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AMA analysis reaffirms: Tort reforms work

The review said research shows that caps reduce insurers' claim payouts, meaning lower rates for physicians.

By Amy Lynn Sorrel, amednews staff. March 3, 2008.

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An analysis of recent research testing the impact of noneconomic damage caps on the medical liability environment confirms that such reforms are successful, physicians and insurance industry experts say.

But consumer advocates and trial lawyers criticized the report as misleading. They argue insurers are to blame for high premiums and advocate that other changes are needed.

The American Medical Association reviewed about 10 independent studies that looked at how limits on pain and suffering awards and medical liability risk affect insurance premiums, physician supply and defensive medicine costs. The summary, released Feb. 5, found that recent research -- consistent with earlier studies -- revealed that noneconomic damage caps continue to reduce insurers' claims payouts, which translates to lower rates for doctors.

The AMA analysis also concluded that reforms can help alleviate physician shortages. And some research showed that medical liability risk contributed to higher health care spending, the report said.

"This tells the story again: Tort reform works, and this just reaffirms it for the umpteenth time," said AMA Immediate Past President William G. Plested III, MD. "In this day and age of evidence-based medicine, we ought to have evidence-based tort reform."

He pointed to California and Texas as examples where a $250,000 noneconomic damage cap has kept doctors' premiums down. According to 2007 data from the Medical Liability Monitor, which tracks insurers' medical liability rates nationwide, Texas posted some of the lowest rates in the country for ob-gyns.

"The fact remains that states with effective caps have much lower premiums than similar states without caps, and that difference will be maintained as rates go up or down elsewhere," said Lawrence E. Smarr, president of the Physician Insurers Assn. of America

Dr. Plested said patient care remains in jeopardy in states where premiums have reached sky-high levels, such as Florida. Medical Liability Monitor statistics showed that Florida had the highest annual premiums in the nation in 2007. Some internists paid $68,867, while some general surgeons and ob-gyns paid $275,466.

Research looks at caps' impact

The AMA's policy research perspective, "The Impact of Liability Pressure and Caps on Damages on the Healthcare Market: An Update of Recent Literature," drew upon findings of several tort reform studies published in 2006 and 2007.

Some of the research results showed:

• Internists' premiums in states with caps were 17% less than in states without caps. General surgeons' and ob-gyns' rates were 21% and 26% lower, respectively.
• A $250,000 award limit in states without effective reforms could result in premium savings of $1.4 billion.
• The number of physicians practicing in high-risk specialties is 4% to 7% higher in states with caps.
• A 60% increase in medical liability premiums between 2000 and 2003 was linked to a $7.1 billion increase in spending on physician Medicare services.
• A 10% increase in claims payments was tied to a 1.5% to 1.8% increase in utilization of diagnostic and imaging procedures.

The American Assn. for Justice, a national trade group for trial lawyers that supports changes in the insurance industry, called the AMA paper "one-sided," and pointed to other contradictory research. For example, most ob-gyns' decisions to relocate or discontinue practice are unaffected by insurance premiums or tort reforms, said a study in the March Journal of Empirical Legal Studies that was conducted by the Harvard School of Public Health and George Mason University.

Joanne Doroshow, executive director of the Center for Justice & Democracy, a nonprofit consumer advocacy organization, said the studies the AMA analyzed ignored other factors at the state level. Caps vary from state to state, so comparing them is unreliable, she said.

In addition, "states that have successfully brought insurance rates under control have enacted strong regulatory reform on the industry," said Doroshow.

For example, California insurance regulators can mandate a public hearing when insurers request a rate hike greater than 15%. Illinois, which passed a $500,000 noneconomic damage cap in 2005, requires medical liability insurers to publicly disclose their rates.

Doroshow said award limits may reduce insurers' payouts.

"But that's money going into carriers' pockets, not to relieve doctors," and not to compensate patients seriously injured in legitimate cases, she said. "Reports like [the AMA's] continue to give doctors misleading information about what's impacting their premiums."

She said rates have stabilized across the country, including in states without caps.

While insurance rates have moderated overall, "they've stabilized at an obscene rate," Dr. Plested said.

In its review, the AMA said it chose independent, peer-reviewed literature that was statistically sound.

The Association said it conducted the update to help physicians understand the flood of research on tort reform.

The AMA advocates a $250,000 noneconomic damage cap at the federal level, as well as state reforms.

The Association also supports efforts aimed at testing new approaches to medical liability reform, such as health courts.

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