Medical Malpractice Litigation Raises Health Care Cost, Reduces Access and Lowers Quality of Care

www.epf.org President s Summary This Issue Backgrounder shows that medical malpractice litigation has several adverse consequences on this nation s healthcare system including: (1) adding up to $97.5 billion annually to the cost of hospital and physician services; (2) increasing the annual cost of employer-provided health insurance by up to 12.7 percent; (3) decreasing the number of workers covered by employer provided health insurance by 2.7 million and (4) causing a 6 percent decline in physicians per thousand. The impact of litigation ultimately reduces access to health insurance coverage and to basic medical care services for millions of families. Ed Potter Promoting sound employment policy To receive EPF newsletters and releases via e-mail, contact dmaxwell@epf.org 1015 Fifteenth Street, NW Suite 1200 Washington, DC 20005 (202) 789-8685 Fax: (202) 789-8684 E-mail: info@epf.org Contemporary Issues in Employment and Workplace Policy Medical Malpractice Litigation Raises Health Care Cost, Reduces Access and Lowers Quality of Care Introduction This Issue Backgrounder examines the impact of medical malpractice litigation on health care cost, the availability of employersponsored health insurance and the quality of health care services. Among this study s findings are that unlimited, uncapped medical malpractice litigation: Adds up to $97.5 billion annually to the cost of hospital and physician services; Increases the annual cost of employer-provided health insurance by up to 12.7 percent; Decreased by 2.7 million the number of workers and their families covered by employer provided health insurance; Caused a 6-percent decline in physicians in the U.S., many of whom work in critical speciality areas; Lost access to critical medical services for up to 14.4 million people; Resulted in malpractice underwriting losses of $8.6 billion in 2001, double that of 10 years earlier; Has low predictive value in identifying whether medical malpractice has occurred. The Employment Policy Foundation s (EPF) analysis of data comparing states with limitations on non-economic damage awards in malpractice cases and found that such curbs on excessive malpractice litigation could save $54.8 billion to $97.5 billion 7.2 percent to 12.7 percent of the $764.8 billion spent on hospital and physician services. In terms of 2001 health insurance costs, the result of curbing medical malpractice excesses would be a reduction in total employer-sponsored health insurance plan costs of $17.4 to $30.9 billion. The 7.2 percent to 12.7 percent cost saving would lower average employer costs by $198 to $353 per covered employee. In terms of 2001 health insurance costs, the result of curbing medical malpractice excesses would be a reduction in total employer-sponsored health insurance plan costs of $17.4 to $30.9 billion. EPF also found that the malpractice litigation system is an ineffective way of correcting errors and improving health care quality. Indeed, the litigation discovery process is widely seen as an obstacle by health care professionals who seek to implement effective real-time review and evaluation processes to identify and correct the systemic causes of medical errors and accidents. Medical Malpractice Tort Costs Increases More Than Double Other Medical Cost Increases Over the period from 1990 through 2000, medical malpractice tort costs rose 140

percent, more than double the 60 percent increase in medical costs generally over the same period. 1 There were a number of contributing factors. Median Jury Awards Doubled. Between 1995 and 2001, median jury awards in medical malpractice cases doubled from $500,000 to $1,000,000 for the typical case. Median settlement amounts reported for the majority of claims that were resolved before a jury verdict increased from $350,000 in 1995 to $500,000 in 2001. 2 Between 1991 and 2001, the maximum annual claim award reported nationwide increased from $5.3 to $20.7 million. Juries in Pennsylvania in 1999 and Mississippi in 2002 each returned verdicts of $100 million, although final payment in each case awaits the outcome of appeals. Payments over $1.0 million more than doubled from 2.2 percent to 5.2 percent of all claim payments. Number of Settlements Increased Even Though Majority Result in No Pay Out. Even though the majority of malpractice claims closed in 2001 were dropped or dismissed without any payment, 3 the prospect of a large medical malpractice award serves as a powerful inducement to pursue such claims. Between 1991 and 2001, the number of claims closed with payments to plaintiffs increased 22 percent, and the share of closed claims resulting in payment to a plaintiff rose from 27.1 to 33.3 percent, according to a survey of mutual insurance companies by Physician s Insurers Association (PIA). 4 The increase in claims closed with payment reflects the incentive that higher settlement and judgment prospects have on the persistence of plaintiff s lawyers to pursue cases to a successful conclusion. 5 The experience in Missouri in 2001 was typical of the nation. Between 1999 and 2001, the average time to close physician malpractice cases that were ultimately found to be without merit no payment was made to the plaintiff increased from 42 months to 46 months. The average time required to resolve all cases that resulted in payment in 2001 was 44 months shorter than the time to close cases without merit. Figure 1 shows that higher plaintiff payments are associated with prolonged litigation time. The efforts of plaintiffs lawyers to win a payment imposes significant costs on the health care system regardless of whether a claim results in a final judgment or settlement amount. Nationwide the cost of defending medical malpractice claims in 2001 averaged $28,801 per case. 6 This amount does not include payments made to plaintiffs. The cost for cases that went to trial or were settled with a payment averaged significantly more. Between 1991 and 2001, the number of claims closed with payments to plaintiffs increased 22 percent, and the share of closed claims resulting in payment to a plaintiff rose from 27.1 to 33.3 percent The Effect of the Contingency Fee System. The prospect of a big award is particularly significant for plaintiff s lawyers who are compensated on a contingency fee basis 30 to 40 percent of the award amount. If the claim is dropped before any cash settlement is offered, the plaintiff s lawyer gets nothing. The result is an increasingly prolonged and costly process of discovery that consumes physician s time, distracts them from patient care and raises the effort and cost of claims adjusters and defense attorneys on behalf of malpractice insurers. Nationwide the cost of defending medical malpractice claims in 2001 averaged $28,801 per case. 2

