Malpractice Insurance Costs And Physician Practice, by Margo L. Rosenbach and Ashley G. Stone

Transcription

1 DataWatch Malpractice Insurance Costs And Physician Practice, by Margo L. Rosenbach and Ashley G. Stone One of the major issues underlying the medical malpractice debate is whether problems with the cost or availability of insurance have led physicians to modify their practice patterns to reduce the risk of being sued. This DataWatch documents the cost impact of malpractice insurance premiums and problems with the availability of insurance coverage and assesses the impact of rising malpractice insurance costs on physician practice in the mid-1980s. Most research to this point has focused on positive defensive medicine strategies, that is, the performance of additional tests or procedures to avoid being accused of negligence. 1 Stephen Zuckerman found that physicians are indeed taking certain precautions in their day-to-day practice. 2 Similarly, Harry Paxton reported that most physicians involved in obstetrics were adopting one or more defensive tactics, most frequently ordering more tests. 3 A key feature of our study is the focus on negative defensive medicine practices-in other words, the discontinuation of certain procedures or cases. Of particular concern with the adoption of negative defensive medicine is the impact on access to care. To the extent that the perceived malpractice crisis impedes patients access to care, public policy intervention might be warranted. Study Data And Methods This analysis is based on a sample of physicians who responded to the 1983 Physicians Practice Costs and Income Survey (PPCIS) and who also participated in the 1986 Physicians Practice Follow-up Survey (PPFS). This study is the only known source of data on changes in malpractice insurance premiums for a panel of physicians. The 1983 PPCIS included 4,729 physicians, with a response rate of 67.6 percent. The follow-up survey excluded physicians specializing in pediatrics, pathology, psychiatry, and a few other small specialties (emergency medicine, Margo Rosenbuch is vice-president of Health Economics Research, Inc. (HER), in Needham, Massachusetts. Ashley Stone was a research assistant at HER at the time this study was done.

2 D ATAWATCH 177 rehabilitation medicine, occupational medicine, and general preventive medicine). The sample for the follow-up survey consisted of 3,554 physicians, of which 2,499 (74.2 percent) completed the interview. Three open-ended questions were asked to assess availability problems and practice impacts: (1) Have you ever had any problems with the availability of malpractice insurance? (2) Since this time last year, have you stopped performing certain high-risk procedures because of malpractice insurance costs? (3) Since this time last year, have you stopped seeing certain types of cases because of malpractice insurance costs? Physicians who reported an availability problem or practice impact were probed as to the nature of the problem. Physicians verbatim responses were recorded and coded into closed-ended categories. Multiple responses were permissible and were most common with respect to the types of procedures that were discontinued. We have weighted multiple responses so as not to overrepresent physicians with more than one availability problem or practice impact. 4 The Malpractice Environment Who pays the premium? For the vast majority of physicians (90 percent), the malpractice premium was paid solely by the physician or his or her practice in 1986 (Exhibit 1). For 3 percent, the hospital bore sole responsibility for paying the premium, while for 6 percent, the physician/ practice and the hospital shared the cost of the coverage. Hospital coverage may be provided through a commercial policy or through self-insurance. In 1986, only 1 percent of physicians were uninsured for cases of medical malpractice. About a fourth of these physicians were never insured, about two-fifths discontinued their policy during the malpractice crisis of the 1970s, and the remainder (about one-third) of the bare physicians had discontinued their coverage since Exhibit 1 also displays the source of payment by specialty. The dominant payment source across all specialties was practice revenues. We might expect hospitals to defray the cost of malpractice premiums for the two hospital-based specialties-radiology and anesthesiology-but this does not appear to be the case. Although obstetricians/ gynecologists have the highest malpractice premiums, nine in ten paid for their insurance coverage entirely out of practice revenues. The cost was defrayed by hospitals (either in whole or in part) for only one in ten. The sources of payment for malpractice premiums clearly vary by practice arrangement. Self-employed physicians as well as those employed by another physician or corporation were most likely to pay the malpractice insurance premiums out of practice revenues. Among those

