USA Today

The symptoms are popping up in state after state: doctors carrying picket signs, insurers jacking up premiums for malpractice insurance and patients unable to find care.

The diagnosis offered by doctors, insurers, state legislatures and President Bush: The nation faces a medical malpractice crisis that is driving insurance so high that some doctors are leaving their practices. The causes, they say, are frivolous lawsuits and runaway jury awards.

Their prescription is tort reform: limits on damages patients can collect for pain and suffering when they persuade a jury that a doctor botched their treatment. Bush is pushing for a federal law that would set a $250,000 cap on damage awards for pain and suffering in states that don’t already have caps.

But a six-week study by USA TODAY finds that while some doctors in particularly vulnerable specialties — obstetrics, neurosurgery and some high-risk surgical fields — face severe problems, most physicians are minimally affected. Premiums are rising rapidly, but no more than other health care costs. They represent only a small slice of doctors’ expenses. Even for the hardest-hit specialists, the most severe problems are concentrated in a handful of states.

Recent reminders that doctors sometimes make egregious mistakes may slow the momentum of those who want to limit damage awards:

Last month, 17-year-old Jesica Santillan died after a surgeon at Duke University Hospital implanted a heart and lungs of the wrong blood type without checking the organs’ suitability. The family of the Mexican teenager has retained a North Carolina medical malpractice lawyer.

At a Minnesota hospital recently, Linda McDougal, 46, of Woodville, Wis., received an unnecessary double mastectomy because her biopsy results were mixed up with those of another woman, who was mistakenly told she was cancer-free. McDougal is considering whether to file a malpractice claim, her lawyer says.

These highly publicized medical errors have given ammunition to consumer groups and trial lawyers who oppose limits on malpractice awards. They argue that a one-size-fits-all cap of $250,000 would trivialize the suffering of families victimized by medical mistakes.

In fact, the proposed cure treats only a symptom of the nation’s malpractice ills, and the disease itself, while serious, is no epidemic.

“Some doctors are hard hit,” Princeton University economist Uwe Reinhardt says, “but on average, this problem is overstated.”

USA TODAY found:

– Some states have rapidly rising malpractice premiums, especially in obstetrics, neurology and some surgical fields. But, on average, doctors still spend less on malpractice insurance — 3.2% of their revenue — than on rent.

– Large jury awards play a limited role in causing premiums to rise, despite allegations that greedy trial lawyers and frivolous claims are to blame. Less than 2% of malpractice claims result in a winning verdict at trial, according to insurance industry estimates.

– Settlement payouts are up, but that has less to do with pain-and-suffering claims than with higher awards for what are called economic damages — the patient’s medical bills, lost wages and other expenses.

– Insurance companies are boosting rates partly to make up for price wars in the 1990s, when competition kept premiums low, and to counter recent declines in their investment incomes. That investment profit had helped offset losses from malpractice damage awards and the artificially low premiums charged to doctors.

– In some states, medical organizations and regulators have failed to weed out bad doctors. That has caused malpractice rates to go up for all.

– Under the Bush-backed reform plan, pain-and-suffering awards in the Santillan and McDougal cases, like those in any state that does not have its own cap on medical malpractice awards, would be limited to $250,000. That’s roughly the average annual salary for the types of surgeons who did their operations.

Congress will ‘stop and think’

The emotions engendered by the Santillan and McDougal cases were evident as Congress began debating malpractice reforms at hearings last week. Some lawmakers suggested that the public attention generated by the recent medical misconduct cases could weaken the chances for passage of a damage cap this year.

“Cases like Jesica Santillan’s are going to make members of Congress stop and think about this,” says Rep. Diane DeGette, D-Colo., who opposes the liability cap.

Cases like Santillan’s are not that rare: A new study in Pediatrics magazine finds that medical errors occur in more than one in 10 cases involving children with complex medical problems.

The proposed $250,000 federal damage cap is modeled on one that California pioneered in 1975. Russell Kussman, a Los Angeles attorney who handles medical malpractice cases, says that if Santillan had died in California after the bungled heart-lung transplant, and not in North Carolina, her impoverished family “wouldn’t have been able to find an experienced, competent malpractice lawyer to take the case, because of the $250,000 cap. There’s really no economic loss, because the child died. It’s a $250,000 recovery, maximum, and a very complicated case with a lot of costs.”

Opponents of limits on damage awards for pain and suffering note that cases involving children, retirees and stay-at-home parents would be most affected because they have no income, making it particularly tough to prove any damages from loss of income.

Doctors complain that malpractice insurance premiums have soared nationwide since the 1990s, when they remained flat or dropped. Government data released Monday by a congressional advisory commission show the average increase last year was 11.3%. That was the largest increase in a decade, yet lower than the average annual increase of 11.6% since 1975, according to a report this month by Tillinghast-Towers Perrin, which provides consulting services to the insurance industry.

Those increases are nearly the same as those seen the past two years in health-insurance premiums paid by workers and their employers.

