Report Backs Government Role in Malpractice Insurance

March 19, 2004

A convincing case can be made for government involvement in providing medical malpractice insurance for high-cost claims and shortcomings in some such arrangements, such as Pennsylvania’s Mcare fund, are due to implementation problems rather than program design.

That is the conclusion of a new study that also finds government sponsorship of so-called no-fault insurance systems desirable—but notes that some existing systems are too expensive.

These and other insights are contained in the report, “Public Medical Malpractice Insurance,” written by Frank Sloan, professor of Health Policy and Management and Professor of Economics at Duke University. The report was released by The Project on Medical Liability in Pennsylvania, an initiative funded by The Pew Charitable Trusts.

The report, released during the Pennsylvania state Senate debate over reforming the medical malpractice system, is part of a series of analyses about the ways in which medical, legal and insurance-related issues affect the medical liability system.

“All too often, policy makers are forced by a crisis to make decisions on public medical malpractice insurance,” said Susan Liss, executive director of The Project on Medical Liability in Pennsylvania. “This report provides much needed research and context to the public insurance debate and will be a tool for sorting through possible government interventions in the medical malpractice field. Lasting reform of medical liability is desperately needed, but should be carefully designed to benefit patients, health care providers, and the health care system as a whole.”

Before 1970, medical malpractice was a small part of a much larger business—the property casualty business—and received little public attention. Since then, there have been three malpractice crises: in the mid-1970’s, the mid-1980’s and the early 2000’s. Each crisis has been marked by an increase in medical malpractice premiums, widespread publicity about unaffordability and unavailability of coverage, threats by physicians to leave the profession or discontinue high-risk procedures, and associated complaints about the adverse effects of tort liability on medical practice.

After each crisis, the report says, the issue recedes, as legal challenges are mounted to statutory changes enacted during the crisis, and surviving reforms go into effect, grow slowly and develop into mature programs—all largely outside the public’s view. This crisis-driven model leads to many structural deficiencies and inadequate monitoring after enactment.

The report makes these general observations on government interventions in the medical malpractice field:

Rationale vs. Implementation – Whether or not a state-sponsored program succeeds often has less to do with its overall rationale than how it is implemented. Prominent examples are the no-fault programs in Virginia and Florida (the only two states that have such programs). In principle, the object of no-fault is to efficiently compensate injury victims and save money by bypassing the costs of adjudication—and using those savings to compensate more victims than under a tort-based system. But the Florida and Virginia programs were championed by physicians and hospitals to solve their insurance problems, and the state legislatures required them to bear the programs’ costs. As premium-payers, the doctors and hospitals wanted to limit the size of the no-fault program, and, as a result, in both states the programs are small and fall short of the no-fault concept envisioned by academic proponents.

Matters of Scale – The Florida and Virginia no-fault programs’ small size has helped them tailor subsidies to the individualized needs of the assisted families. But, although it is hard to generalize, it is unlikely that a broader no-fault program would be less expensive than a tort-based system, the report says. As designed, the programs have not been successful in averting a new crisis in obstetrical liability. But, the report says, many of the programs’ shortcomings are attributable to the fact that they were set up in reaction to the malpractice insurance crisis of the mid-1980’s, rather than having a broader set of policy objectives.

Transparency on Taxes – If the goal of government intervention is to subsidize high-cost insurance without transferring those costs to injury victims, the revenue for the subsidy must come from somewhere else. In the case of Pennsylvania, shortfalls in medical liability insurance are covered by automobile liability insurance revenues. But such mechanisms are inequitable because they shift the burden to random classes of insurance policyholders. A better option, the report states, is to make the tax base for such programs for the public good as broad as possible and inform taxpayers explicitly.

The Project on Medical Liability in Pennsylvania is a two-year program of research, consultation and communication funded by The Pew Charitable Trusts.

The full report may be found on

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