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Liability Protects Patients

December 6, 2011 10:14 AM

Shirley Svorny

The medical professional liability insurance industry takes actions that improve patient safety in this country. It is liability that motivates efforts of underwriters to assess the practice risk of individual physicians and to penalize those who present such high risk, and it is liability that motivates medical professional liability insurers to take what steps they can to reduce practice risk.

If the court system were as random as some people think, there would be no reward to efforts to identify high risk physicians, to identify practices that result in bad outcomes, or to create incentives to encourage physicians to reduce their practice risk. Yet the insurance companies all make these efforts, at significant expense. Each year, underwriters at medical professional liability insurance companies review applications for insurance. They have access to a physician's entire claims history and they use professionals to evaluate the validity of the claims. Why would they do this if court decisions were random?

Admitted carriers, those approved by the state, put surcharges on the premiums of some physicians and offer credits to those who are claims free. If the level of underwriting needed to assess a physician's risk is high, the physician will be denied insurance by an admitted carrier and forced into the surplus lines market. Premiums in the surplus lines market are up to five times those in the admitted market. When new, risky procedures are introduced, the surplus lines carriers are heavily involved in assessing physician training and practice risk. The level of oversight is so high as to, where warranted, include visits to offices of physicians to assess and reduce practice risk.

The insurance industry publishes research findings based on studies of claims that highlight where risk is highest in various areas of medical practice. These findings are used by hospitals and other providers to reduce the likelihood of bad outcomes for patients. Physicians are rewarded (with premium credits) for participating in risk management courses based on these findings.

If the system is haphazard, why is all of this going on? And, why would the vast majority of cases settle before they reach trial? In a haphazard system, the potential return to a court trial would be random, not be a function of the actual negligence.

As things are, it appears that most cases that go to court are based on the mistaken belief of the plaintiff that negligence was involved when it was not, given that plaintiffs lose in the majority of cases.

We know that liability creates the kind of incentives that motivate appropriate behaviors to reduce bad outcomes. For years, it has been said that the medical malpractice industry did not create the appropriate incentives. It has been the conventional wisdom that malpractice insurance premiums were not experience rated. I found that this is not true; the industry charges risky physicians higher premiums than their same-specialty, same-location peers.

And I found much more. It turns out that not only are premiums set to encourage clinicians to reduce their practice risk (the only path to a lower premium) but the industry does a lot of other things that are likely to reduce practice risk and protect consumers.

The point is that liability works to protect consumers and that caps will reduce liability. This is especially important in this industry because consumers believe any state-licensed physician is competent. Consumers are not protected by state licensing boards (see my 2008 Cato Policy Analysis) but, instead, by an interconnected private system of oversight based primarily on liability.

Let me address two specific points that Frank makes in his post. Frank quotes an empirical study by Morris, et al., which concludes there is "no rational link between the tort system and the reduction of adverse events." If you read the article you will see that this is conclusion is not supported by the evidence. Morris and his colleagues find more system failures in cases where plaintiffs received awards. That sounds like a rational link to me. The best article I've read about the litigation process is by Henry Farber and Michelle White (RAND Journal of Economics, 1991). They describe a system that works to penalize negligence.

Frank says anesthesiologists were "unnecessarily killing scores of patients" and that he is "not aware of other branches of medicine that would benefit to the same extent." Well, no one was aware - other than, perhaps, the insurers. Many people argue it was high medical malpractice claims and premiums that gave anesthesiologists an incentive to figure out what was going on, making anesthesiology that much safer.

Join the debate! Please send your questions and commentary via Twitter, #PoLdiscussion.




Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.