Still, doctors practicing certain specialties in some parts of the country are being hit especially hard. For example, an obstetrician/gynecologist might pay more than $200,000 a year for malpractice insurance in Miami, one of the priciest malpractice insurance markets despite Florida’s limits on damages. Nationally, doctors in that specialty paid an average of $56,546 last year, according to a survey in Medical Liability Monitor, an independent newsletter in Chicago.

The forces pushing up malpractice premiums in some states are complex, requiring a systemic set of solutions, not a single remedy.

“Tort reform has a place, but it needs to be done in coordination with a number of other things,” says James Hurley, who has followed the liability industry for years as an analyst with Tillinghast-Towers Perrin. Also needed, Hurley says, are efforts to improve patient safety, tougher review and discipline procedures for doctors and hospitals and a closer look at how the past decade’s effort to cut costs in health care may affect the quality of medical care.

But the issue of malpractice insurance has become politicized. And tort reform, mainly in the form of caps on damages, is the solution promoted most by doctors, the American Medical Association, some lawmakers, insurance companies and President Bush.

Doctors in New Jersey, Florida, Mississippi, West Virginia and other states have staged walkouts, claiming that malpractice insurance rates are driving them out of business. The insurance industry is mounting public relations campaigns and expanding its lobbying in Congress and state legislatures, pushing for limits on jury awards. The American Medical Association says 18 states are in a malpractice crisis and more than two dozen others are close.

The Bush administration takes the view of the insurance industry and doctors. A report issued Monday by the Department of Health and Human Services argues that patients in some states are having trouble finding certain types of specialty care, particularly in rural areas where obstetricians and neurosurgeons have quit doing high-risk procedures because they say they can’t afford the malpractice insurance. But there is little statistical evidence that more than a tiny percentage of doctors nationwide are making such decisions, and the report ignores several independent studies that contradict some of its key findings.

Bush pressed his case for a federal cap on pain and suffering damages Tuesday in a speech to the American Medical Association.

“There are too many frivolous lawsuits against good doctors,” he said. “If lawsuits are running up the cost of medicine and are driving docs out of business because practicing medicine is too expensive, we’ve got to do something.”

More than half the nation’s state legislatures also are set to consider new or tighter caps on damages in medical malpractice lawsuits. Twenty-five states already have some limit. Many of the new bills include provisions such as forced arbitration and pre-trial screening of claims that also could weaken the positions of aggrieved patients.

Those plans irk consumer groups, who say that laws to control malpractice rates should include ways to weed out bad doctors and ensure that high-risk medical procedures are executed properly. They note that the Bush-backed proposal for a national cap on damages for pain and suffering would have a tiny effect on health-insurance premiums paid by consumers — a drop of less than one-half of a percent, according to an analysis by the Congressional Budget Office.

Truth in numbers

Are doctors’ premiums too high? Are they climbing too fast? And why are they going up? The statistics tell a lot:

How much of a doctor’s revenue goes to malpractice insurance? A March 2002 government report by MedPAC, a congressional advisory commission, says doctors, on average, were expected to spend 3.2% of their revenue on malpractice insurance last year. That compares with 12.4% for staff salaries, 11.6% for office expenses and 1.9% for medical equipment. Calculations based on two surveys published by Medical Economics magazine — widely read by physicians — last year show that OB-GYNs paid the most for malpractice insurance, as a percentage of their revenue, 6.7%, and cardiologists paid the least, 1.5%.

Why are malpractice insurance costs going up? The problem is two-pronged, according to research by the National Conference of State Legislatures. First, insurers are spending more to pay claims — 33% more from 2000 to 2001. Second, falling interest rates for bonds and stock prices have weakened insurers’ investment income, their main source of profit. The Physician Insurers Association of America, the lobbying group for doctor-owned insurance firms, says investment income contributed 47% to its companies’ revenue in 1995, but only 31% in 2001.

All of this is compounded by the fact that insurers slashed premiums in the 1990s when competition was fierce. Rates were artificially low, subsidized by investment income. Now, insurers have to boost rates to stay solvent.

Why are insurers paying so much more in claims? Damage awards are growing, but not mainly because of bigger jury verdicts.

The number of malpractice verdicts and settlements over $1 million is way up, according to the Physician Insurers Association of America. About one in 12 paid claims settles for $1 million or more these days vs. one in 50 a decade ago. That’s a 400% rise.

But two-thirds of patients who file a claim don’t get a dime, the insurance group’s statistics show. About 61% of cases are dismissed or dropped; 32% are settled, with average payouts of $300,000, and only 7% go to trial. Patients prevail in only one in five of the cases that are tried — about 1.3% of all claims.

When patients win, the 53 companies in the insurance group pay an average of $500,000, says Larry Smarr, president of Physician Insurers. “It’s a lottery for trial lawyers. They don’t win often, but when they do, they win big.”

Doctors and insurers say the lure of the big win prompts many to file frivolous suits. But a 1990 Harvard University study suggested that only one in eight victims of medical negligence ever files a claim. When they do, it’s an uphill fight: Lawyers sometimes have trouble finding a local doctor who will testify to a colleague’s mistakes, attorneys say, and jurors often are inclined to give a physician the benefit of the doubt.

