Study Ties N.Y. Med Mal Premiums to Liability Awards, Not Cycles

June 2, 2006

The cost of medical malpractice insurance in New York can be linked directly to the state’s malpractice litigation awards, rather than to the cyclical nature of the insurance pricing, according to a new study by the Manhattan Institute’s Center for Legal Progress.

Based on a statistical analysis of malpractice premiums and lawsuit awards throughout the nation, the study appears to counter the argument that high malpractice costs are a result of cyclical insurance-industry trends and price gouging.

The findings could provide evidence for malpractice-lawsuit reforms, such as a proposed $250,000 cap on non-economic damages that has been introduced in both houses of the Legislature (A.5674/S.3035, S.4191).

Improvements in New York’s tort system would result in significant savings in the average medical malpractice premium, the study suggests. For example, based on 2002-04 awards data in the report, a New York doctor would save $4,596 if the tort system were improved to New Jersey’s level.

“For the price-gouging hypothesis to make sense, insurance industries must be exercising monopoly power,” the study says. “We find that states with more concentrated insurance industries actually have lower premiums.”

The study was written by Alexander Tabarrok, associate professor of economics at George Mason University and director of research for The Independent Institute, and Amanda Agan, an economics researcher at George Mason University.

Between 1999 and 2001, New York had the nation’s second highest average medical malpractice premium at $42,916 per doctor, according to data compiled by Tabarrok and Agan. The New York premium was more than three times the Vermont average and twice the average in New Jersey, Connecticut, or Massachusetts.

During the same period, New York’s average malpractice award per doctor was third highest in the nation at $8,353. Between 2002-2004, that amount jumped 16 percent to the nation’s second highest average, at $9,667, the study says.

The average payout for all liability awards increased almost 30 percent in 2004 to $459,000, according to the Medical Society of the State of New York.

The Manhattan Institute study says that further research should be done on whether medical review boards should be substituted for the tort system. However, the report also suggests that a review board could improve the handling of claims by capturing more incidents of true malpractice “because physicians will not allow frivolous complaints to result in disciplinary actions.”

The Manhattan Institute is a non-partisan, nonprofit think-tank whose mission is to develop and disseminate ideas that will foster greater economic choice and individual responsibility. The New York City-based Center for Legal Progress and the Albany-based Empire Center for New York State Policy are projects of the Institute.

A copy of the complete study can be found at:
Source: Manhattan Institute

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