Medical Malpractice: A Continuing Problem With Far-Reaching Implications

Published by the Government Accountability Office on 1990-04-26.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  UnitedStates    GeneralAccountingOfKce

For Release       Medical    Malpractice:
on Delivery       A Continuing      Problem      With
Expected at       Far-Reaching      Implications
lo:30 a.m. EDT
April  26, 1990

                  Statement   of
                  Charles A. Bowsher
                  Comptroller    General
                     of the United States
                  Before the
                  Subcommittee  on Health
                  Committee on Ways and Means
                  House of Representatives

                                            ‘, 1, 5 i\   1 ,
                                                               GAO Form 1W (12/87)

       The United States is spending over a half a trillion             dollars
each year on health      care, more than 40 percent       of it publicly
financed.      Health care expenditures       have grown from 6 percent       of
the gross national      product   in 1965 to 12 percent     today and are
projected    to reach 15 percent       in the next decade.     There is little
question   that the costs associated         with medical malpractice      run
into the billions      of dollars     and that it is having profound       effects
on the practice      of medicine    in this country.
       The views of groups primarily     affected    by medical
malpractice--consumers,       attorneys, insurers,     and health   care
providers--    clearly  show that the implications      of the malpractice
problem go well beyond insurance.issues         alone.    In providing    the
leadership     needed to deal with the problem,      the Congress needs to
address three primary      issues:
      --   How can we reduce    the practice        of negligent   medicine?
      --   How can we improve the      efficiency      and equity of our
           system for compensating      victims      of medical negligence?
      --   How does the malpractice    system affect          the practice     of
           medicine    and quality of care and what         is the outlook       for
           the future?
       GAO believes   that government and private    sector actions     to
come to grips with these issues will        continue to have significant
cost implications     and will  undoubtedly   help shape how medicine      is
practiced   for-years    to come.
Mr.        Chairman          and Members of the                    Subcommittee:

            I appreciate              the    opportunity             to present           our views         on the
implications                 of medical            malpractice          for     the. establishment                 of
future        health          policy.

            As you are           aware,           the United         States      is spending           over        a half         a
trillion           dollars           each year         on health         care,      more than          40 percent             of
it     publicly             financed.             Health     care     expenditures           have grown              from     6
percent           of the        gross       national         product          in 1965 to about              12 percent
today        and are          projected            to reach         15 percent           in the     next     decade.
These costs                 have risen            at more than         double       the     rate     of general
inflation            for      nearly        three      decades.

           The precise            extent           to which        medical       malpractice           has
contributed                 to the      burgeoning           health      care     bill      is unknown.                 But
there        is    little        question           that     the     costs     associated           with     it     run
into       the    billions           of dollars.              Of equal          importance          are the
profound          effects         that       medical         malpractice          is having          on the way
medicine           is practiced              in this         country--effects               that     can be
expected          to grow in the                   future.

           In providing              the     leadership            needed to deal            with     the
malpractice             problem,            the     Congress         needs to address               three         primary

            --   How can we reduce               the      practice         of negligent            medicine?

            --   How can we improve               the      efficiency           and equity          of our system
                 for     compensating           victims          of medical           negligence?

            --   How does the malpractice                        system     affect       the    practice         of
                 medicine          and quality         of care        and what          is the      outlook       for
                 the     future?

            Our earlier            extensive      study         of the medical             malpractice
problem,          and work we have done since,                          show that          these     are
difficult              and complex        issues.          Efforts         are underway            to make
improvements              in each.


        During           the   last     20 years,          the     issue       of medical          malpractice
has been defined                largely         in terms          of the       cost     and availability                of
malpractice              insurance.            These are but            two aspects            of a multi-
dimensional              problem.

        Medical           malpractice          was termed            a crisis          in the mid-1970s,
when the          premiums          in some specialties                 rose     several        hundred       percent
in a single             year    and many insurers                  stopped       selling        malpractice

insurance.             The crisis           was one of the                         affordability               and
availability               of malpractice              insurance                   for     health       care     providers.

         In response              to that         crisis,             all      states         but      one enacted
legislation            to address           the problem.                       The emphasis              was on measures
to create           alternative            sources           of       insurance              and to reduce            the
number and cost                of claims.              During               this         period,      physician-            and
hospital-owned                insurance           companies                 were created              to provide
malpractice            insurance.            Over the                 next         decade,         malpractice
insurance           was more readily                 available                 in a market              dominated           by
these      companies.