3 178 HEALTH AFFAIRS Winter 1990 Exhibit 1 Sources Of Payment For Malpractice Insurance Premiums, 1986 All physicians Specialty General practice Family practice Internal medicine Cardiology Other medical specialties General surgery Orthopedic surgery Ophthalmology Urology Obstetrics/ gynecology Other surgical specialties Anesthesiology Radiology Physician or practice 90.3% Hospital a 3.0% Both physician and hospital No coverage 5.7% 1.0% Practice arrangement Self-employed Employed by: Hospital or university Clinic or HMO b Another physician or corporation Source: 1986 Physicians Practice Follow-up Survey. a Includes coverage through hospital self-insurance. b For clinic/ HMO employees, the second and third columns may reflect payments by the employer (that is, the clinic or HMO), not necessarily the hospital. employed by a hospital or university, the premium was most often paid by the hospital in its entirety or shared by the practice and hospital. About two-thirds of clinic or health maintenance organization (HMO) employees paid the premium out of pocket, while another third received malpractice insurance coverage as a fringe benefit with either full or partial payment by the employer. Changes in malpractice premiums. According to the 1983 PPCIS and 1986 PPFS, malpractice premiums rose 75 percent, from $8,500 in 1983 to $14,800 in Relative to gross revenues, they were only 57 percent higher, increasing from 4.0 percent to 6.2 percent of gross. Malpractice insurance premiums rose faster than other prices, as measured by the consumer price index (CPI) and the medical care index (MCI). Exhibit 2 compares the estimates derived from the 1983 PPCIS and 1986 PPFS to those obtained from two alternative data sources: the American Medical Association s (AMA s) Socioeconomic Monitoring

4 D ATAWATCH 179 Exhibit 2 Changes In Malpractice Premiums, Comparison Of Alternative Data Sources, Average malpractice premiums (thousands of dollars) Percent of gross revenues Percent change Percent change Physicians Practice Costs and Income Survey $5.4 $ % 4.0% 6. 2% 57% Socioeconomic Monitoring System a Medical Economics Continuing Survey b Sources: 1983 Physicians Practice Costs and Income Survey; 1986 Physicians Practice Follow-up Survey; American Medical Association Socioeconomic Monitoring System; and Medical Economics Continuing Survey. a Self-employed physicians. b Malpractice premiums expressed in medians. System and the Medical Economics Continuing Survey. Several methodological differences may account for the discrepancies among the three sources First, the specialty mix differs across the three sources. The PPFS excluded pediatricians, pathologists, and psychiatrists, which have below-average malpractice premiums in both absolute and relative terms. Second, the PPCIS/ PPFS is based on a panel of physicians, rather than independent samples for two time periods. Third, the Medical Economics Continuing Survey produces estimates of malpractice premiums based on the median rather than the mean, thereby lowering the average. Specialty differentials. Premiums ranged nearly fivefold across specialties, from $6,474 for internists to $31,180 for obstetrician/ gynecologists (Exhibit 3), Also at the low end (under $10,000 on average) were general and family practitioners, other medical specialists (such as allergists and dermatologists), and ophthalmologists. At the high end of the range (over $20,000) were anesthesiologists, general surgeons, orthopedic surgeons, and other surgical specialties (such as cardiovascular/ thoracic surgeons and plastic surgeons). Physicians with high premium costs in absolute terms also bore a high cost relative to their gross revenues. For example, the five specialties averaging more than $20,000 in physician-paid malpractice insurance costs devoted about 8 percent or more of their gross revenues toward insurance coverage. In contrast, those paying under $10,000 spent 5 percent or less of their gross revenues on malpractice insurance. From 1983 to 1986, malpractice insurance premiums increased about 50 percent among general practitioners, cardiologists, and anesthesiologists. However, they doubled for radiologists, obstetrician/ gynecologists,

