MEDICAL MALPRACTICE: AN OVERVIEW OF FEDERAL AND STATE POLICY OPTIONS Recent spikes in the cost of medical liability insurance have once again put medical malpractice on the legislative agenda. While the past few years have seen increasing attention given to the medical errors that underlie malpractice lawsuits—an important development for older persons, who are at greater risk for such injuries1 —most of the current focus is on relieving doctors from the financial pressure of premium hikes and on criticizing the way the civil justice system compensates victims. The most explosive allegations leveled at the tort system—that compensation is routinely paid to plaintiffs whose injuries were not caused by negligence, and that doctors systematically leave or stop practicing in jurisdictions where highstake lawsuits are more common—have been disputed by some independent researchers.2 But other concerns have been given more merit by academic experts: • The number of medical errors far outstrips the number of claims made by, or awards paid to, injured victims, indicating that most injured patients are never compensated (see Figure 1). • The threat of lawsuits may create perverse incentives in medical practice, with such results as ordering of unnecessary tests or hiding of information about errors that could be used to develop patient safety systems. • Increasing practice costs, including liability insurance costs, at a time of flat or declining reimbursements make the practice of medicine less profitable (see Figure 2). • The transaction costs of medical malpractice litigation (attorney fees, expert witness fees, etc.) are high relative to other categories of litigation (e.g., automobile accidents) and other systems of injury compensation (e.g., vaccine injuries). • The large and unpredictable amounts of money at stake in many malpractice lawsuits can discourage insurers from writing medical liability policies.3 2 Figure 2 Trend in Medical Malpractice Premiums vs. Medicare Reimbursements, 1998-2004 -10% -5% 0% 5% 10% 15% 20% 25% 30% Percent Change From Previous Year 1998 1999 2000 2001 2002 2003 2004 Surgeo n P remiums - Geo rgia (MAG Mutual)* Medicare Mo dified Update to P hys ician Fee Schedule SOURCE: Medical Liability Monitor and 2004 Medicar e Tr ustees Repor t. * This char t shows pr emiums vs. r eimbur sements f or one state because no nationwide composite statistic is available and because the tr end line is similar acr oss most states Types of Policy Options Health policy is often thought to involve trade-offs among three dimensions—cost, quality, and access. Tort law is intended to impose a minimum standard of quality. But medical providers currently assert that the cost to them of complying with tort law is either passed on to patients in the form of higher prices, or is so onerous as to cause the closing of practices, in either case reducing access to care. This Issue Brief examines policy options related to health care cost, quality, and access issues raised by medical errors and injury compensation. Issues of liability insurance rate regulation are discussed separately in Figure 4. Following is a brief overview of seven broad categories of federal- and/or statelevel policy options that have been proposed or implemented in recent years: A. Shift some injury costs away from providers and onto claimants and their benefit payors (“tort reforms”) B. Shift some injury costs away from providers and onto the public as a whole (subsidy programs) C. Reduce the transaction costs of litigation D. Change traditional aspects of the tort system to improve the accuracy and predictability of injury compensation E. Change, or test alternatives to, the tort system to improve the accuracy of its incentive effects (and reduce any perverse incentives that it creates) F. Accept the existing tort system and seek to reduce the medical errors that underlie lawsuits through strengthened regulation of medical providers G. Accept the existing tort system and, within the private sphere, alter providers’ response to medical errors and lawsuits. The seven sections following correspond to the italicized category names above. Included in the discussion of each category are descriptions of specific proposals, a short review of the empirical literature on proposals that have been studied by researchers, and discussion of the pros and cons of the approach. It is important to note that the views held by interest groups and elected officials toward malpractice policy options are greatly influenced by their feelings toward doctors and lawyers, by political affiliations, and by strongly held opinions about the fairness and efficiency of the legal system. While some categories of policy options described below are less controversial than others, there is no consensus as to their adequacy in addressing perceived problems. 3 A. “Tort reforms” This category of options, favored by provider groups, is exemplified by California’s 1975 Medical Injury Compensation Reform Act. These measures shift some or all injury costs away from the provider by making changes to the current tort system so as to limit damage