that have been 5 enacted to discourage pursuit of nonmeritorious claims and to encourage early settlements through alternative dispute resolution (ADR). • Many, but not all, states require plaintiffs to obtain a certificate of merit from a medical expert before filing suit, in an effort to weed out frivolous claims. • Some states require plaintiffs to first present their cases to screening panels, in order to give parties an early neutral evaluation of the case. Some panels are purely advisory, while others’ determinations are given teeth either by requiring the party with a weaker case to post bond before proceeding to court or by telling jurors the panel’s opinion. • Michigan law allows defendants who claim they were wrongly named in a suit to file an affidavit of noninvolvement, which, if not contradicted, grants them an expedited dismissal from the case.19 This is intended to discourage plaintiffs from taking a “shotgun” approach of suing every provider present during treatment. New Jersey recently adopted a similar provision.20 • Mediation can be initiated by a court, a regulatory agency, or by the parties themselves. A mediator assists the parties in trying to reach a settlement. Mediation is a voluntary process and, while a party’s attendance at a session can be compelled, good faith participation cannot. • Parties may choose to voluntarily submit a case to arbitration, where an abbreviated, less formal hearing takes place in lieu of a trial. This must be distinguished from mandatory arbitration, whereby the provider requires prior agreement to arbitration of any disputes as a condition to giving treatment. Arbitration under those circumstances allows the provider to choose the arbitration forum, which gives the provider several advantages. There is thus far scant evidence that these measures result in substantial savings. Researchers believe that the certificate of merit deters attorneys who do not specialize in malpractice from filing nonmeritorious cases, but most malpractice cases are thought to be filed by specialists who regularly consult experts before proceeding.21 There is mixed evidence on screening panels, with one research team finding that the panels reduce obstetricians’ and gynecologists’ premiums by 20 percent22 and others finding that the panels may increase claim frequency by making expert evaluations more accessible.23 One study seems to Figure 3 Average Expense Payments per Claim by Mutual Malpractice Insurers, 1985-2003 (in 2003 dollars) $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 1985 1990 1995 2000 Defense Attorneys Expert Witnesses SOURCE: Physician Insur er s Association of Amer ica. 6 Figure 4 Insurance Regulation and the Malpractice “Crisis” Trial lawyer associations and consumer groups have argued that the recent hikes in malpractice premiums are rooted in insurance company practices and have suggested that insurance rate regulation should be strengthened. Views on the role of regulation of medical liability insurance fit roughly into three categories. One school of thought sees major insurance market failures in which insufficient competition or predatory practices lead to excessive insurer profits. According to this view, promoted primarily by the Foundation for Consumer and Taxpayer Rights, only mandatory rate rollbacks and strict procedural standards for rate increases, such as those enacted by California’s Proposition 103 in 1988, can address the high prices of insurance products.28 A second school of thought holds that, during the “soft” phase of the insurance cycle, insurers lower premiums to an unsustainable price to increase their market share, essentially subsidizing premiums with investment income. When returns on investment decline, premium prices must rise dramatically. Another factor that can contribute to sharp spikes in premiums is insurers’ overestimates of the amount of expected losses. According to this view, regulators should smooth fluctuations in prices by mandating higher premiums in the soft phase, and should prevent excessive surplus accumulation by limiting premium increases to the rate of actual growth in paid claims experienced in preceding years.29 The third school of thought holds that the market for professional liability insurance functions well, because doctors are sophisticated, wellorganized, and capable of establishing their own mutual insurance companies if for-profit insurers charge too much. Indeed, the majority of doctors are insured by mutual companies, which return any profits to policyholders as dividends,30 and which policyholders ultimately control through their ability to elect the board of directors. 31 The typical state statutory standard provides that insurance rates “shall not be excessive, inadequate or unfairly discriminatory.”32 The procedural mechanism for applying that standard varies from state to state, with a few, most notably California, requiring prior approval of rate increases. Some states require prior approval only if the rate increase exceeds a certain increment (usually 25 percent) or if the market is noncompetitive. Despite a compelling case that abuses are rife in the marketing of products directed at vulnerable consumers, such as credit insurance and smallface-value life policies, the case that professional liability insurance suffers from widespread market failures has not been