27, 231, 245 Zdeb, Michael S., 182, 199 Zeckhauser, Richard, 100, 110 Zeena, T., 245 Zeger, S. L., 39, 70 Zeh, Michael, 158, 173 Zhang, Puling, 110 Zinner, M. J., 245 Zorn, Joanna Heilbrunn, 182, 198 Zuckerman, Stephen, 39, 52, 59, 70, 78, 86, 93, 100, 106, 110, 111, 248

Wagner, E.H., 173 Waidmann, Timothy, 199 Walker, Jack L., 139, 152 Ward, R. J., 233 Weiler, P.C., 27, 58, 69, 70, 71, 231, 244, 245 Weissman, J. S., 174, 247 Welch, H. G., 220 Weneker, M. B., 247 Wennberg, J. E., 201 Weycker, Dereck A., 70, 93 Whetten-Goldstein, Kathryn, 29, 200 White, Michelle J., 233, 235, 247 Whitney, C., 136, 248 Wilbert, J. R., 174 Wilcox, S. M., 200 Wilczek, A. P., 69, 233, 246, 247 Willet, L. R., 69, 233, 246, 247 Williams, E. J., 245 Winslow, C. M., 200 Wolfe, S. M., 71 Woolhandler, S., 200 World Health Organization, 234, 247

Subject Index Accelerated compensation events (ACEs), 21 Ad damnum clause, 15, 18, 23, 42, 43, 53, 79, 119 American Bar Association, 21, 29 American College of Nurse-Midwives, 163 American College of Obstetricians and Gynecologists (ACOG), 7–8, 26, 146, 159, 170, 173, 178, 198 American Dental Association, 113, 130, 136 American Medical Association (AMA), 9, 20, 29, 30, 33, 34, 46, 69, 70, 71, 75, 110, 111, 152, 153, 160, 173, 174, 201, 219, 245, 246, 247, 248 American Society for Healthcare Risk Management (ASHRAM), 14, 28 Apgar scores, 195 Arbitration, 42 Assessable insurance trusts, 96 Association of Trial Lawyers of America, 8, 152 Baker, Robert. C., 28 Berlin v Nathan et al., 14

Births attended by midwives, 163–167 Blind Eye: The Terrifying Story of a Doctor Who Got Away with Murder, 66, 71 Boston Globe, 8, 26 Bureau of Justice Statistics, 27, 74, 93 California study (CMA/NAIC study), 12, 31, 111, 222, 225, 230 Care: appropriateness of, 195–198; deficient, 194–195; impact of tort reforms, 194–195 Census Bureau, U.S., 29, 136, 153, 247 Centers for Disease Control and Prevention, 137, 200 Cesarean rates, 180–193; charges for procedures, 212–213; univariate analysis of charges, 212–213 Cesarean rates: historical and international trends, 180–182; impact of tort reforms, 180–193; mathematical model, 183–184; multivariate analysis, 186– 193; review of literature, 182–183; univariate analysis, 184–186 Chrysler, 203 Claims, 225–228

274

Claims-made policies, 77, 78, 97, 110, 140 Clinical practice guidelines, 21, 243 Clinical scenario surveys, 178 Closing statement, 221–248; claims, 225– 228; costs of medical errors, 224–225; defensive medicine, 243–244; dental malpractice, 241–242; disciplinary actions, 226–233; health care costs, 244; introduction, 221–222; medical malpractice insurance premiums, 226, 241; National Practitioner Data Bank, 240– 241; nature and extent of medical errors, 222–224; politics of malpractice, 242–243; quality of the U.S. health care system, 234–235; supply of physicians, 243; tort reforms, 236–240; uninsured persons, 235–236 CMA/NAIC Study (California study), 12, 31, 222, 225, Colorado and Utah Study, 12, 31, 223, 224, 225, 228, 230, 239 Commissariat General du Plan of France, 197 Cook County, 9 Countersuits, 14 Dartmouth Atlas of Health Care, 156, 173, 200, 201, 243, 248 Defensive medicine, 8, 13, 32, 177–201, 243–244; magnitude, 178–179 Deficient care, 178, 194–195; impact of tort reforms, 194–195 Dental discipline, 125–128 Dental expenditure, 114–115 Dental licensing policies, 128–135; licensure by credentials, 119, 123, 130, 131, 132, 135; licensure by reciprocal, 119, 123, 130, 131 Dental malpractice, 113–137, 241–242; analysis of settlements, 124–125; impact of tort reforms, 119; payment rates, 115–119; payments, 119–124 Diffusion theory, 139 Disciplinary actions, 228–233 Discipline, dental, 125–128; physician, 62– 68

