The “Crisis” in Medical Malpractice: A Comparison of Trends in the United States,Canada,the United Kingdom and Australia

Danzon P.M. , “The Frequency and Severity of Medical Malpractice Claims: New Evidence,” Law and Contemporary Problems, 49 (2), Spring, 1986.

Sloan F.A. and Bovbjerg R.R. , “Medical Malpractice: Crisis, Response and Effects,” Health Insurance Assoc. of America Research Bulletin, May 1987.

The St. Paul Fire and Marine Insurance Company, which covers more physicians than any other carrier and writes in 42 states, reports an average premium increase of 32% in 1986, 30% in 1987, and 5.5% in 1988. A 14% decrease on average is projected for 1989. Rate increases for the physician-owned companies and other commercial carriers have also slowed. This deceleration or even decline in premiums is attributed primarily to fewer claims being filed. “Are Malpractice Premiums Leveling Off for Good?” Medical Economics, 1989. Jury Verdicts Research Inc. reports a decline in median and mean jury verdicts. Wall St. Journal, April 28, 1989. However such trends may be biased by changes in caseload composition. See n. 5.

U.S. Accounting Office, Medical Malpractice Case Studies, U.S. Government Printing Office, December, 1986.

Danzon, supra note 1. The growth of malpractice awards in excess of general inflation cannot be fully explained by the more rapid growth in the medical price index, since medical expenses are a relatively small fraction of compensable damages in malpractice claims. NAIC (1980) reports that medical expense was less than one-quarter of the reported economic loss in medical malpractice cases closed with payment.

Danzon P.M. and Lillard L.A. , “Settlement Out of Court: The Disposition of Medical Malpractice Claims,” Journal of Legal Studies, June, 1983.

Peterson M.A. , “Civil Juries in the 1980s: Trends in Jury Trials and Verdicts in California and Cook County, Illinois,” Rand Corp., Institute for Civil Justice, 1987.

Chin A. and Peterson M.A. , “Deep Pockets, Empty Pockets: Who Wins in Cook County Jury Trials,” The Rand Corp., Institute for Civil Justice, 1985.

Based on data provided by George Priest, reported in P.M. Danzon, “Florida Malpractice Awards for Pain and Suffering” in Manne , ed. Medical Malpractice Policy Guidebook, 1985, 139. There are several possible sources of error in generalizing from such data. Payment for pain and suffering is estimated as the difference between the total award and reported economic loss (wage loss, medical and other tangible expense). These data do not correct for awards that are reduced on appeal. The sample of cases litigated to verdict tends to be atypical and unrepresentative of cases settled out of court (Danzon and Lillard, 1983); cases involving atypical issues and very large stakes are more likely to be tried to verdict. Estimates of trends over time may be biased by changes in caseload composition. In particular, estimates of trends in the mean may be upward biased if cases tried to verdict represent an increasingly small percentage of the largest cases.

A precise parallel movement between premiums and paid claim costs is not expected since premiums reflect anticipated future claim costs, which may reflect other information in addition to current paid claims.

The percentage of physicians carrying at least $1 million in coverage increased from 21 percent in 1976 to 41 percent in 1983. Dutton, 1986.

The cost of $1 million-$1 million coverage, expressed as a multiple of the $100,000 – $300,000 basic limits of coverage was 2.0 in 1977, fell to 1.7 in 1980 and rose to 2.26 in 1986. St. Paul Fire and Marine Insurance Company, private communication.

Health Economics Research, Inc., “Impact of Malpractice Insurance Costs on Physician Practice,” 1983–1986. Final Report May 16, 1988.

The correlation between the level of premiums in 1976 and the percentage increase between 1976 and 1984 is −0.4.

The data in this section are from Dewees D. Coyte P. and Trebilcock M. , Canadian Medical Malpractice Liability: An Empirical Analysis of Recent Trends, University of Toronto, June, 1989. Growth rates are estimated by an exponential model.

Dewees . Figure 2–2.

The June 1987 exchange rate was C8.75 = U.S. $1.00. Federal Reserve Bulletin.

In the first year of a switch to full funding, the premium levy must cover claims payable in that year plus the present value of expected losses accruing to new policies written in that year. The length of the payout tail determines the investment income and hence the amount and duration of the surcharges necessary to move to full funding.

This assumes a $16,000 mean premium in the U.S.

Figure 4c gives the average cost of total limits of coverage in Canada, whereas Figure 3 gives the cost of basic limits of coverage for the U.S., based on a subset of insurers. As indicated earlier, because physicians in the U.S. pay different premiums, depending on specialty, location and limits of coverage selected, estimates of the average cost of insurance for U.S. physicians are sensitive to the sample of physicians on which the estimate is based.

