The New York Times

WASHINGTON: With doctors across the country protesting the cost of malpractice insurance, President Bush is making a renewed push for strict limits on the jury awards he blames for skyrocketing premiums.

Insurers have indeed been paying more in recent years to cover lawsuits and malpractice settlements.

But many experts cite other factors, including poor investment returns and the insurers’ own business practices, for making significant contributions to the premium increases. Even representatives of the insurance industry blame factors in addition to jury verdicts.

And figures collected by the federal government show that court judgments in malpractice cases have not risen nearly as fast as some advocates of new limits have asserted. In fact, the average size of judgments against doctors and other health care workers dropped in the first nine months of 2002, according to the government numbers.

In a speech in Scranton, Pa., today, Mr. Bush said that “frivolous lawsuits” were the source of the problem. “We’re a litigious society,” Mr. Bush said. “Everybody is suing, it seems like.”

Mr. Bush’s plan, which he unveiled last summer, is expected to sail through the House, where Republicans have a firm grip. But a fight is expected in the Senate, despite the fact that the new majority leader, Dr. Bill Frist, will lead a coalition of backers, including a lobbying alliance financed by the American Medical Association and the insurance industry.

Opponents are well fortified, too, with backing from the powerful trial lawyers’ lobby. Among them are a number of Democratic presidential hopefuls, including Senator John Edwards, Democrat of North Carolina, a former trial lawyer. Last year, a milder measure failed in the Senate, 57 to 42.

The White House and Congressional leaders remain focused on actions that would limit what judges and juries could award to injured patients and the fees paid to their lawyers, while proposals to address other factors fueling the rise in premiums have gained little traction.

Lawmakers could do more to reduce premiums by improving the structure of the insurance marketplace, said Frank A. Sloan, an economics professor at Duke University who specializes in health policy and management. Medical malpractice “is the most cyclical health policy there is,” Professor Sloan said, adding, “There are periods of time when premiums stop going up, and

then nobody’s interested, then again we get a crisis and everybody says juries are terrible.”

Rising premiums are squeezing doctors around the country at the same time health insurers and government plans like Medicare pressure them to limit the cost of treatment, leading some doctors to stop delivering babies or to quit the profession altogether.

Premiums are rising fastest in specialties like internal medicine, general surgery and obstetrics and gynecology, which have each had average increases nationally of 30 percent to 40 percent over the last two years, says the newsletter Medical Liability Monitor, which tracks the malpractice insurance industry. In Miami, some obstetricians now pay more than $200,000 a year for

malpractice insurance, compared with a national average of $56,546.

Mr. Bush’s plan tracks closely a bill that passed the House last year, which would set the maximum damage award for “pain and suffering” at $250,000 and reduce lawyers’ fees.

The Bush plan is largely modeled on a 1975 California law, which backers say has kept that state’s medical malpractice premiums below the national average. According to industry data, total premiums in California nearly tripled in the first dozen years after the law was enacted before stabilizing in the late 1980’s.

Insurers say the law curbed premiums once legal challenges to it were exhausted in the mid-1980’s, while consumer groups say premiums did not moderate until California passed strict insurance regulations in 1988.

Nationally, there is no question that insurer payouts to cover malpractice settlements and verdicts have been rising.

The average malpractice judgment against doctors and other health professionals a decade ago was $404,646, according to inflation-adjusted figures provided by the National Practitioner Data Bank, which is operated by the Department of Health and Human Services. By 2001, the average had risen to $593,647.

But the average judgment declined in the first nine months of last year, dropping to $426,247, according to the databank.

Combined, the total annual amount of malpractice settlements and judgments rose to $5.05 billion in 2001 from $3.66 billion a decade ago, adjusted for inflation. In the first nine

months of last year — the most recent data available — total payments were $3.53 billion.

Some advocates of new limits have argued that the rate of increase has been sharper. For example, a Health and Human Services Department report last summer that is often cited by Congressional supporters and other advocates of malpractice overhaul asserted that “the number of megaverdicts is increasing rapidly,” adding, “The average award rose 76 percent from

1996-1999.”

