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February 2005 Archives

By Walter Olson

On Tuesday, readers will recall, the New York Times business section ran an article entitled "Behind Those Medical Malpractice Rates" under the byline of Joseph B. Treaster and Joel Brinkley. Yesterday I criticized at length the article's assertion that "legal costs do not seem to be at the root of the recent increase in malpractice insurance premiums". Toward its end, the article goes to make some even more tendentious and misleading comments on the relationship between damage caps and insurance rates. Those will serve as our topic today.

Now, it happens that the impact of damages caps on malpractice insurance rates has been extensively studied by researchers whose opinions on other aspects of the subject diverge vigorously, and the consensus is to confirm the common-sense notion that when set relatively low and not riddled with exceptions, caps do keep insurance rates markedly lower than they would be otherwise. (This isn't to say that the researchers necessarily support caps as a policy matter -- many don't -- just that they find that the impact on insurance rates is in the expected direction and of significant magnitude.) See, for example, Zuckerman, Bovbjerg & Sloan, 1990 (caps on physician liability "significantly lower premiums"), Congressional Office of Technology Assessment, 1993 (at pp. 64-65, summarizing five studies suggesting link between caps on damages and reduction in insurance premiums); Kessler & McClellan, 1997 (finding "substantially and statistically significant lower trend growth in [doctors'] real malpractice insurance premiums" within three years of reforms); HHS, March 2003 (sec. 6, "States with Realistic Limits on Non-Economic Damages Are Faring Better"); Congress's Joint Economic Committee, 2003 (many references); General Accounting Office, Aug. 2003 (see p. 30, "Premium Growth Was Lower in States with Noneconomic Damage Caps Than in States with Limited Reforms"); American Academy of Actuaries testimony, 2003; Congressional Budget Office, 2004 (summarizing, at footnote 11 and accompanying text, yet another such finding). For more summaries of research, see the AMA's Dec. 2004 position paper (pp. 23 et seq.), and Daniel Kessler's comments at pp. 6-8 of his working paper here.

How does the Times handle the task of fairly conveying all this empirical work to its readers? It just ignores the whole pile -- even the 1990 study co-authored by Duke economist Frank Sloan, interviewed himself in the article, which found a "significant" such effect.

By Ted Frank

Opponents of medical malpractice reform make a variety of assertions about the subject in an effort to persuade. But if all of these assertions are true, then trial lawyers are wasting their time lobbying and issuing press releases. They have the power to solve the medical malpractice insurance crisis by themselves�and can make more money doing it.

Joseph B. Treaster�s and Joel Brinkley�s February 22 New York Times article �Behind Those Medical Malpractice Rates� lays out a frequent counter-argument to medical malpractice reform. The medical malpractice insurance crisis, the argument goes, is the fault of the insurance industry. After all, �payments for malpractice claims� haven�t increased as fast as premiums have. (Never mind that those claims statistics omit the amounts that malpractice insurers also have to pay for lawyers and experts to defend against both winning and losing claims�and never mind that the total of all those expenses amounted to $1.375 for every $1.00 of malpractice premiums collected in 2003.) The Times goes on to cite studies that purport to show that caps on non-economic damages in medical malpractice have no effect on insurance rates.

Joanne Doroshow, who is a spokesperson for both Americans for Insurance Reform and its parent Center for Justice and Democracy, two organizations that regularly take the side of trial lawyers, says in one press release that �today�s liability insurance crisis for doctors is not caused by jury verdicts or the legal system. It is driven by the insurance industry�s economic cycle that takes advantage of a weakened economy to price-gouge doctors and make huge profits.� AIR�s web page blames �Poor business practices, shady accounting, money lost in the stock market, not enough profits� and opposes medical malpractice reform in lieu of its proposed eponymous remedy.

Moreover, the New York Times argued in a January 9 editorial ($) that duplicated claims made by Ralph Nader�s Public Citizen, that if the system can be reformed to �weed out the small number of negligent doctors responsible for generating most of the malpractice awards,� the problem will solve itself.

Do trial lawyers believe their own propaganda? I have a modest proposal to find out.

