Liability insurance crisis: Bigger awards just one factor

Lower interest rates and a highly competitive insurance market also contributed to today's medical malpractice mess.

By Tanya Albert, amednews staff. April 15, 2002.

The latest statistics confirm what many physicians already suspect: Jury verdicts in medical malpractice cases continue to soar.

Plaintiffs lose the majority of cases that go before a jury. But when they win, an increasing number win big.

Jury awards kept going up...
Going to trial

The median medical malpractice awards were up nearly 43% between 1999 and 2000, according to Jury Verdict Research data released in late March. The Pennsylvania-based company gathers information on verdicts and awards from cases involving physicians, hospitals and other health care entities nationwide.

The fourth straight annual jump means that the median award -- the middle award value when the awards are listed in ascending order -- hit the $1 million mark in 2000. That's nearly double what it was in 1996, when the median award was $503,000, according to the statistics.

"There are jurisdictions where it is manifesting itself as a crisis," said Jim Hurley, an actuary with Tillinghast-Towers Perrin who looks at medical malpractice issues. "But it is not a crisis nationwide yet."

Physicians in Pennsylvania, West Virginia, Mississippi and Nevada have been the hardest hit by medical malpractice woes. The large jury awards coincide with other volatile factors that have some calling the situation "the perfect storm."

And it's unlikely physicians will see any relief this year.

Medical liability insurers continue to pull out of some markets or set narrow guidelines defining the physicians they are willing to insure. Interest rates remain low. And jury awards show no sign of coming under control. In March, a Florida jury said a physician, a physician's assistant and nursing staff were negligent in caring for a patient who ended up with a brain injury and awarded her $78.5 million.

"I fear it's not heading in a great direction for doctors," said James Saxton, a lawyer and chair of the health litigation group for Stevens & Lee in Pennsylvania.

For doctors, that translates into higher liability insurance rates and, for some, difficulty finding insurance at all.

How costs got here

Increasing jury verdicts shoulder only some of the blame for rising liability insurance rates. But other factors that influence insurance cost are also going haywire.

Insurance experts say those factors include low interest rates, which translate into a lower return on investments insurers make to cover claims and rate increases to compensate for realities in the market throughout the 1990s. Rates were underpriced and held in a highly competitive market. In the haste to expand into new states, some insurers initially priced their products incorrectly because they did not completely understand the market.

The 2000 median malpractice award was $1 million; the 1996 median award was $503,000.

"It's a perfect storm," Hurley said.

Some of the storm damage to date: PHICO Insurance Co. is in liquidation. Princeton Insurance Co. announced it would leave the Pennsylvania market. The St. Paul Companies pulled out of the medical liability market nationwide.

"And that's just a sampling of what's going on," said Tim Saunders, vice president of claims for the Illinois State Medical Inter-Insurance Exchange. "This is a unique cycle."

While jury verdicts are just one piece of the puzzle, they are an area with room for improvement in most states, insurance companies and physicians say.

It's difficult to pinpoint exactly why jury awards are going up. Some say jurors are desensitized to what constitutes a significant sum of money thanks to lottery and game show winnings in the tens of millions of dollars. Specific to the medical profession, jurors may be acting out of an anger toward managed care or a desire to send a message about their dismay with health care in general.

And despite Jury Verdict Research data showing that settlements went down 16% between 1999 and 2000, many companies say the amount they settle cases for continues to rise.

"We win the vast majority of cases we take to verdict," said Walt Davis, Mutual Insurance Co. of Arizona's vice president of claims. "Of the verdicts that go to the plaintiff, many of them come in under our last offer. However, each year we get hit with one higher award than expected. Based on our verdicts and the verdicts and settlements of others, it is costing a lot more to settle cases."

Damage caps could offer relief

One way to curb the unpredictable verdicts and the rising settlements that inevitably follow are limits on the amount of noneconomic damages juries can award. The AMA and other physician organizations are encouraging states to pass laws that would limit damages.

Proponents of these laws point to California's $250,000 cap on noneconomic awards as one of the main reasons the state hasn't seen jury verdicts spiral out of control.

"You don't have the emotion-laden blockbuster verdicts," said Ron Neupauer, vice president of underwriting for Medical Insurance Exchange of California. "There have been large awards, but they aren't those unpredictable, out-of-the-blue-sky awards."

MIEC insures physicians in California, Idaho, Alaska, Nevada and Hawaii. Neupauer said the company had been forced to raise rates outside California, but that rates had remained stable in that state.

"Overall, the California experience is better than it is next door in Nevada," he said. "You can't say medicine here is better or the attorneys in other states are better."

"The sky's the limit in most states," said Robert Hartwig, chief economist for the Insurance Information Institute.

"The jury is allowed to come up with any amount, and, unfortunately, the theory of deep pockets often prevails."

ADDITIONAL INFORMATION:

Jury awards kept going up...

The median jury award -- the middle value among awards listed in ascending order -- increased nearly 43% between 1999 and 2000. It's up 100% since 1995.
1995: $500,000
1996: $474,536
1997: $503,000
1998: $733,900
1999: $700,000
2000: $1,000,000

... But settlements went down

The median settlement in 2000 was nearly 16% below 1999's level.
1995: $350,000
1996: $375,000
1997: $400,000
1998: $500,000
1999: $592,074
2000: $500,000

Note: Statistics for years prior to 2000 may not match numbers previously reported for that year. Statistics for previous years are updated with new information that may come after a report is published.

Source: Jury Verdict Research report "Medical Malpractice: Verdicts, Settlements and Statistical Analysis"

Going to trial

Compensatory award medians for most commonly claimed liability situations between 1994 and 2000 are significantly higher than the settlement medians for the same time period.

                     Compensatory   Settlement
                     award median   median    
                     ------------   ----------
Childbirth             $2,050,000     $750,000
Cancer diagnosis       $1,000,000     $500,000
Delayed treatment      $1,000,000     $665,000
Diagnosis                $750,000     $462,500
Medication               $668,000     $235,000
Lack of informed consent $500,000         n/a*
Nonsurgical treatment    $400,688     $250,000
Negligent surgery        $355,000     $325,000
Negligent supervision    $147,750     $200,000

* Settlement median unavailable.

Source: Jury Verdict Research report "Medical Malpractice: Verdicts, Settlements and Statistical Analysis"