But according to the National Practitioner Data Bank the average malpractice judgment against doctors and other health care professionals rose 8.5 percent from 1996 to 1999, or 2.1 percent if adjusted for inflation.

Insurers are required to report malpractice payments to the databank. Officials at the Department of Health and Human Services based their number on data from the insurance industry, according to the report’s footnotes. An agency spokesman, Bill Pierce, said the statement about a “76 percent” increase reflected only doctors who had seen the largest premium increases — something the report did not mention.

Industry business practices, as much as jury awards, have brought on insurance cost spikes, many experts say. In the 1980’s, insurers increased premiums to offset what they thought would be a staggering increase in claims, and they set aside deep reserves to cover costs they expected to pay in coming years. But claims never rose to the levels insurers had predicted.

When that became clear, the companies changed course and treated the reserves as profits, luring new insurers to the market and bringing on a price war.

The steep drop in bond yields and the stock market has also fueled the crisis. All insurers invest premiums in bonds and stocks, but this is especially true of medical malpractice insurers, which are able to invest premiums for much longer than other insurers, before claims come due.

In 2001, according to A. M. Best, the insurance-rating agency, malpractice insurers reported 19 cents in investment income for every $1 in premiums.

During the previous nine years, they had averaged more than 30 cents per $1 in premium income.

While insurers enjoyed the good times of the 1990’s, their rates barely budged. According to the Physician Insurers Association of America, a trade group, total malpractice premiums rose just 7.5 percent from 1994 to 2000, to $6.38 billion.

Lawrence E. Smarr, the president of the association, said that for much of the 1990’s, past profits carried as reserves, as well as high investment income, enabled insurers to keep premiums low. But by 2001, Mr. Smarr said, higher average malpractice claims, lower interest rates and exhausted reserves led the companies in his association to report losses of 10 cents for every $1 collected in premiums.

The current situation has been made even worse by the departure of large insurers from the malpractice market, most notably the St. Paul Companies, leaving the remaining insurers to swallow a bigger piece of the market even as many would prefer to be writing fewer policies.

Insurers are battling consumer advocates and trial lawyers over whether malpractice premiums will actually drop if the Bush plan is enacted.

Mr. Smarr cites a report from the nonpartisan Congressional Budget Office that malpractice premiums could be 30 percent lower under the plan, if factors including reduced investment income, the need to replenish depleted reserves and the higher cost of having other insurers take on some of their potential liabilities, called reinsurance, do not diminish those gains.

“If you look at the states that have caps, you don’t see the explosion in rates,” said Representative James C. Greenwood, the Pennsylvania Republican who is sponsoring the House bill.

But in a letter to Mr. Bush on Wednesday, Mr. Edwards and three other Democratic senators, Edward M. Kennedy of Massachusetts, Patrick J. Leahy of Vermont and Richard J. Durbin of Illinois, called for tougher regulation of malpractice insurers, saying business practices were the main cause of the crisis. “These proposed changes in the law would deprive seriously injured

patients of fair compensation,” they wrote.

Some lawmakers and consumer advocates have offered proposals to curtail the industry’s exemptions from federal antitrust law or create a national reinsurance company to help shoulder underwriting risks.

One amendment offered by Democrats actually mirrors legislation enacted in Texas while Mr. Bush was governor, requiring insurers to lower their rates to account for savings created by “tort reforms” passed by state lawmakers in 1995. In the presidential campaign, Mr. Bush proudly cited the benefits of the Texas rate provision, but the White House has not said if it would

support a similar provision in his federal proposal.

The American Medical Association has started a campaign in support of the Bush plan, while a group of hospitals has hired the concern founded by Haley Barbour, the prominent Republican lobbyist, to push for the plan.

Advocates of the proposal plan to pressure senators from states with the biggest increases in malpractice premiums, said Representative Greenwood, who added that backers would focus efforts on 15 to 20 swing votes. Still, he said, “I would describe it as an uphill battle.”