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Corner not turned on malpractice crisis

By Stephen Foreman, J.D., Ph.D.

In 1867 the San Francisco Chronicle published a prominent obituary of the death of Mark Twain. Twain, manifestly not dead, responded “reports of my death have been grossly exaggerated.” So too, reports of the demise of the liability crisis.

Beginning researchers know that it is a mistake to generalize from a single observation. To celebrate anything or draw any conclusion from the 2006 decline in premiums would be a mistake. Taken against a 14-year backdrop of escalating liability payouts and premium increases, it would clearly be erroneous to conclude that anything based on evidence for a single year – strangely enough, reported even before the end of the year. Indeed, six times in the past 14 years Pennsylvania’s liability payouts have declined – only to be followed by substantial increases in following years. For example, total Pennsylvania payouts dropped from $419 million in 2001 to $398 million in 2002 and to $393 million in 2003. But in 2004 payouts jumped to an all time high of $450 million. Clearly, increases in liability payouts in 2006 and 2007 could show that the 2005 decline does not signal any end of the liability crisis at all – hardly a pause.

Moreover, even if the 2005 decline is permanent, it will still leave Pennsylvania second or third in the nation in terms of liability payouts per physician. At the end of 2004, annual payouts per permanent active physician (the real driver of liability insurance premiums) were $16,000 for Pennsylvania physicians. New York was second at $15,000 and New Jersey was third at $11,000. The national average payout is $6,000 per physician. It would take a reduction of 63% in liability payouts per physician to get Pennsylvania to the national average – which might possibly be interpreted as an end to the “crisis.” It would take a reduction of 88 percent in Pennsylvania’s per-physician payouts to make Pennsylvania competitive (the only real definition of “victory”) with states like California, Minnesota and Wisconsin where per physician payouts are $2,000 annually. Indeed, if payouts per physician here have leveled off on a permanent basis in the range of $12,000 to $16,000 per physician, Pennsylvania payouts will be six times greater than in the most favorable states – on a permanent basis. Given a nationally competitive market for physicians and a looming physician shortage, disparities like this will continue to pose threats to medical care in the Commonwealth.

Moreover, nothing that we have done in the past several years has resolved any of the problems inherent in the current physician liability system. Even if payouts and premiums modulate we will still be left with a system that fails to identify and compensate most victims of medical errors, a system that compensates patients who are were not harmed by medical errors as often as it compensates real victims and a system where 50 to 60 percent of system resources are paid for overhead (plaintiff’s attorneys, defendant’s attorneys, investigative costs and court costs).

In short, reports of the death of the malpractice payout increases are likely premature. The current year’s reduction in payouts and premiums is certainly good news. However, we have not taken the difficult steps necessary to reverse the trends of the past 14 years. If we are to do anything meaningful for patients and physicians, nothing less than dealing with the system’s underlying problems will suffice.

Stephen Foreman, J.D., Ph.D., MPA is associate professor of Health Administration and Economics at Robert Morris University.

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