Subject Index

Employee Benefit Research Institute, 3, 26 “English Rule,” 17, 89 Enterprise liability, 21–22, 29 Fluoridated water, 130 General Accounting Office (GAO), 14, 15, 28, 29, 32, 39, 58, 69, 78, 110, 167, 178, 198, 200, 204, 219, 246 Generalized Estimation Equation Methodology (GEE), 39, 40, 52, 186, 188 Guthrie and Cross, 5 HR 956, 148 Hammurabi, 5 Harvard Medical Practice Study (Harvard Study), 9, 12, 31, 223, 224, 225, 226, 227, 228, 230, 232, 245 Health care costs, 203–220, 244; closing statement, 244; determinants, 204–207; growth in per capita health spending, 213–220; impact of physicians’ incomes, 207–212 Health Care Liability Alliance (HCLA), 7, 8 Health Care Quality Improvement Act of 1986, 23–25, 229 Informed consent, 17–18 Institute of Medicine, 57, 69, 70, 134, 137, 159, 173, 182, 199, 222, 223, 224, 244, 245, 247, 248 Insurance premiums, 95–110, 241; combined ratios, 97, 109; physician premiums, 97–103; physician premiums and impact of tort reforms, 100–103; hospital malpractice premiums, 103–109; hospital malpractice premiums and impact of tort reforms, 104–109 International health care indicators, 4 Joint Commission on Accreditation of Health Care Organizations (JCAHO), 14, 28 Joint underwriting associations (JUAs), 96 Jury Verdict Research Inc., 26, 33

Subject Index

Kaiser Permanente, 23 Lehman, Betsy A., 8 Lewin-VHI, 8, 179 Los Angeles Times, 8, 26 Malpractice claims, 31–71, 225–228; geographical variations, 35–36; lawsuit trend, 32–33; per 1 million patient visits, 34–35; physician characteristics, 36– 37; reasons, 46–49; specialties, 33–35; tort reforms, impact of, 37–46 Malpractice lawsuits, 57–62; disposition, 57–62; mean delay, 58 Malpractice payments, analysis by reasons, 46–49 Malpractice payments, disposition, 57–62; impact of tort reforms, 59–62 mean delay, 58; settled by age group, 58–59; settled by malpractice reasons, 59 Malpractice payments, impact of tort reforms, 37–46; univariate analysis, 38; multivariate analysis, 38–46 Malpractice payments, payments per physicians, 49–57; multivariate analysis, 51–57 Malpractice payments, payments per population, 43–46; univariate analysis, 45– 46; multivariate analysis, 46–47 Malpractice reasons, 32 Malpractice through contract, 22–23 Massachusetts Doc-find system, 36 Medicaid, 3, 4, 226, 226, 235 Medical adversity insurance (MAI), 22, 29 Medical errors, 222–225; costs of, 224– 225; nature and extent of, 222–224 Medical liability project, 20 Medical malpractice: debate, 5–9; direct costs, 12; goals, 9–11; indirect costs, 13; model, 11–12 Medical malpractice, responses, 12–23; administrative fault-based approaches, 21–23; approaches to malpractice compensation, 19–21; changes in provider behavior, 13–14; reforms that reduce access to courts, 15–18; reforms that