5 180 HEALTH AFFAIRS Winter 1990 Exhibit 3 Changes In Physicians Own Malpractice Insurance Payments, By Specialty, Region, And Practice Arrangement, a All physicians Specialty General practice Family practice Internal medicine Cardiology Other medical specialties General surgery Orthopedic surgery Ophthalmology Urology Obstetrics/ gynecology Other surgical specialties Anesthesiology Radiology Region New England Middle Atlantic South Atlantic Average own malpractice payments Own malpractice payments as percent of gross income Percent Percent chan ge change $8,446 $14, % 4.0% 6.2% 57.2% 4,457 6, ,138 7, ,684 6, ,288 11, ,818 7, ,850 21, ,563 26, ,614 9, ,664 15, ,230 31, ,315 25, ,759 20, ,864 11, ,248 13, ,461 17, ,040 13, East North Central 6,671 13, East South Central 8,267 16, West North Central 6,405 12, West South Central 5,738 9, Mountain 7,800 14, Pacific 10,800 16, Practice arrangement b Self-employed 8,460 14, Employed by: Hospital or university 6,264 10, Clinic or HMO 9,190 15, Another physician or corporation 8,925 16, Sources: 1983 Physicians Practice Costs and Income Survey; and 1986 Physicians Practice Follow-up Survey. a Own malpractice payments refer to payments made by the physician or the physician s practice. Excludes payment made by the hospital on the physician s behalf.

6 D ATAWATCH 181 and other medical specialists. In 1983, orthopedists, obstetrician/ gynecologists, and other surgical specialists averaged about $15,000 in premiums, but by 1986, obstetrician/ gynecologists exceeded the other two specialties by $5,000-$6,000. Obstetrician/ gynecologists also bore a greater burden relative to their gross revenues. Other medical specialists also experienced a doubling in premiums, but this translates into only a 56 percent increase relative to gross revenues and represents a relatively small share of gross revenues (3.2 percent). Regional variation. Premiums also vary substantially across regions of the country. In 1986, premiums were lowest in the West South Central region and highest in the Middle Atlantic region, with an 81 percent differential (Exhibit 3). Relative to gross revenues, malpractice premiums were also at the extremes in these two areas of the country. From 1983 to 1986, malpractice insurance premiums paid by physicians increased 75 percent overall, but this increase was uneven across regions. Practice differences. Premium changes relative to gross revenues are particularly striking across practice arrangements. Whereas employed physicians devoted about 2.5 percent of gross revenue to premiums in 1983, by 1986 the share was 6 to 7 percent of gross revenue. This amount is now comparable to the proportion paid by self-employed physicians. Thus, the perception that employed physicians bear a lower financial burden relative to gross income is simply no longer true. Level of liability coverage. As do other forms of liability coverage, malpractice insurance policies contain limits on the amounts insurers will pay per occurrence (that is, for each case against the insured) and in the aggregate during the policy period. The most common level of coverage in 1986 was $1 million/ $3 million, where the insurer will pay up to $1 million per case and $3 million total. Two in five physicians had such coverage. The second most common limits were $1 million/ $1 million (11 percent of physicians), followed by $100,000/ $300,000 and $200,000/ $600,000 (6 percent each). Altogether, the four most common policies accounted for two-thirds of physicians, suggesting that there is a high degree of consistency in the policy limits. Among the remaining third, however, the variation is quite extensive. Within specialties, there was little variation in coverage limits. The most common limit for all specialties was $1 million/ $3 million, ranging from 27 percent of general practitioners to 51 percent of internists, other medical specialists, and orthopedists. For most specialties, the second most common limit was $1 million/ $1 million, although general practitioners, urologists, and other medical specialties tended to have lower coverage, while cardiologists frequently had a higher total limit. Policy limits do not vary substantially by practice arrangement, al-