The Medical Defence Union, established in 1885, has about 135,000 physicians and dentist members (including members of wholly-owned subsidiaries), principally in the U.K., Australia, New Zealand and Spain ( Cumpston 1989). The Medical Protection Society was established in 1891 and has about 117,000 members worldwide, principally in the U.K., Australia, New Zealand, Hong Kong, Malaysia, Singapore, and South Africa.

Ham C. Dingwall R. Fenn P. and Harris D. , Medical Negligence: Compensation and Accountability, The King's Fund Institute, London, 1988.

Ham p. 12.

The 19 percent growth rate calculated from the MPS data assumes that the number of physicians insured by the MPS remained constant over this period.

MDU reports that severity doubled between 1984 and 1987, which would imply a 19 percent growth rate, similar to the 17 percent reported for the MPS.

This assumes an increase in the average premium of $14,781 in the U.S. in 1986 to $17,000 in 1988 and an exchange rate of $1.6 = £1.

The data in this section are from Cumpston R. Rennie and Walsh , “Compensation for Medical Misadventure,” Mimeo, (1989).

The New South Wales Medical Defense Union, which shares the NSW market roughly equally with the MDU, charged the same premiums as the MDU at least from 1984–1988.

However, some commentators attribute the recent slowdown in claims to success of risk management programs. Medical Economics, supra note 3.

Danzon , supra note 1.

Dewees , supra note 15.

Danzon P.M. , Medical Malpractice: Theory, Evidence, and Public Policy (Cambridge: Harvard University Press, 1985), and sources cited therein. The definition of a claim is as defined in NAIC, 1980. It includes all claims filed with an insurance company by a patient or patient's attorney, including claims that are settled or dropped without filing a legal suit. It does not include cases where a hospital might provide remedial medical care to a patient without the filing of a formal claim.

Danzon P.M. , “The Effect of Medical Malpractice on Physicians' Practice Patterns and Incomes,” unpublished paper, June, 1989.

Danzon , supra note 1. These are average percentage reductions, in a single year, over the period 1975–1984.

Dewees , supra note 15.

Danzon , supra note 1.

Rea S.A. Jr. , “Economic Perspectives of the Liability Insurance Crisis,” in Insurance Law, pp. 1–12, (Toronto: DeBoo).

Danzon , supra note 1.

Greenwald B. and Mueller M. , “Medical Malpractice and Medical Costs,” in Rottenberg S. (ed.) The Economics of Medical Malpractice, Washington D.C., America Enterprise Institute, 1978, 65–86; Reynolds R. Rizzo J. and Gonzalez M. , “The Cost of Medical Professional Liability,” JAMA, May 22/29, 1987, 257:20; Danzon, supra note 33. “Defensive Medicine” has been variously defined. In principle it should be defined to include procedures performed and other actions taken by medical providers that would not have been chosen by a fully informed patient, given his or her first-party insurance coverage, and that would not have been taken in the absence of liability. It is important to exclude resource misallocations that may be induced by moral hazard on first party health insurance or asymmetric information in the physician/patient relationship.

Zuckerman S. , “Medical Malpractice: Claims, Legal Costs, and the Practice of Defensive Medicine,” Health Affairs, Vol. 3, Fall, 1984, 128–33; Reynolds , supra note 39; Danzon , supra note 33.

Danzon , supra note 33.

Zuckerman , supra note 40.

Reynolds , supra note 39.

Greenwald and Mueller , supra note 39; Reynolds , supra note 39; Danzon , supra note 33.

The data available do not permit a rigorous comparison of the services provided and efficiency of the medical defense associations compared to commercial insurers. In 1985–1987, indemnity payments accounted for 42–57% of subscription payments for the MDU; advisory services and legal charges account for roughly an additional 15 and 16 percent, respectively ( Cumpston , 1989). The MPS reports similar percentages. The ratio of indemnity payments to subscriptions for the medical defense associations would be comparable to loss ratios for commercial insurance in the U.S., only if the subscriptions reflected full funding.

This would not cover office-based general practitioners, who would continue to have their subscriptions reimbursed through the expenses system (British Medical Journal, v. 298 13 May, 1989), nor would it cover the private practice of physicians (British Medical Journal v. 298, 1 April 1989). Difficult details of this proposal remain to be resolved, in particular, the transfer of responsibility and reserves for claims arising out of prior actions, and liability for indemnity payments if the doctor retained separate representation. Under the original proposal, doctors who elected to retain separate legal defense cover would continue to be responsible for all costs and damages awarded for medical negligence.

Cumpston , supra note 27.

Pure pay-as-you-go insurance is a more extreme form of retroactive charging than claims-made insurance.

Cumpston , supra note 27, report that brokers representing commercial insurers have tried to enter the Australian market by bidding away physicians with “low risk” practices.

A similar risk faces physicians who switch claims-made carriers in the U.S.

Legal costs of successful plaintiffs would typically be paid by the defense in Canada and the U.K., but this is reported separately from the average payments reported here.