There has been a growing debate on whether the medical malpractice insurance system has created a crisis situation. Despite the arguments in favor of and against labeling the situation as a crisis there is a consensus that the malpractice insurance has become expensive and less affordable and also the availability is scarce. A crisis in the malpractice insurance system can be defined to include a period of volatility in the professional liability insurance of the physicians in which “deterioration in insurance carriers’ financial ratios is followed by higher than historical increases in insurance premium and/or decreased supply of insurance.
” Even though the word ‘crisis’ connotes a severity and urgency of the issues, no such literal meaning need to be interpreted about the malpractice insurance, since there is only a variation in the price and supply position of the professional liability insurance market which has not really risen to an alarming situation. The word ‘crisis’ is used commonly in all academic debates and policy issues concerning the medial malpractice insurance. (Mello M. 2004)
It may be noted that the medical malpractice crisis is basically a state specific issue depending on the socio-demographic variations prevalent in the states. Such crisis normally has its influence on the states more rather than on regions or the whole country. There are varying conditions of malpractice litigations and award sizes exist in the states depending on the regulations prevailing in the states and it so happens that many malpractice insurance companies cater only to a smaller number of states.
Causes leading to Malpractice Crisis Under the following circumstances a state may be said to reach a stage of malpractice crisis: (1) When there is deterioration in the financial performance of the insurance companies is an indication of malpractice crisis setting in. It is for the insurers that they should adjust their premiums and underwriting in such a way that the profitability is maintained by enhancing the premiums to the sufficient level.
At the same time when the increase in premiums hits the health care providers it amounts to crisis if the increase is prolonged for quite some time. (2) Another major cause that may create a crisis in the liability insurance market is the non-availability of adequate insurers to undertake the malpractice insurance business. It may so happen that many of the insurers exit the market recognizing that the market is too volatile and unpredictable and any continuance in the market may lead them to pay claims in excess of the premiums received by them.
(Mello et al 2003) The supply of insurance may also get affected by the insurers refusing to underwrite policies further due to the reasons that (a) they decline underwriting of policies of doctors who have experienced any claim, (b) they refuse to underwrite any new policies, (c) they undertake to issue new policies only for best risks; this kind of a crisis due to withdrawal of policies was witnessed during the first medical malpractice insurance crisis in the years 1974 to 1976. However the crisis situation was overcome with the formation of many mutuals which were physician-owned.
(Sloan et al 1991) During the period 2001 – 2004, there were the exit of insurers like St. Pauls, PHICO, and Frontier Insurance which created a crisis in the malpractice insurance. The Medical Inter – Insurance Exchange (MIIX) was prepared to underwrite businesses only in the region of New Jersey. (Danzon et al. , 2004) There is the alternative of joint underwriting associations promoted by the government to mitigate the problem. But being expensive it would involve additional cost on the part of the physicians than what they would otherwise spend on admitted insurance carriers.
Hence such a situation creates a crisis. (Nordman et al. , 2004) (3) A crisis situation arises when there is an occurrence of non-affordability due to exorbitant increase in the premium rates much higher than the rates prevailed in the past. (Mello et al 2003; Studdert, 2004) This happens when some of the existing insurers exit the market, those who remain tend to chare much higher premiums. Such a situation can also be expected to arise even when there is a stable supply of insurance in the market. There was affordability problems in the crisis occurred during the mid 1980s.
The affordability problem will vary across the states and even within the states from region to region and also on the clinical specialties. (4) If there is a distinct possibility for the hospitals and the physicians to pass on the increase in the premiums then there does not exist any problem. However if there is no chance of such passing through for reasons like there is one single dominant payer and is refusing to negotiate the hike, then the increase in premium places much hardship on the providers.
Moreover the trend in the provision of medical services has changed to include “non-fee-for-service reimbursements and greater payer consolidations”. This has placed considerable difficulty on the part of the service providers to claim enhanced reimbursements. Moreover the Medicare and Medicaid reimbursements have been either stable or showing a declining trend in the fast few years. Hence this phenomenon of increased premium charges and reduced income has put lot of constraint on the healthcare providers. (Mello, M 2004)
Deficiencies in the Medial Malpractice Insurance System Irrespective of the support it provides to the health care providers, the medical malpractice insurance system suffers from some inherent problems which are brought to fore when there is a crisis in the form of increased premiums or inadequate supply. At such points debates take place towards bringing about sweeping reforms in the area of medical malpractice insurance system. The following is a listing of some of the complaints that undermine the benefits out of the system: (1) Poor Compensation to Patients
The system is considered as not very effective in compensating the patients who suffer injuries out of medical malpractice. Epidemio-logical Studies report that out of the total injuries caused by medical malpractices at best only 2 percent of the cases culminate into malpractice claims. (Brennan et al 1991; Thomas et al. 2000) (2) Very High Transaction Costs involved The system suffers from a basic financial malfunction in which there is a high level of transaction costs involved which reduced the amount of benefits ultimately reaching the patients.
(Danzon, 2000) It is estimated that out of each dollar paid on the medical malpractice premium, the patients are able to recover only 40 cents by way of benefits under the policy. The remaining 60 cents are absorbed against the administrative costs of the policies and litigation expenses against the claims. In the other compensation schemes like workmen compensation or social security disability where the claims are directly settled on the basis of an administrative process instead of a litigation process the transaction costs are very low.
But under medical malpractice system since the claim settlement is done through a long drawn litigation process the transaction costs are extremely high making the utility of the system poor. (3) Inequitable Awards Another deficiency in the system is that the awards invariably are disproportionate an inequitable. It has been the case with many of the plaintiffs that even though their claim had merits they had been awarded amounts quite disproportionate to the severity of the injury suffered by them.
On the other hand plaintiffs with similar injuries receive awards which are much higher than others within the same jurisdiction. (Bovbjerg et al, 1989; Studdert, 2004) (4) Misplaced Targets of Faults and Errors It is usually the case with medical malpractice that the system finds faults with the healthcare providers whereas the injury would have been caused by faults in the medical system as such. The liability system has not been oriented enough to recognize the faults and errors in the medical systems.
The physicians are often made the victims of the faults of the medical systems and awards are levied against them, instead of holding the hospital or other health care provider, since it is difficult to hold them liable. (Bovbjerg and Tancredi, 2005) This is the system despite the growing awareness of the role of the medical systems in ensuring the patient safety. (5) No Evidence of Deterrence of Negligence in Medical Care It is observed that the system is not effective in acting as a deterrent to the negligence on the part of the health care providers including physicians.
From the available evidence it has been proved that there is only a limited support flowing from the system in this direction. (6) Perverse Effect on Patient Safety Initiatives Instead of encouraging the physicians to come out with the potential causes of medical errors which may help in patient safety improvement, the pressure of getting caught in a claim payment deters the physicians from contributing to the patient safety initiatives. (Liang, 2000; Sato et al. 2005).
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