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Friday, July 8, 2011

Medical Malpractice: Background and Examination of the Issues Before Congress

David Newman
Specialist in Health Care Financing

Vivian S. Chu
Legislative Attorney

Baird Webel
Specialist in Financial Economics

Medical malpractice presents challenges for policy makers, physician/provider purchasers of insurance, and companies offering professional liability insurance covering medical providers as it is buffeted by three distinct, uncoordinated, policy drivers: the health care system, the legal system, and the insurance system. While instances of medical malpractice arise within the health care system, determinations of fault and the assessment of monetary damages are made through the tort system, and damages are paid through the insurance system, which distributes costs across the pool of insured providers. Health care providers experience most of the cost through the insurance system. Because of the complexity of the interactions between these three systems, policy changes in one area may have unanticipated consequences in another area. For example, quality improvements in the health care system could result in fewer instances of medical malpractice, but if other circumstances change in the tort or insurance systems, the premiums paid by providers for medical malpractice liability insurance could still increase.

From 1997 to 2006 nationwide direct premiums earned among medical professional liability insurers increased, and have fallen slightly since the 2006 peak. Losses and costs (direct defense and cost containment expenses) peaked in 2003 and have since fallen over 45%. The loss ratio for medical professional liability insurers (losses and costs divided by direct earned premiums) peaked in 2001 and has been declining since. The improving situation since the mid 2000s nationally, however, masks continuing problems in some states and among some specialties. For instance, in Pittsburgh, malpractice premiums for physicians have increased an average of 8.5% annually since 2000—exceeding medical and general price inflation.

The topic of medical malpractice is contentious, with many individuals holding strong views. The current system, which refers claims of medical malpractice to the judicial system, has both positive and negative attributes. Because medical errors do occur, the primary question for policy makers is how to deal with these errors.

While there are numerous tort reform proposals, summary studies, including one by the Medicare Payment Advisory Commission (MedPAC), have shown that many reform proposals are likely to have a limited impact on premiums, lawsuits, or awards, among other things. Other reform proposals, such as health courts, remain untested. One reform proposal that does have a track record in reducing malpractice payments, among other things, in some states is caps on noneconomic damages. Legislation that would implement such caps nationally, H.R. 5, has been reported by the House Judiciary Committee and the House Energy and Commerce Committee.

Date of Report: June 27, 2011
Number of Pages: 45
Order Number: R41894
Price: $29.95

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