The Association of Trial Lawyers of America, or some other such well-funded trial lawyers� group, should start its own medical malpractice insurance firm. Take some of the billions of dollars won in the tobacco cases, and invest it in offering medical malpractice to the doctors of America. The Sulzbergers, whose family fortunes are suffering with their investment in the New York Times, may wish to chip in as well. If one were to believe the opponents of lawsuit reform, it�s surprising that trial lawyers would want to put their savings anywhere else.

Tort reformers claim that practicing doctors are sued for malpractice indiscriminately. But if it's really true, as Ralph Nader�s Public Citizen claims, that only 5-10% of the doctors are responsible for most or �the bulk� of malpractice, this new insurance firm (let's call it Doroshow Insurance) can undersell other insurers by experience-rating, the practice of using historical data to determine the risk of future claims. Doroshow Insurance will simply offer its lower insurance rates to the other 90-95% of doctors and refuse to ensure the �small number� singled out by the Times. Because this 90-95% will exclude �the bulk� of malpractice claims, Doroshow Insurance and its investors will make even more profits than the �excessive profits� made by the current insurers.

Tort reformers suggest that one way to reduce insurance costs is to cap non-economic damages, where, without caps, only the lawyers� and jury�s imaginations provide a ceiling for pain and suffering awards. But if, as ATLA, AIR, and the New York Times claim, malpractice liability caps do not lower rates, Doroshow Insurance can costlessly promise that it will waive caps for all Doroshow-insured doctors who are sued. If patients care about caps, then this will be a huge marketing advantage for doctors who sign up with Doroshow Insurance. Even if a patient is in a state where lobbying by ATLA and its allies has failed to stop the implementation of caps, those patients can simply choose to have their medical procedures performed by a Doroshow-insured doctor, and avoid caps altogether without changing their jurisdiction. Meanwhile, the non-Doroshow-insured doctors (presumably the ones supposedly causing most of the malpractice) will be driven out of business between facing higher insurance rates and fewer patient visits.

Under this modest proposal of ATLA-sponsored insurance,

  • doctors get cheaper insurance rates;

  • patients both get better health-care and don't have to worry about malpractice caps;

  • lawyers make more money than they ever made before, because they get both the profits from suing doctors and the �huge profits� from running the malpractice insurance industry;

  • and legislators can forget about the malpractice debate and focus on their core mission of investigating Super Bowl halftime shows for indecency.

What a list of winners! Who could possibly be upset by that? Trial lawyers would get the additional benefit that lawsuit-reform advocates would be exposed as charlatans when all that was really needed to solve the malpractice crisis was a trial-lawyer-run insurance industry. The only other losers would be the insurance companies that we're being told are so mismanaged and the small percentage of bad-egg doctors responsible for �the bulk� of malpractice awards.

Indeed, this plan is so profitable, so ingenious, so win-win, that the only reason Trial Lawyers, Inc. could possibly have for rejecting it is if they didn't believe in their own arguments against malpractice reform.

But that couldn't possibly be the case, could it?

Ted Frank is a regular weblog contributor to and an attorney at O'Melveny & Myers in Washington, D.C.

By Walter Olson

Yesterday's New York Times article on medical malpractice insurance wasn't a complete botch. The chart plotting rises in rates and in payouts since 1975 makes an excellent starting point for understanding the controversy, even if it tells only part of the story; the discussion of insurance company investments was generally on target; and much of the remainder of the article practices fairly standard "on the one hand, on the other hand" journalism.

But those aren't the parts of the article likely to make a sensation. Foes of malpractice-suit reform are sure to seize on the following pair of assertions as providing a Times imprimatur to what they've been saying all along: "legal costs do not seem to be at the root of the recent increase in malpractice insurance premiums" and "The recent jump in premiums shows little correlation to the rise in claims." In point of fact, these assertions are flatly in conflict with the evidence presented in the rest of the article, so much so that it's baffling that editors could have chosen to include them. To make matters worse, the article is highly tendentious in its treatment of the issue of how damage caps affect insurance races, and once again the slant is helpful to the anti-reform side.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.