“If it clearly is not a meritorious case, I would have to be a blithering idiot to take that case on,” says Dan Hodes, a Newport Beach, Calif., personal-injury lawyer. Plaintiffs’ attorneys often must spend tens of thousands of dollars to prepare a suit, and they risk losing it all if the case fails and they get no contingency fee.

Are big price increases for malpractice coverage unprecedented? This is the third time controversy over medical malpractice insurance has peaked in three decades.

In the 1970s, federal wage-and-price controls limited how much insurers could raise rates. At the same time, inflation was high and the stock market was troubled. Carriers cut back on policy-writing or abandoned the market.

As commercial insurers fled, doctors and hospitals teamed up to form their own insurance firms. Such provider-owned “mutuals” now control 60% of the medical malpractice market.

In the mid-’80s, a mix of high interest rates and steep inflation pushed insurers to raise rates an average of 20% a year. Rates flattened and declined in the ’90s.

Insurers are feeling less pain now “in proportion to what happened in the 1970s and mid-1980s,” says Hurley at Tillinghast-Towers Perrin. But, he says, doctors are being pinched harder.

The biggest problem for doctors is that the health care market has changed since the 1980s, making it much more difficult to pass higher insurance costs along to patients. That’s because managed care insurers, Medicare and Medicaid all limit reimbursements.

There’s little evidence that a $250,000 federal cap on pain-and-suffering awards will be a cure-all for medical malpractice woes.

The states that seem to be in a malpractice “crisis” all are set to consider their own statewide version of the damage limits now being pushed in Congress. The federal plan is intended to serve as a backstop for states that are unwilling or unable to set damage limits on their own.

“It’s appropriate for the federal government to take action where the states have failed to take action,” says Richard Anderson, an oncologist and chairman of The Doctors Company, the only physician-owned malpractice insurer writing policies in all 50 states.

Others doubt that a federal cap would have a significant long-term effect on doctors’ malpractice insurance rates.

That is because a big part of the increase in the cost of claims paid by insurers is due to growth in economic damages — medical bills, lost wages and other tangible losses that would not be capped.

“Medical costs are going up 15%-20% a year, and they tend to drive up medical malpractice awards and settlements,” says Jerry Slaughter, executive director of the Kansas Medical Society.

A report for the New Jersey Medical Society by Tillinghast-Towers Perrin estimated that a state cap of $250,000 for pain and suffering might result in 5% to 7% savings for physicians.

According to a study by the Congressional Budget Office, states without a cap on jury awards would see significantly lower premiums for malpractice insurance if Congress instituted such a nationwide cap. On average, the study found, such a law would cut premiums in those states 25% to 30%.

However, the Congressional Budget Office study said there would be no effect in about one-quarter of the states, which already have similar caps.

At the same time, the congressional study reported that caps on pain and suffering awards would translate into very small savings — 0.4% — on overall health insurance premiums for the general public. That’s not much, given that consumer health-insurance premiums are rising by about 15% a year.

Critics say the plan for a federal damage cap is a sop to the medical and insurance industries — increasingly generous financial backers of the Republican Party, which controls the White House and both chambers of Congress. The plan also would cut the incomes of aggressive, business-suing trial lawyers, who typically donate generously to Democrats.

Some observers say a cap will deter lawyers from taking legitimate malpractice suits for poorer patients. Lawyers’ fees generally are a portion of the settlement. Low-income patients with limited claims to lost wages or other uncapped damages would not have lawyers rushing to take their cases.

Consumer groups say $250,000 falls far short of what many harmed patients rightly deserve.

Ways to reduce malpractice

Besides damage caps, other ideas to lower malpractice costs include:

– Improve medical care to reduce errors. A 1999 study by the Institute of Medicine, an arm of the National Academy of Sciences, blamed medical mistakes for the deaths of 44,000 to 98,000 hospitalized Americans each year.

– Suggested steps included mandatory or voluntary reporting of problems so “fixes” can be found; increased use of computers for filling prescriptions to reduce handwriting errors; better staffing at hospitals; and greater effort to discipline bad doctors.

– Create outside-the-courts compensation programs to reduce medical malpractice cases. The National Academy of Sciences recommends such an approach, saying it could help physicians who admit mistakes. Those doctors would be rewarded with limits on pain and suffering damages.

Change the way doctors, hospitals and insurers handle medical care gone awry. One Colorado malpractice insurer, for example, works with patients who suffer “adverse events,” paying for any additional medical care they need and covering their lost wages. The firm says its effort has reduced claims filed against its doctors.

“I would not say it’s a crisis,” says James Foreman, a managing director at Towers Perrin, an employee benefits consulting firm. “I have sympathy, but all of us are seeing increases in insurance, whether malpractice, health or homeowners’. Doctors are jumping on the bandwagon. Yet most are seeing an increase in their bottom-line pay. How many other businesses can say that today?”