Malpractice Lawsuits and Insurance: Who is Paying Whom?

Every doctor needs malpractice insurance. Yet 82% of doctors have never had a medical malpractice payment, according to data from the National Practitioner Databank. Furthermore, 6% of doctors have been responsible for 58% of all malpractice payments since 1991. Yet high malpractice insurance premiums are still a burden to the whole of the medical profession.

In order to curb these and other liability costs, Georgia put caps on the amount a person can receive in noneconomic damages as part of the 2005 Tort Reform Law. However, the Georgia Supreme Court later ruled in 2010 that these caps were unconstitutional. In Atlanta Oculoplastic Surgery vs. Nestlehutt, the Court found that the caps denied plaintiffs their right to a jury trial under the Georgia Constitution. Because the jury is responsible for determining the amount of damages that should be awarded, the Court ruled that caps on damages limited the abilities of a jury to determine the amount of compensation justified in a case. Reinstituting caps on damages would therefore require a constitutional amendment.

Some studies have also called into question the effectiveness of caps on damages at reducing the cost of malpractice insurance on physicians. In 2003, the Average Malpractice Liability Premium for internal medicine, general surgery and OB/Gyn was $34,741 for states without caps on damages and $40,381 for states with caps on damages. Additionally, the average malpractice insurance premium increase from 2002 for internal medicine, general surgery and OB/Gyn was 18% both in states with and without caps on damages. From 2000-2010, malpractice insurance premiums had little correlation to malpractice payouts. Instead, market forces in the insurance industry played a large part in determining premiums, and there is great volatility year to year in the insurance market.

Taking the example of medical malpractice insurers in Washington State, the loss ratios for insurance companies were very high during the early 2000s. A loss ratio is the amount of money paid out by insurance companies for damages compared to the amount of money they take in from premiums. Loss ratios do not include the operating costs of the insurance company. When combined with the legal defense costs to the insurance companies, the average loss ratios were:

  • 2000: 98.1%
  • 2001: 108.6%
  • 2002: 114.2%
  • 2003: 80.8%
  • 2004: 68.4%
  • 2005: 63.3%
  • 2006: 54.4%
  • 2007: 53.2%
  • 2008: 55.9%
  • 2009: 48.1%
  • 2010: 44.4%

This comes out to an average of 68.3% over the decade. Defense costs accounted for about 20% of the payouts, so the pure loss ratio was around 48.3%. This is fairly in line with other insurance industries.

For example, from 2001 to 2010 in Missouri, the average pure loss ratio for legal malpractice insurance was:

  • 2001: 31.36%
  • 2002: 20.51%
  • 2003: 29.15%
  • 2004: 113.43%
  • 2006: 70.11%
  • 2007: 26.03%
  • 2008: 23.62%
  • 2009: 35.88%
  • 2010: 61.08%

This averages out to 46.16% over 10 years, approximately the same as medical malpractice insurance loss ratios.

The Patients for Fair Compensation, an advocacy group for malpractice tort reform in Georgia, have suggested implementing a Patients’ Compensation System. It would be a no-fault system in which a patient who had been medically harmed could file a claim for review by a panel. If that panel deemed “avoidable harm” occurred, the claim would be forwarded to a Compensation Board to award compensation. It is modeled after the Workers’ Compensation System, where workers exchanged faster payments for limiting employer liability.

A survey conducted by the group found that 96% of Georgia physicians agreed that a Patients’ Compensation System would reduce healthcare costs, and 95% said they were likely to support such legislation if the General Assembly pursued it in 2012.

Additional Resources

What is Tort Reform: http://www.whatistortreform.com/

American Tort Reform Association: http://www.atra.org/

The Georgia Tort Reform Law: http://www.hbss.net/documents/articles_whitepapers/Status_on_Tort_Reform.pdf

Atlanta Oculoplastic Surgery v Nestlehutt: http://www.gasupreme.us/sc-op/pdf/s09a1432.pdf

American Association for Justice Medical Negligence: http://www.justice.org/cps/rde/xchg/justice/hs.xsl/2031.htm

Georgia Chamber of Commerce Civil Justice Reform: http://www.gachamber.com/law-judiciary/georgia-legal-improvements/

The Battle Regarding Georgia’s Apportionment Statutes Heats up in Negligent Security Premises Liability Cases: http://www.carlockcopeland.com/Files//PremLiabE-BlastApportionment2.22.12FINAL.pdf

O.C.G.A. 51-13-1 (2008): http://www.georgiainsurancedefenselawyer.com/51-13-1.pdf

Admissibility of Seat Belt Nonuse Evidence: http://dritoday.org/articles/2009/12_December/FTD-0912-GeisslVarney.pdf

Patients for Fair Compensation: http://www.patientsforfaircompensation.org/microsites/georgia/

Georgia Trial Lawyers Association: http://www.gtla.org/

2011 Medical Malpractice Annual Report: http://www.insurance.wa.gov/legislative/reports/MedMal2011.pdf

An Empirical Bayes Approach to Estimating Loss Ratios: http://www2.mccombs.utexas.edu/faculty/laura.starks/lammtennant%20starks%20stokes%20jri.pdf

Towers Watson U.S. Tort Cost Trends 2011 Update: http://www.towerswatson.com/assets/pdf/6282/Towers-Watson-Tort-Report.pdf

Public Citizen Medical Malpractice Payments Sunk to Record Low in 2011: http://www.citizen.org/documents/npdb-report-2012.pdf

 

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