7 182 HEALTH AFFAIRS Winter 1990 though physicians employed by a clinic or an HMO appear to carry more coverage. For example, the second and third most common policies were $5 million/ $5 million (7 percent) and $1 million/ $5 million (6 percent). Changes in coverage. In response to various pressures, physicians may lower coverage limits to reduce the cost of malpractice insurance. Or they may increase the limits due to increases in the number of medical malpractice claims filed by patients. In some cases, policy limits are beyond the physician s control, remaining at the discretion of states, carriers, or hospital employers. Since 1983, one in three physicians changed their coverage limits. In the aggregate, the average per case limit rose from $984,000 to $1.1 million, a gain of 7.1 percent from 1983 to The average total limit rose 7.4 percent, from just under $2.3 million to slightly more than $2.4 million. Changes in liability limits did not keep pace with inflation (as measured by either the CPI or MCI). Availability of malpractice insurance. When a physician experiences a lack of availability of insurance, it usually means one of two things: either the insurance is available but only at a price the physician is unwilling to pay, or it is unavailable at any price. Exhibit 4 shows the nature of availability problems reported by physicians. The responses of the 13 percent of physicians who indicated they had experienced problems are broadly grouped according to the nature of the problem. About half of those reporting any problem cited a general problem with insurance availability, such as withdrawal of carrier, denial or cancellation of policy, or not enough carriers to choose from. Another 2 percent specified that the preferred type of insurance was unavailable, for example, because of limits on levels of coverage, types of procedures covered, or types of policies offered. The high cost of insurance was reported by another 2 percent, although this is not an availability problem per se. (It should be recalled that respondents were asked if they had experienced problems with the availability of insurance. Had we asked physicians whether they considered the cost of insurance to be a problem, the number of affirmative responses undoubtedly would have been much higher.) Physicians in two specialties-obstetrics/ gynecology and anesthesiology-most frequently mentioned the cost of insurance to be a problem. Changes in practice patterns. One in five physicians stopped treating certain cases in the past year due to malpractice insurance costs. (Because of the open-ended nature of the questionnaire, each respondent placed his or her own interpretation on the meaning of the term high-risk.) We have grouped the responses into broad categories based on the complexity of the procedure or the type of patient affected. The single most commonly discontinued procedure was obstetrics, reported by 4 percent of

8 D ATAWATCH 183 Exhibit 4 Perceived Problems With Availability Of Malpractice Insurance, 1986 Insurance not available (general) Withdrawal of carrier from state Denial/ cancellation by one or more carriers Not enough carriers to choose from Part-time physicians not covered Preferred type of insurance not available Limit on extent of coverage Certain procedures or specialty not covered Umbrella coverage not available Desired type of coverage not available (occurrence vs. claims-made) Limit on practice size Cost of insurance too high High cost (general) High cost for obstetrics High cost for older physicians Percent of all physicians 6.3% 47.8% a 0.2 Other problem Problem more than 5 years ago 11.0 Other/ uncodeable Total Source: 1986 Physicians Practice Follow-up Survey. a Less than 0.05 percent. Percent of physicians indicating problems physicians. Three-fourths of those discontinuing general obstetrics were family and general practitioners, while three-fourths of those discontinuing high-risk obstetrics were obstetrician/ gynecologists. Altogether, 15 percent of obstetrician/ gynecologists reportedly discontinued obstetrics during the previous year due to malpractice insurance costs. About 3 percent of physicians discontinued some kind of major surgery, including orthopedic, cardiovascular, and head and neck surgery. Another 3.5 percent of physicians discontinued all surgery, some surgery, surgical assisting, or office surgery. Of the physicians who discontinued all or some surgery, general and family practitioners accounted for onehalf. The high cost of insurance also prompted 3.4 percent of physicians to discontinue minor surgery or invasive diagnostic procedures, including biopsies, lumbar puncture, and arthrocentesis. A small number (0.9 percent) said they discontinued seeing emergency patients. The final category, reported by 3.7 percent of physicians, includes those who refused to see certain patients based on their nonmedical characteristics. Patients involved in litigation and Medicaid and indigent patients were most often affected. We examined the specialty breakdowns

