Op/Ed: Are caps the answer to the malpractice crisis?

Family Practice News
Monday, November 15, 2004

Damage caps and tort reform are essentially limits on the power and authority of juries in this country, interfering with one of our fundamental constitutional rights.
But there are really no data to support solving what is really an insurance problem for doctors with such a drastic measure. For starters, the volcanic eruptions in malpractice insurance premiums that have occurred three times in the last 30 years have all been caused by insurance company business practices and the investment cycle, not runaway juries.
Insurance companies make most of their money off of investments, and when the economy has a downturn and interest rates drop, insurers always respond by dramatically increasing rates.
This increase is compounded by the underpricing of policies that goes on during the price war that occurs when companies are profiting from their investments.
The response from insurers is always the same: Blame the lawyers, it's not our fault. It's simply not believable that juries have awarded large verdicts during the periods of each of those economic downturns but have stopped for the 10-15 years between these cycles. And it's not true.
Let's consider what insurers are actually paying out, since they are the ones that are raising premiums on physicians.
After adjustment of malpractice insurance payouts for inflation and for the number of doctors, payouts have stayed fairly constant over the last decade.
The average payout for insurers is about $ 30,000 per claim. The average payout when money is awarded is about $ 107,000. Overall, the total payout for medical malpractice insurers in the United States is about $ 4 billion a year, which is about half of what we spend annually on cat and dog food.
Meanwhile, in the last year, profits for insurers have skyrocketed to nearly 1,000%, according to data published in trade publications.
We know that the current crisis is an insurance problem. We know that juries and patients are not the problem here. And we know that rates will not come down by capping damages.
 There is little evidence of a physician exodus or dramatic increases in defensive medicine, according to a study published in August by the National Bureau of Economic Research. The group also found that premiums have no connection to claims and payouts by insurers.
And states that have enacted damage caps aren't seeing relief from rising premiums. In Ohio, where caps were enacted in 2003, the five largest insurers immediately sought a rate hike. The same thing happened in Oklahoma. In Texas, the major insurer there had increased rates 147% since 1999, and following the enactment of damage caps only offered to reduce rates by 12% in January, and then another 5%.
It's not working because what's driving this crisis is not the legal system. What's driving this crisis is the business and accounting practices of the insurance industry.
The surefire way to reduce rates is through insurance reform. This is working in California, where residents passed Proposition 103. That law allows consumers to ask for a hearing for any rate increase greater than 15%. A local consumer group did just that and was able to force down rates three times in the last year.
Trying to address this problem by attacking patient rights will not only have devastating consequences for many catastrophically injured children, it will have absolutely no impact on insurance rates for doctors.
Joanne Doroshow is an attorney and the executive director of the Center for Justice and Democracy, based in New York City.

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