PIAA Disputes Public Citizen Report on Medical Liability System

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The Physician Insurers Association of America (PIAA), a national trade association that represents doctor-owned and/or operated medical professional liability insurance companies, commented today on a report released last week by Ralph Nader’s national group, Public Citizen. The report, “The Great Medical Malpractice Hoax,� suggests that there is no medical malpractice lawsuit crisis in America and that the medical liability system produces rational outcomes. The report contains erroneous conclusions based on inaccuracies and the misinterpretation of government data, according to the PIAA.

“The PIAA has identified a full range of errors including unsupported statements, misuse of government data, and unwarranted conclusions,� stated Lawrence Smarr, president of the PIAA. “We are concerned about the negative impact this report may have on access to the U.S. healthcare system, physicians, and medical professional liability insurers.�

The errors identified by the PIAA in Public Citizen’s report include:

Error One: Medical Liability System Produces Rational Outcomes

The central conclusion of Public Citizen’s report is that the “medical liability system produces rational outcomes.� However, by utilizing data only from the National Practitioner Data Bank (NPDB), over 70% of the claims filed each year against physicians–those having no payment to report to the NPDB–are ignored. It is these meritless claims that define the litigation lottery and demonstrate the irrationality of the system. And, each of these meritless claims can cost $150,000 or more to successfully defend.

Smarr commented, “Medical malpractice claims take 4.5 years on average to conclude, only three out of every ten claimants ever receive anything, and when they do, 40% or more goes to the plaintiff’s injury lawyer. In fact, over 50% of all monies available to pay claims are consumed by the legal system. How can anyone call this a rational system?�

Error Two: The Number of Payments at $1M or More Is Small

The report alleges that judgments paid at $1 million or more for 2005 comprise only 0.25% of all payments made in that year. It is impossible to segregate judgments of $1 million or more in the NPDB Public Use File. The NPDB groups the payments in bands so that individual claims cannot be identified. Payments of exactly $1 million are included in the band comprising claims ranging in value from $990,001 to $1,000,000. While its report clearly states that the data includes “judgments of $1 million or more,” Public Citizen actually analyzed data beginning with values of $1,000,001 and above to reach its conclusions. As most physicians carry policies with limits of liability of $1 million, there are very few claims paid above this level. Conveniently, Public Citizen’s analysis omits all $1 million payments. It is possible, however, to identify payments of $990,001 or more. It is also possible to include settlements, which comprise the large majority of payments, and which also have been excluded from Public Citizen’s analysis. For 2005, settlements of $990,001 or more comprised 4.8% of all payments reported, and when combined with the judgments, total 5.2% of all 2005 claim payments. It must be noted that claim payments are reported to the NPDB on behalf of individual defendants, and reflect only the payment value for each individual. Many claims involve multiple defendants, the payment values for which must be aggregated to ascertain the total verdict or settlement amount for an individual case. Moreover, the NPDB Public Use File does not provide for the aggregation of payments by multiple payers on behalf of individual doctors, thus somewhat understating the number of large payments. In comparison, paid claims reported to the PIAA Data Sharing Project of $1 million or more on an individual defendant basis comprise 6.8% of the 2,581 paid claims reported for 2005.

Error Three: Medical Malpractice Payments Unchanged Since 1991

According to the report, the total value of medical malpractice payments, when adjusted for Medical Care Services inflation, has been flat since 1991. No justification is provided, however, for using the Medical Care Services index as the correct value for inflation. Further, the Medical Care Services inflation index does not apply to a number of major categories of payments made to claimants such as lost wages, non-medical care, household expenses, pain and suffering, and the claimant’s cost for attorney fees and court costs, often 40% or more of the total award. In fact, only payments for actual medical costs should track with Medical Care Services inflation. All other costs should be adjusted using the much lower rate of general inflation in the U.S. (CPI-U), and as utilized by the NPDB in its own analyses of Data Bank data.

Error Four: Malpractice Insurers See Huge Profits

Public Citizen asserts that, “In recent years, medical malpractice insurers have been reaping huge profits.” Public Citizen offers only one example to support this generalization. The report incorrectly represents the Florida profits from the 15 largest medical malpractice insurers writing in that state. The report alleges that the insurers had profits of $803 million in 2005. In reality, almost none of these insurers writes only medical malpractice insurance, and/or operates only in Florida. Many of these companies write a preponderance of their business in other lines of insurance or states, and this nationwide experience is reflected in the $803 million figure.

In addition, as reported by many sources including a leading independent evaluator of the financial condition of insurance companies, A.M. Best Company, the medical professional liability insurance industry suffered losses from 1998 to 2003 and only returned to modest profitability in the last two years.

“The medical malpractice insurance industry is attempting to emerge from its third financial crisis in the last 30 years through the attainment of rate adequacy,� noted Smarr. “Unfortunately, the biggest pressure facing the industry–namely, rising litigation costs–remains unrestrained in most states.�

Smarr added that tort reform, when enacted, has had a favorable outcome for patients, physicians, and insurers. “States like Texas have already seen the success of tort reform,� he said. “Tort reform enacted in 2003 by the Texas Legislature led to significant reductions in the cost of medical professional liability coverage, as high as 40% for the largest carrier. In addition, many new insurers have entered the Texas market, thus assuring that doctors can continue to practice and guaranteeing access to much-needed specialists.�

For more than 30 years, the PIAA and its doctor-owned/operated member companies have remained committed to ensuring that all patients have access to high-quality health care. “PIAA companies have two primary goals. One is to provide a stable, affordable source of medical professional liability insurance. The second is to develop effective risk management systems for minimizing adverse effects in patient care,� Smarr stated. “We agree with Public Citizen regarding the importance of developing patient safety measures to help physicians lower their liability exposure while improving the quality of patient care. However, we question the group’s sincerity in truly attaining this objective as this report is another in a series of misleading and ill-prepared analyses regarding the insurance industry. Once again, Public Citizen has illustrated its lack of credibility by promoting misinformation to further its political agenda.�

The PIAA is an association of doctor/provider-owned and/or operated medical professional liability insurance companies which insure more than 60 percent of America’s private practicing physicians as well as dentists, hospitals, and other healthcare providers.
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