9 184 HEALTH AFFAIRS Winter 1990 for these two patient characteristics and found that surgeons were most likely to refuse patients involved in litigation (although only 1 percent of all physicians refused to treat patients involved in litigation). Orthopedic surgeons and obstetrician/ gynecologists were most likely to deny services to Medicaid patients. (Again, 1 percent of physicians refused to see such patients.) These findings raise questions about the extent to which physicians decisions are motivated strictly by rising insurance costs or are also based, for example, on the level of Medicaid payments for obstetrical or other services. Availability problems and practice impacts vary by specialty. Obstetrician/ gynecologists, orthopedic surgeons, and other surgical specialists were most likely to report availability problems (Exhibit 5). These are the same specialties with the highest malpractice insurance premiums, on average. Radiologists and other medical specialists, with relatively low premiums on average, were least likely to report availability problems. Variation across specialties is more pronounced with respect to practice impacts. Over one-fourth of family and general practitioners indicated they had discontinued certain procedures or cases because of malpractice insurance costs. Orthopedic surgeons and general surgeons also responded at a rate well above the average. Well below the average were cardiologists, other medical specialists, radiologists, and anesthesiologists. Exhibit 5 Availability Problems And Practice Impacts, By Specialty, 1986 Percent of all physicians who have: Ever had problems with availability of insurance All physicians 13.0% 19.8% Specialty General practice Family practice Internal medicine Cardiology Other medical specialties General surgery Orthopedic surgery Ophthalmology Urology Obstetrics/ gynecology Other surgical specialties Anesthesiology Radiology Source: 1986 Physicians Practice Follow-up Survey. Discontinued certain cases in the past year due to cost of insurance

10 D ATAWATCH 185 Conclusion Has the rising cost of insurance led physicians to alter their practice patterns? Altogether, 20 percent of physicians have changed their practice patterns, including some physicians who have ceased performing any surgery, others who have stopped seeing certain types of patients, and still others who have selectively discontinued performing certain procedures. Nevertheless, only 3.7 percent refused to treat patients on the basis of nonmedical characteristics. Clearly, negative defensive medicine strategies are far less common than positive defensive medicine practices. The most common practice impact was the discontinuation of obstetrics. General and family practitioners tended to stop performing all deliveries, while obstetrician/ gynecologists generally stopped seeing high-risk patients. Overall, 15 percent of obstetrician/ gynecologists reported they had discontinued some form of obstetric care in Evidence from this and other studies suggests that the malpractice concern centers on the affordability rather than the availability of malpractice insurance coverage. We conclude that the malpractice problem of the 1980s, while not necessarily of crisis proportions, is serious nevertheless because of its implications for access to early and adequate prenatal care and competent labor and delivery services. As the 1990s progress, we must continue to monitor the practice climate to ensure that access to care is not placed in further jeopardy. This paper was presented at the annual meeting of the American Public Health Association, 15 November This research was supported by Department of Health and Human Services (DHHS) Contract no , cosponsored by the Assistant Secretary for Planning and Evaluation (ASPE) and the Health Care Financing Administration (HCFA). The views and opinions expressed are the authors, and no endorsement by ASPE, HCFA, or DHHS is intended or should be inferred. NOTES 1. M.L. Gonzales, Trends in Physicians Professional Liability Claims and Insurance Premiums, in Socioeconomic Characteristics of Medical Practice 1986, ed. M.L. Gonzales and D.W. Emmons (Chicago: American Medical Association, 1986). 2. S. Zuckerman, Claims, Legal Costs, and the Practice of Defensive Medicine, Health Affairs (Fall 1984): H. Paxton, Just How Bad Is the Malpractice Crisis in Obstetrics? Medical Economics (11 August 1986). 4. E. Weinberg et al., Follow-up to the 1983 Physicians Practice Costs and Income Survey: Final Methodological Report (Chicago: National Opinion Research Center, September 1988). 5. U.S. General Accounting Office, Medical Malpractice: No Agreement on the Problems or Solutions, Pub. no. GAO/ HRD (Washington, DC.: U.S. GPO, 1986).