NYTimes.com Article: Bush Enters the Fray Over Malpractice

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12 years until stabilization . . .


Bush Enters the Fray Over Malpractice

January 17, 2003


WASHINGTON, Jan. 16 - 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

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

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

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

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

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

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

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."


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