         Although           the     number and cost                    of malpractice                   claims       continued
to climb           in the      early       to mid-1980s,                     insurance             companies         kept
premium        increases            to a minimum because                            investments           made at high
interest           rates      were returning                 high           yields.           This      changed,       however,
when interest               rates      began to decline                        in 1984.              In response,
insurers           once again          imposed         large           premium             increases       on health              care
providers.             This       was labeled           as a crisis                       of affordability             of

         The cost           of medical        malpractice                      insurance            has increased                from
$1.7     billion           in 1983 to $5.9              billion                in 1988 for             physicians            and
from     $800 million               in 1983 to $1.3                    billion             in 1985 for           hospitals.
Although       premium            rates     have recently                     been reduced               somewhat,           they
remain      only       slightly           below      their            historical              highs.

          Physician             malpractice             insurance          premiums         vary    widely
depending              on the        specialty          involved        and the physician's                    geographic
location.               For example,             a neurosurgeon                practicing          in Chicago           now
pays almost               $196,000           annually       for      the      same coverage          a colleague,in
North          Carolina         obtains         for     about       $20,000.          (The attachment            to my
statement              illustrates            these      variations            in rates.)           These premiums
represent              uniform        rates      paid     by all        physicians           in a given          medical
specialty              and defined            geographical             area.       They are not              based on an
individual's               own claims            experience.

         As we reported                  in 1987,         the views            of groups         primarily
affected          by malpractice--consumers,                            attorneys,           insurers,          and
health          care     providers--           demonstrate             that     the     implications            of the
medical          malpractice             problem         go well        beyond         insurance       issues         alone.
Consumers             are concerned              about     the       quality       of medical          care      they      are
receiving             and the         long     time      required          to settle         malpractice          claims.
Attorneys             believe         that     the     large        number of medical               injuries          due to
negligence              is the        basic      issue     in discussions                of malpractice.
Insurers          are concerned                about      the       effects      the     unpredictability               of
the     tort      system         has on insurance                   rate-making.             Physicians          and
hospitals             believe         that     malpractice             insurance         costs     too much,
patients'             expectations             are unrealistic,                 awards       are excessive,
claims         take      too     long        to settle,         and legal          costs      to defend          against
claims         are too         high.

         Mr.   Chairman,             all     of the            involved        parties           have expressed
legitimate          concerns           about           the malpractice             problem               from their         own
perspectives.                 We believe               that      these    concerns,              taken      collectively,
have public           policy         implications                 in at least            the      three      areas      I
mentioned          earlier.


         The first            area     to be considered                   in any discussion                    of medical
malpractice           is how the             incidence                of medical         negligence            can be

         A recent        study         by Harvard                University        researchers               of medical
malpractice           in the         state         of New York            indicates              that,      taken     as a
percentage          of the       number of 1984 hospital                           discharges,               the     rate     of
negligence          by providers                  is    1 percent.l             This          is consistent           with
the     findings       of the          other           major      study       of this          subject,       which
involved       an analysis                 of 1974 hospital                admissions               in California.
While      1 percent           may not         appear            to be large,            it      is significant              when
you are talking                about        the        effects         of medical             injuries       on
individuals.             In New York,                   it     represented         about          27,000      patients
found      to be injured               as a result                of medical           negligence.

  . .        Doctors,  and Lawvers:    Medical Iniurv. Malpractice
   tlaation.  and Patient  Comnensation   in New York, A Report by the
Harvard Medical Practice    Study to the State of New York, Feb.
          Our nationwide                study      of malpractice              claims       closed            in 1984
showed that            many physicians                are     involved         in malpractice                  cases.           In
that      year,       31,800      claims,           involving        23,000       physicians,               were closed
with      payments          on behalf           of injured         patients.             We recognize,                of
course,        that     a paid          claim      does not        necessarily             indicate            the
existence           of medical            malpractice            or the      need for            disciplinary

          Despite       the     relatively            high       number of physicians                      involved            in
claims       paid      to     injured       patients,            few of the        nation's              500,000
practicing            physicians           have disciplinary                 measures            taken        against
them.        For example,               in 1987,        state      boards       took       only      2,700
disciplinary            actions           against       physicians,            ranging           from      license
revocations            to reprimands.                 These boards,             which       are      responsible
for     imposing        sanctions           on physicians             found       to be incompetent                       or
impaired          by debilitating                conditions          such as alcoholism,                       drug
abuse,       or mental          illness,           are often         criticized            for     not      doing         more.
But,      before       they     can impose sanctions                    against         physicians,
negligent           actions       or impaired            performance            must be reported                     to
them.        To date,          many health            care       providers        have      been reluctant                     to
speak out          against        their         colleagues.

