Whitney Palmer

Debate Heats Up on Medical Liability Reform

Published in the April 2005 AAMC Reporter

For more than 30 years, Bohn Allen, M.D., had a successful surgery practice in Arlington, Texas, serving hundreds of patients. But his financial woes began in 2000 when his liability insurance increased 30 percent.

Over the next three years, Allen’s insurance for his general and vascular surgery practice skyrocketed 30 percent to 40

Bohn Allen, M.D., 2004-2005 president of the Texas Medical Association.

percent each year, forcing him to get a bank loan and dip into his personal savings to keep the practice afloat. By 2003, Allen was using his personal savings to pay nurses. He had not paid off the loan, and he could not generate enough income to cover overhead expenses.

Allen tried to lower his liability rates several times, first by discontinuing any high-risk vascular surgery and abandoning surgery altogether. However, providing patient consults, giving second opinions and making rounds at the hospital was not enough to meet expenses. So, on June 30, 2003, Allen, now president of the Texas Medical Association, locked the doors to his practice and retired.

“It was the saddest day of my life,” he said. “I truly loved all my patients sand had followed many of them for 30 years. They were like family.”

As Allen’s experience demonstrates, specialists in high-risk areas, such as neurosurgery, obstetrics-gynecology and emergency medicine face steep premium increases most often. Consequently, doctors struggle to pay for liability insurance and provide a full complement of services for patients, including high-risk services. Many retire early, move to another state with lower premiums or discontinue providing certain services. No matter what avenue they choose, a patient’s access to care declines.

According to a 2003 AAMC survey of academic group practices, one of out three respondents suggested that rising rates had caused community providers to leave practice and that practice patterns had changed. The survey indicated that when independent physicians reduce services, the responsibility for treating high-risk patients often falls on academic medical centers and faculty practice groups. Added duties and patient load stretch already tight budgets, forcing medical center to make difficult financial decisions.

A recent Congressional Budget Office (CBO) report shows premiums rose 15 percent nationwide for physicians between 2000 and 2002 with higher rates for select specialties. Albert Bothe, M.D., executive director of the practice plan at the University of Chicago Pritzker School of Medicine, stated, “In some cases, faculty group practice plans have experienced malpractice premium increases that have far outpaced the rates of growth for physician reimbursement.”

Physicians, politicians and the CBO identify high malpractice awards as the catalyst for higher premiums. Based on CBO data, each year patients file 15 malpractice claims per 100 physician, and approximately 30 percent result in payment. President George W. Bush supported legislation aimed at slashing liability premiums and decreasing the overall healthcare cost by reducing medical malpractice lawsuits. Medical liability reform remains part of his second term agenda.

Congress did not enact a liability law in the last session, but legislation is expected again during the current session. Previous legislation included a $250,000 cap on non-economic, pain-and-suffering damages and a statute of limitations on cases. Other provisions called for incremental jury award payments rather than a lump sum payment, a limit on attorney fees and an end to joint and several liability.

Some proposed bills offer states with caps the flexibility to maintain the current limits. A federal damage cap would affect states without pain-and-suffering payment limits.

Trial lawyers  and hospitals point fingers, blaming each other for the high healthcare costs and premium rates. The AAMC supports non-economic damage caps, a contingency fee limit and a statute of limitations. The American Medical Association also supports non-economic damage caps.

The AAMC is also a member of the Health Coalition on Liability and Access, a national advocacy coalition that supports damage caps. The group cites Department of Health and Human Services data that says liability premiums increased 12 percent in states with limits from 2000-2001, compared to at least 24 percent in other jurisdictions. According to a coalition survey, 72 percent of the public favors damage caps.

In legal and medical circles, however,a $250,000 non-economic damage cap is a controversial point. The limit mirrors the 1975 California Medical Injury Compensation Reform Act that official said kept state liability premiums below the national average for nearly 30 years, preserving patient access to high-risk procedures.

