Insurance Companies Have Caused The Medical Malpractice Insurance "crisis"

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Medical doctors are being squeezed. Managed care is limiting reimbursement rates while their costs continue to rise. As a result, doctors are ill equipped to handle the recent increases in malpractice insurance rates. This is a serious problem that merits serious discussion.

I was therefore disappointed to read last week’s guest column by Kathy Read. The column was a compilation of urban myths, inaccurate statistics and childish lawyer bashing designed to divert attention from the real concerns and true facts regarding this situation.

While I will address the insurance crisis directly, I must first respond to a few of the points Ms. Read attempts to make.

“Frivolous” medical malpractice lawsuits resulting in “runaway” juries are a myth. It has been 20 years since a Leon County jury returned a verdict against a physician. Malpractice cases are vigorously defended and even meritorious cases are hard, on a national basis only 23% of patients win their cases at trial. As an attorney who specializes in handling medical malpractice cases, I can assure you that we spend a tremendous amount of time and money screening cases. Only a foolish lawyer would take a weak malpractice case, and while there are certainly foolish lawyers, they don’t win these cases.

Insurance specialists report that companies are paying an average of approximately $30,000 per malpractice claim. When adjusted for inflation the industry reports only a 1.7% annual increase in payments over the last 6 years. Ms. Read cites statistics from a service that, according to the Wall Street Journal, collects information “unsystematically”, has “large gaps” in its data and ignores victories by doctors and hospitals.

According to the National Center for State Courts, there has been no change in the volume of medical malpractice cases in the last five years. Medical malpractice costs, as a percentage of national health care expenditures, are at an all time low, 0.55 percent.

So why are insurance rates spiraling out of control?

The Wall Street Journal and other such publications have reported that insurers are trying to recover losses they made as a result of past underwriting practices coupled with bad investments in the stock market. This already difficult situation was made worse by the events of September 11th and the collapse of Enron.

The insurance companies have responded to their investment losses by rapidly raising premiums and canceling coverage for doctors. This is a repeat of the “crisis” that hit in the mid-1970s and again in the mid-1980s when periods of overly aggressive insurance pricing were followed by drastically decreased returns on investment.

As reported in the Wall Street Journal, during the late 1980s and 1990s insurance carriers aggressively pursued malpractice business. This resulted in rate cutting. In Florida, the average malpractice premium actually dropped. Policies were being sold too cheaply with the expectation that investment returns would later make the transaction profitable. When the stock market fell carriers were caught, some with their shoddy accounting practices exposed.

It is incredible that Ms. Read would mention PHICO Insurance Company. This carrier was a leader in slashing prices, reportedly quoting coverage at 25 below other carriers. In an Enron-like scandal PHICO operations were taken over by regulators and charged with filing “completely inaccurate” financial statements. Pennsylvania insurance officials are quoted as saying the company served as a “cash cow” for officers and directors.

While lawsuits make a convenient target, there is nothing different about lawsuits today than when malpractice insurance premiums were stable.

To believe that jury verdicts or trial lawyers are responsible for this cyclical hardening of the insurance markets would require a belief that juries and trial lawyers have timed their “aggression” to precisely coincide with the insurance industry’s economic cycle, so that the aggression impacts just when the market turns hard.

In other words, one would have to accept the notion that juries and lawyers were aggressive in the mid-1970s, then non-aggressive for a decade, then aggressive in the mid-1980s, then non- aggressive for a decade, and now aggressive again. This is ludicrous. The cycle is created by underwriting and investment policies, not claims by malpractice victims. As an insurance executive quoted in the Wall Street Journal acknowledges, the crisis was “self-inflicted.”

Those who would distort the facts and perpetuate urban myths do nothing to help us resolve a very serious problem that requires serious answers. I submit that how to deal with the cyclical problem of insurance coverage should be one focus of the debate.

Donald M. Hinkle is a Board Certified Civil Trial Lawyer who has spent over 20 years representing the victims of negligence.