          The Health           Care      Quality       Improvement            Act of        1986 and the
Medicare          and Medicaid             Patient       and Program            Protection              Act     of 1987
represent          recent       legislative            attempts         to    facilitate             the
identification               and reporting             of providers            who are practicing

substandard          medicine.              The centerpiece                of the           1986 legislation                  is
the National             Practitioner           Data Bank,            which,          when implemented,                     will
contain       information             on disciplinary                actions          taken      by state
licensing         boards,         actions       by hospitals               and other            institutions                to
deny or revoke             clinical          privileges,             and medical              malpractice              claims
paid    by insurance              companies          that        involve       a licensed              practitioner.
Information          contained           in the data              bank is expected                to restrict
providers'         ability         to move from state                   to state             without         discovery             of
their     previous         damaging          or negligent             performance.                The act            also
seeks     to facilitate               the    identification                and reporting                of        incompetent
practitioners             by granting           immunity           from       liability          to     individuals
participating             in peer        review       activities.

        The data          bank,       originally            scheduled          for        implementation               in
November         1987,     was not          funded     until         fiscal          year     1989.          It     is now
expected         to be operational                 in September               1990.

        The 1987 legislation                   authorized             the      Department             of Health             and
Human Services             to establish              national         exclusions              from Medicare                 and
Medicaid         of practitioners              who are excluded                      from either             program,
convicted         of crimes           involving        federal          or nonfederal                 programs,             or
disciplined          by state          licensing            boards.           The Department                 has decided
to include         data      regarding         state         disciplinary                 licensure          actions
under     this     act     in the       aforementioned                data       bank.

         These legislative                         initiatives              are a step          in the         right
direction.,             but    it         remains      to be seen whether                     they      will      improve         the
identification                 of providers                 delivering              substandard           care     and
whether         appropriate                 actions         w,i.ll       be taken       to deal         with      those


         The system                 for     compensating                 individuals          injured          through
medical         negligence                 is neither            efficient           nor   equitable            to those
most directly                 affected             by malpractice--injured                        patients.             In
addition,          it     is questionable                    whether          the      system        serves       as a
deterrent         to the             negligent           practice            of medicine.

         Since          the mid-1970s,                 every         state      has revised             its     tort      system,
in some way,              to address                the medical              malpractice             insurance          problem.
For the most part,                         these     tort        reforms        have been designed                     to reduce
the     rate     of      increase            in medical              malpractice           insurance            premiums          by
reducing         the      number of claims                       filed       and the       size       of malpractice
awards         and settlements.                      Studies             have suggested            that        some of these
tort     reforms          have achieved                  these           objectives.           But the          extent       to
which     they          have improved                the     efficiency              of the       system        or increased
the     equity          of payments                to injured             parties       is unclear.

         In our May 1987 report,                               we pointed                  out      that        it     takes           a long
time     for     claims          to      be    resolved               and the             cost      of resolving                 them is
high.2          Our work showed that,                               for      claims          closed          in 1984,             it     took
an average            of 25 months,                    with         a range              of up to 11 years,                       from the
date     a claim          is     filed         until          final          resolution.                   We also             found      that
insurers         paid        $800 million                to         investigate                  and defend              claims          closed
in 1984.             Such costs               were in addition                           to the      companies'                 total         claim
payments         of $2.6          billion.

         Finally,            we found            that         a large              proportion              of claim             proceeds
do not         go to      injured             parties.                In over             half      the     claims           that        were
closed         in 1984,          plaintiff              legal             fees          exceeded       30 percent                of the
payments         to the          injured          party.                  In addition               to attorney                 fees,
plaintiffs            were responsible                        for         paying          other      expenses,               such as
court        costs      and the           costs         of obtaining                      evidence.