“In California, an obstetrician-gynecologist in Los Angeles will pay roughly $70,000 for professional liability insurance,” said Peter Warren, spokesman for the California Medical Association. “The same physicians are paying three to four times as much in other states.”

Temporary Relief

But damage caps and other liability reforms, such as attorney fee restrictions, would still only provide temporary relief for physicians and hospitals struggling to pay high premium costs, according to the CBO analysis. Caps could help control arbitrarily excessive jury awards, but expenditures arising from liability lawsuits comprise less than 2 percent of federal health spending, meaning even substantial premium savings would have minimal effect. A premium reduction of 25 percent to 30 percent would only equate to a 0.4 percent to 0.5 percent drop in overall healthcare costs.

Several observers of liability reform also said limits on jury awards could affect other players in the medical field. Medical device manufacturers and pharmaceutical companies will benefit from a cap because juries would no longer levy million-dollar pain-and-suffering awards against them. Injured patients and their families could have greater difficulty in finding lawyers to prosecute malpractice cases because they could not recoup expenses.

Patient Safety

Discussions about malpractice often turn towards ways to improve the environment for patient safety.

For real improvement to occur doctors must be able to discuss medical errors and methods to reduce errors openly through changes in the current system, which can be punitive, according to Thomas Sibert, M.D., associate vice chancellor and president, group practice, University of California, Los Angeles. He said physicians’ first priority should be protecting patients to avoid any potential liability problems.

Preventing medical errors is paramount, but James F. Blumstein, constitutional law professor and director of the Health Policy Center at the Vanderbilt University Institute for Public Policy Studies, said it is equally important to maintain a punitive system for healthcare professionals who allow mistakes to occur if the healthcare system seeks to control liability expenses.  A jury award limit could breed an environment that is not as cautious when trying to make diagnoses or provide continuing care.

“If defensive medicine is sa response to the threat of liability, then lowered liability suggests it might result in fewer precautions,” Blumstein said.

James Blumstein, Vanderbilt University professor on constitutional law, health law and policy; director of the Vanderbilt Health Policy Center

Although few claims are taken to litigation, Blumstein said healthcare providers could avoid lawsuits if they create strong relationships with patients and apologize when medical errors occur.

Critics of the call for liability reform, including the American Trial Lawyers Association (ATLA), accuse the Bush administration of exaggerating how liability lawsuits impact healthcare costs while attempting to scare the medical community and the public into supporting harmful reforms.

According to Carlton Carl, an ATLA spokesman, controlling healthcare costs begins with reducing medical mistakes, and inhibiting some injured patients’ rights to recoup non-economic damages could have a profound financial effect on many individuals.

“A non-economic damage cap would be horrible,” Carl said. “People with the most serious injuries, particularly the elderly and children who don’t work, are penalized because they have no economic losses.”

Malpractice attorneys dedicate resources for a small percentage of the cases because many patients cannot prove their doctor provided substandard care causing an injury, Carl said. But for patients who do meet the malpractice criteria, any damage caps or other reforms could drastically hinder their ability to find an attorney willing to prosecute, he added.

But healthcare providers need liability premium relief because payments consume finances that could be used for other healthcare needs, according to Curtis Rooney, senior associate director and counsel for the American Hospital Association.

“Medical malpractice cases and liability premiums have been a terrible drag on hospitals,” Rooney said. “I know of one hospital where the CEO is paying 10 percent of his budget for medical malpractice coverage, and that equals what he spends on the hospital’s pharmacy.”

The biggest problem for hospitals is recruiting and retaining physicians who are keenly aware of variations in premiums among the states. Retention problems can be solved when the insurance market stabilizes, according to Rooney, and the solution is non-economic damage caps. A pain-and-suffering payment limit will reduce the amount of money awarded to successful plaintiffs and give physicians and hospitals the assurance they seek in determining financial losses.

March 30, 2010 - Posted by wjpalmer | Healthcare | liability premiums affect on hospitals, medical liability reform, medical malpractice effect of hospitals, medical malpractice reform, non-economic damage caps, pain-and-suffering damage caps