275

reduce malpractice awards, 18–19; tort reforms, 14–15 Medicare, 3, 4, 178, 166, 194, 196, 226, 235, 243 MEDLINEplus, 221 Merit (experience) rating, 49, 57, 241 Midwives, 155, 159, 163–167, 243; births attended by, 163–167 Missouri Division of Health, 182, 199 Murray, Christopher, 236 National Ambulatory Medical Care Survey, 179 National Association of Insurance Commissioners (NAIC), 39, 78, 111 National Center for Health Statistics, 136, 183, 184, 200 National Practitioner Data Bank (NPDB), 2, 23–25, 39, 62, 65, 69, 70, 93, 117, 136, 225, 228, 229, 240–241, 245, 246 National Roundtable on Healthcare Quality, 197, 233, 235, 247 No-fault systems, 20; elective, 22 Northeast Regional Board of Examiners, 134 Nurse midwives, 155 Occurrence policies, 77, 78, 97, 110, 140 Office of Technology Assessment, U. S. Congress, 4, 26, 29, 53, 77, 87, 93, 107, 110, 174, 177, 178, 183, 198 Personal Injury Valuation Handbook, 2 Physician discipline, 62–68 Physician Insurance Association of America, 16, 17, 18, 28 Politics of malpractice, 139–148, 242– 243 Politics of malpractice, reforms of seventies, 140–146; background, 140–141; influence of socioeconomic factors, 142– 143; patterns of reforms, 141; role of courts, 144–146; similarities, 143–144 Politics of malpractice, reforms of the 1980s, 147–148 Practice patterns, impact of malpractice, 167–172

276

Quality of the U.S. health care system, 234–235 Relman, Arnold, S, Dr., 9 Res ipsa loquitur, 15, 53, 140 Risk management, 13–14, 32, 177 Risk Retention Groups (RRGs), 96 Ross-Loos, 23 Senate bill, 136, 150 Severity of medical malpractice claims, 73–93; averages, 82; delays, 88–93; distribution, 76; impact of tort reforms, 77–88; by malpractice reason, 74–76; by states, 77 Specified events approaches, 22 State health indicators, 5, 6 Statistical Bulletin, 174, 213 Statistical methods, 249–251 Stewart, James, B. (Blind Eye: The Terrifying Story of a Doctor Who Got Away with Murder), 66, 71 Supply of physicians, 155–173, 243; obstetricians and gynecologists, 159–163 Surplus-line companies, 96 Tillinghast-Towers Perrin, 9, 28, 103, 111 Tort reforms, 2, 14–21, 32, 39, 54, 77, 78, 93, 114, 139, 140, 149, 150, 186, 236–240; ad damnum clause, 18; alternative dispute resolution, 19, 23; arbitration, 19; collateral source rule, 18; joint and several liability, 19; liability caps, 18; limits on attorney fees, 16; no-fault systems, 20; penalty for frivolous suits, 17; periodic payments

Subject Index

of damages, 18–19; pre-trial screening panels, 16; restricting standards for informed consent, 17–18; scheduling of damages, 21; standards of care, 21; statutes of limitation, 15–16; that reduce access to courts, 15–18; that reduce malpractice awards, 18–21 Tort reforms, administrative fault-based approaches, 21–23; enterprise liability, 21–22; malpractice through contract, 22–23; specified events approaches, 22; state administrative agency, 21 Tort reforms at the federal level, 148–152 Tort reforms, impact of, on: care, 194– 195; cesarean rates, 180–193; closing statement, 236–240; deficient care, 194– 195; dental malpractice, 119; hospital premiums, 104–109; malpractice claims, 37–46; physician premiums, 97– 103; severity of medical malpractice claims, 77–88; table, 238 Two-stage least squares, 39, 130, 131, 187, 190 Uninsured persons, 235–236 U.S. Department of Health, Education and Welfare, 17, 93, 110, 136 U.S. Department of Health and Human Services, 129, 132, 136, 137, 248 U.S. Health Care System, 3–5 Vicarious liability, 167 Wisconsin Vital Statistics, 182 World Health Organization (WHO), 234, 236, 247

About the Author VASANTHAKUMAR N. BHAT is Associate Professor of Management and Management Science and Program Coordinator for the Health Systems Management program at the Lubin School of Business, Pace University. He is the author of two other books published by Greenwood Publishing Group: Total Quality Environmental Management: An ISO 14000 Approach (Quorum Books, 1998) and The Green Corporation: The Next Competitive Advantage (Quorum Books, 1996).