         Concerning              the      equity         of our current                          system,             studies           have
shown that            only       a small          proportion                      of the         injuries             resulting           from
malpractice             result           in claims             or suits.                   Harvard          researchers                  have
corroborated              the     findings              of previous                      research,          which         indicate
that     many claims              are not           being            filed              even though             they      may be
justified.             Specifically,                    the     Harvard                  study     pointed             out      that      only
1 of 8 patients                  admitted           to New York hospitals                                  in        1984 who
suffered         injury          from negligence                          filed          a claim.           About         16 times             as

'Medical         Malpractice:                   A Framework                       for     Action            (GAO/HRD-87-73,
May 20,         1987).
many patients             suffered          an injury           from negligence                   as received
compensation             through      the New York tort                  system.                Thus,         the     tort
system      obviously            does not        reach      many individuals                      who are           injured
by medical         negligence.

        Questions           have been raised                as to whether                 the         tort      system
provides        an effective            deterrent           to malpractice.                       One of the
system's        fundamental           objectives            is to deter              negligent                behavior            by
requiring        parties           causing       injury        through          negligence               to pay damages
to the      injured        victims.            However,          in regard           to medical
malpractice,             health      care      providers'           liability             insurance              may
insulate        them from most of the                      financial            effects           of their
negligent        behavior.            Moreover,            malpractice             insurance                 companies            do
not    generally          vary      rates      based on an individual                           physician's              claims
experience,           and most premium                costs        are ultimately                     borne      by
consumers,         insurers,          and the public                sector.             This          further         reduces
the    deterrent          effect.           However,        we recognize                that          insulating
physicians         from      the     financial            impact     of their             negligent              medical
care    may not          negate      the     deterrent          value      of the              tort      system.
Insurance        does not           insulate        them from the                loss          of reputation,
personal       morale,           and practice          earnings          associated                   with      defending
themselves         in malpractice                litigation.

        Because          of our concerns              about        the   efficiency                   and equity             of
the    system      for     resolving           medical         malpractice              claims           and
compensating             injured      parties,         we believe             that        it      is time           to take            a

harder         look     at alternatives                 to the tort          system          as a means to
resolve          malpractice            compensation               questions.           There        may be
advantages             to moving          toward        some form         of system           that     would         provide
compensation              to    injured         patients         when specified               events         occur
without          having        to establish             provider        negligence.

          There        are many unresolved                    questions         about        the     potential            costs
of alternative                 dispute-resolution                    mechanisms         and whether              they      will
do a better             job     of compensating                individuals          injured           during         medical
diagnosis             and treatment.               Thus,       we continue         to believe--as                    we
stated         in our May 1987 report--                       that     increased         experimentation                   with
these         mechanisms         is needed to see whether                        they     offer        viable
alternatives              to the        tort     system        as means of dealing                    with       the
medical          malpractice            problem.


         It      is clear        that      the     high       cost     of malpractice                insurance            and
the     threat         of litigation             have contributed                to significant                changes
in how providers                 deliver         care      to their        patients.               But views           differ
on the         extent      to which            these      changes       improve        the     quality         of medical
services          provided,         decrease            the    incidence         of negligent                medical
practice,          or unnecessarily                    add to the        cost     of delivering                health

          Numerous activities                 are being         carried         out to help            maintain
and improve           the     quality       of care.           Intensified          peer        review       of
provider        performance,             establishment           of increasingly                 sophisticated
systems        to measure         the     quality       of care        delivered          by individual
providers,           and more arduous               record      keeping         systems         to document
specific        diagnostic          and treatment              actions       have altered              provider
practices.            As these          systems      evolve      and the         information             they
generate        becomes more available                   and understandable                     to the       public,
the    performance            of institutional               and individual              providers           will      be
exposed        to    intense      scrutiny.            The implications              of this           for      the
future       practice         of medicine           are not yet           known.         Also     uncertain            is
the    price        the American          public       is willing          to pay for            the     advances           in
quality        expected         to result         from these          systems.

          As the      quality      of care          delivered         by institutions                and
individuals           has become more closely                    monitored,          providers'
practices           have become increasingly                    defensive.           Placing           greater
emphasis        on not making             mistakes,          providers          are performing
additional           tests      and treatment           procedures,             giving     more attention
to    increased         medical         record      keeping,       spending         more time            with
patients        explaining         alternative           treatments,             obtaining           patients'
informed        consent,         and refusing           to treat          certain        high-risk
patients.            Some of these           actions         may, in fact,           be desirable.                    But
when defensive               medicine      results       in providers'              performing
unnecessary           procedures          or limiting           services         to high-risk
individuals           or underserved             groups,        the    effect       is undesirable.

