Healthcare has become a hot topic on Capitol Hill, and reform policy an issue of much debate. Central to the debate, certainly, are the ways in which healthcare costs may be cut without sacrificing quality. Lobbyists, specifically those on behalf of the medical insurance industry, have long argued that the price of healthcare is largely driven by payouts from medical malpractice suits, and that settlement caps therefore provide an easy solution to rising costs. Studies have shown that these claims are false, however. Though the proposed caps save money for the insurance industry, they fail to significantly reduce the cost of healthcare, and thus to redress the problem at hand.
In February 2003, NJ doctors went on strike to protest the state’s skyrocketing malpractice insurance rates. Insurance companies claimed that rates had climbed due to the staggering number of medical malpractice suits that year. The incident attracted the attention of Americans for Insurance Reform (AIR), who launched a comprehensive study of New Jersey medical malpractice insurance. The results were conclusive: The average NJ medical malpractice attorney, “already demonized by President Bush in his demand for tight tort reform,”[1] was not at all the thief that insurance industry lobbyists made him out to be, and neither was his client.
AIR’s conclusions were twofold: First, that payouts for New Jersey medical malpractice suits had remained fairly constant over the previous sixteen years; and second, that premiums charged to doctors had little or no correlation to payouts rendered. This incongruity underscored the falsity of insurance industry claims that premiums had risen as a result of payouts rendered. The discovery sparked further investigation, which revealed to the real instigator of insurance rate change: The economy.
In times of economic instability or uncertainty, the Fed cuts interests rates, thereby reducing the amount of investment income seen by insurance companies. Because insurance companies derive the majority of their profits from this investment income, they are forced to hike insurance premiums to compensate for losses. AIR’s study concluded that NJ premium hikes, occurring at intervals of roughly every ten years (in the early 70s, 80s, 90s, etc.), directly corresponded to such Fed interest rate cuts.[2]
This revelation led to the investigation of several other myths concerning medical malpractice litigation. A 2006 study conducted by researchers at Harvard University, for instance, concluded, “Portraits of a malpractice system that is stricken with frivolous litigation are overblown.”[3] The truth is in the numbers: Compared to the estimated 238 thousand deaths that occur each year as a result of preventable medical errors (including birth injury) the justice system awards only 38 thousand payouts—if anything, the issue here is the abundance of medical errors, not the number of victims compensated. Moreover, according to the Congressional Budget Office,[4] these payouts amount to less than two percent of the overall cost of healthcare—not exactly the driver of healthcare costs that lobbyists made them out to be.
But healthcare cost is not the only argument insurance industry lobbyists use to push for settlement caps—there are a variety of other reasons, they say. Amongst them, that doctors flee or retire early in states where settlement caps have yet to be instituted; and also, that doctors who choose not to flee or retire early practice “defensive medicine,” or order superfluous tests and procedures to avoid negligence suits, and thus unnecessarily inflate the cost of healthcare. It’s no surprise that these claims, too, are false.
Doctors are not fleeing the profession, nor are they avoiding states without settlement caps. Recent studies have shown that the number of doctors nationwide is increasing faster than the population, and what’s more, that “the ratio of doctors to population is higher in states without caps.”[5]
Though investigations into the practice of defensive medicine have yet to reveal its prevalence in the field, the reasons for its implementation (if and when it occurs) are clear: Doctors who practice defensive medicine do so either out of genuine concern for patients or as a means of bolstering income. Private practices in Florida came under close scrutiny, for instance, when “health authorities determined diagnostic-imaging centers and clinical labs were ordering additional tests because the majority were physician-owned and the tests provided a lucrative stream of income.”[6] In fact, an article published in the Cornell Law Review found that fear of medical malpractice insurance was the reason for the implementation of defensive medicine less than one percent of the time.
Settlement caps on malpractice suits fail to address the problems insurance industry lobbyists say they do. Why would they push for them? Because the insurance companies are the ones responsible for paying the settlements. These companies have gone through great pains to concoct and spread myths regarding not just New Jersey medical malpractice litigation, but medical malpractice litigation nationwide. One thing remains clear, however: Medical negligence infringes on the American citizen’s right to life liberty, and the pursuit of happiness and must therefore be stopped. When malpractice results in a birth injury like cerebral palsy, it’s not just the child who suffers, it’s the child’s entire family. In such cases, the damage is limitless—so too should be the punishment.
[1] “The Doctor is out in NJ.” The New York Times 02 Feb 2005 Web.27 Jun 2009. http://www.nytimes.com/2003/02/05/opinion/the-doctor-is-out-in-new-jersey.html.
[2] “Medical Malpractice Insurance: Stable Losses/Unstable Rates in New Jersey.” Jan 2003 Web.27 Jun 2009. <http://www.centerjd.org/air/issues/StableLossesNJ.pdf>.
[3] David M. Studdert, Michelle M. Mello, Atul A. Gawande, Tejal K. Ghandi, Allen Kachalia, Catherine Yoon, Ann Louise Puopolo, Troyen A. Brennan, Claims, Errors and Compensation Payments in Medical Malpractice Litigation, New England Journal of Medicine, 354;19, May 11, 2006.
[4] Limiting Tort Liability for Medical Malpractice, Congressional Budget Office, January 8, 2004.
[5] “AMA Data: Doctors Not Fleeing The Profession.” American Association for Justice Web.27 Jun 2009. <http://www.justice.org/cps/rde/xchg/justice/hs.xsl/8691.htm>.
[6] “AMA Data: Doctors Not Fleeing The Profession.” American Association for Justice Web.27 Jun 2009. http://www.justice.org/cps/rde/xchg/justice/hs.xsl/8691.htm.
Written by Nick Bakshi
About Ted Oshman
Ted Oshman has been with The Oshman Firm since 1988 serving clients for over 25 years. Learn more about Ted's background and featured practice areas here.
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