           The extent            to which         physicians         practice          defensively              and the
costs       of such practices                  are unknown.               The American               Medical
Association            estimated          that      in 1985,         costs         associated           with
physician          defensive           medicine        practices           amounted          to about           $12
billion.           Much higher             estimates         have been cited                 in both           the
general          media      and medical            publications.

           Among the many activities                        being        carried       out        to help       assure
that       the    quality         of health         care     remains         high      are two that              could        be
particularly               helpful       in reducing           the potential                for      medical
malpractice--              the    refinement          of risk        management             activities           and the
development            of practice             guidelines.

           Risk    management programs                  were initiated                 in the         1970s to
reduce       the     potential           for      medical      malpractice             in hospitals.                  They
are used by hospital                     management to identify,                       assess,          and reduce
risks       to patients.               Many organizations                  that      deal         directly       or
indirectly           with        hospitals         believe        that     risk      management helps
reduce       the     incidence           of malpractice              and are taking                  an active         role
to either           require          or encourage           the     implementation                 of risk
management programs                     or functions.               These organizations                      include     the
Joint       Commission            on Accreditation                of Healthcare              Organizations,
several          states,         insurance         companies,            and the       Department              of Health
and Human Services.                      The,American             Medical          Association,              numerous
medical          specialty           societies,        and other           elements          of organized

medicine          are also         involved           in promoting                 the use of risk                  management
in physician            offices.

         Practice          guidelines          assist       physicians                    in determining              how
diseases,          disorders,         and other            health            conditions             can most
effectively           be prevented,              diagnosed,                treated,           and clinically
managed.           They can also              assist       physicians                in their          efforts         to
improve       service        to patients,               avoid         unnecessary              patient          injury,        and
reduce       the     frequency        of litigation.                       The American              College          of
Physicians          has been a strong                   proponent             of their             development             and,
along      with     other       advocates,             believes            that      their         use has resulted
in fewer          malpractice         claims           and lower             insurance             premiums.
Developing          these       guidelines             is a complex                 process         that      requires
considerable            consensus         building          among practitioners                            within
individual          medical         specialties.                It     will         be some time              before        their
full     impact       can be assessed.

         Developments            such as those              I have described                        are     still
evolving,          and how they           will         unfold         is     far     from certain.                   Much
remains       to be done before                  it     is known whether                     they      are having            the
desired       effects        and are worth               the         costs         they     will     add to the
nation's          health     care     bill.


          Mr.     Chairman,              as I indicated              at the beginning                of my
testimony,              the     implications             of medical        malpractice               are    far
reaching.               If     the     availability            and affordability                of malpractice
insurance          again         becomes a major                problem,        the     Congress           and state
legislatures                  can expect        to be petitioned                again         to take       remedial

          In our view,                 however,        these     actions        will      not       be enough to
address          the         more fundamental             issues       of how best             to    (1)    reduce     the
incidence          of negligent                care,      (2)    fairly      compensate              individuals
injured          through         medical        negligence,            and (3)         deal     with       the
complexities                  involved       in efforts          to enhance            the     overall       quality      of
care      provided             in this       country.           Both government                and private           sector
actions          to come to grips                 with     these       issues      will        have significant
cost      implications                 and will        undoubtedly         help        shape how medicine                is
practiced              for     years      to come.

          This     concludes              my prepared           statement.             We will         be pleased        to
respond          to your         questions.

                             LPRACTICE INSURANCE PREMIUMS
                             ST. PAUL INSURANCE COMPANY

                           1984       1985         1986        1987         1988        1989
Chicago                   $39,820    $56,810      $95,000    $168,100    $156,580     $155,510
Minnesota                  19,240     27,580       37,990      49,280       57,130      42,330
North     Carolina          9,290     12,810       15,290      19,440       20,620      16,270

Chicago                    59,500     71,830      120,110     212,830      197,330     195,950
Minnesota                  28,690     34,850       48,000      62,270       71,870      53,290
North     Carolina         13,790     16,120       19,240      24,500       25,900      20,400

General practice
INo suruerv):
Chicago                     5,350      7,010       11,850      20,660       20,110      20,050
Minnesota                   2,650      3,510        4,940       6,320        7,560       5,720
North     Carolina          1,370      1,733        2,100       2,620        2,900       2,350

aPremiums shown are        for coverage      of $1 million     per    occurrence     and $1
million  in aggregate        for a policy     year.