Annual Medical Insurance Underwriting Costs Doubled in Last Decade. The rising litigation costs are reflected in malpractice insurance underwriting losses 7 which doubled from $4.1 billion in 1991 to $8.6 billion in 2001. (See Figure 2 on page 2.) This total includes amounts paid to plaintiffs and their attorneys, expenditures for processing and investigating claims, including the majority that are subsequently dropped or dismissed and expenditures to defend litigated claims. Overall, the cost of adjusting and defending all claims in Missouri increased 72.8 percent in real terms over the 1987-2002 period. 10 The rising litigation costs are reflected in malpractice insurance underwriting losses 7 which doubled from $4.1 billion in 1991 to $8.6 billion in 2001. The direct result is higher malpractice liability insurance premiums for doctors, nurses and hospitals which in turn drive up health care costs and employer costs for employee health benefits. The direct impact of medical malpractice litigation on health care costs is significantly magnified by indirect effects of defensive medical practices and of reduced supply of health care services as the risks of litigation force doctors and hospitals to limit or withdraw their services. Medical Malpractice Insurance Ineffective in Remedying Injured Persons The medical malpractice insurance system is an ineffective mechanism for providing relief for injured persons. The litigation costs outweigh the compensation that ultimately is received by plaintiffs. Figure 3 shows that plaintiffs eventually receive only 38 percent of the total dollars that flow through the malpractice litigation system. 8 The majority, 62 percent compensates the plaintiff s lawyers and expert witnesses and the insurer s claims adjustment, cost of investigating claims and defending claims made against insured physicians and hospitals. 9 The claims adjustment costs are significantly raised because 60 to 70 percent of claims are eventually found to be without merit. Nonetheless, significant time and resources are expended on such cases. Again, the experience in Missouri has been typical. For cases closed without payment to the plaintiff, the cost of administering the claim increased 51 percent in real terms between 1987 and 2001. For cases closed with a settlement or judgment payment, the adjustment and defense cost increased in real terms by 86.5 percent. Malpractice Insurance Premium Increases of 50 Percent Are Possible The result of rising malpractice litigation costs has been escalating costs for medical malpractice insurance, most notably over the past three years. The heavy underwriting losses incurred by malpractice insurers are expected to drive premiums even higher over the next five years. In 2001, medical malpractice insurance companies reported earned premiums of $5.6 billion, compared to underwriting losses of $8.6 billion. Malpractice insurers paid out $1.53 in claims settlements and claims adjustment and defense expenses for every dollar that they collected in premiums. In 2001, the gap between premiums collected and underwriting losses amounted to $4,033 per physician, assuming that all 744,000 full-time physicians in the U.S. were covered. 11 Average premiums would need to increase by 53 percent from $7,969 to $11,603 per physician to match the 2001 level of underwriting losses. Average premiums would need to increase by 53 percent from $7,969 to $11,603 per physician to match the 2001 level of underwriting losses. Insurance companies maintain and invest reserve funds to protect against unusual fluctuations in losses. Reserves and income from investment of reserve funds (typically in high grade bonds and other conservative securities) provide a cash cushion to absorb occasionally high underwriting losses. The availability of reserves and 3

reserve investment income offsets the need to adjust premiums immediately in response to temporary increases in underwriting losses. 12 Long-term trends of underwriting losses, however, must eventually translate into higher premiums. Over the last ten years, the medical malpractice insurance industry has experienced only two years in which earned premiums exceeded underwriting losses. If current levels of underwriting losses continue, premium increases will inevitably match the trend of underwriting losses. Whether or not all physicians have coverage is an increasingly important question. It is a question that impacts the financial security of both physicians and patients. Obtaining malpractice insurance coverage at any price has become a severe problem for many physicians as insurance companies have withdrawn from a market where they see mounting losses and little prospect of profits. Over the past two years, five of the largest commercial insurers have withdrawn from the medical malpractice insurance market. Medical Malpractice Insurance Premiums Vary By State Medical malpractice insurance premiums vary widely by state. The difference between California and other states is most striking. (See Figure 4.) In 2001, the premium range for obstetricians was $143,000 to $203,000 per physician in Florida, but only $23,000 to $72,000 in California. The pattern was similar for surgeons $63,000 to $159,000 in Florida compared to $14,000 to $42,000 in California. For internists the malpractice insurance premium range was $27,000 to $51,000 in Florida and $4,000 to $15,000 in California. The difference reflects the effect of limits on non-economic damages that California enacted 25 years ago. California places a ceiling of $250,000 on non-economic damages in medical malpractice cases. Florida has no meaningful limits on non-economic damages. In states hardest hit by medical malpractice lawsuits, the exit has been sharper: 15 insurers have stopped writing policies in Mississippi, 54 of 66 companies dropped out of the Florida market, and 24 of 32 insurers in Missouri have stopped renewing coverage. The result has been curtailment of practice areas and retirement for many physicians who either cannot get insurance or cannot afford the insurance options that remain. 15 insurers have stopped writing policies in Mississippi, 54 of 66 companies dropped out of the Florida market, and 24 of 32 insurers in Missouri have stopped renewing coverage. Since 1999, medical malpractice insurance cost increases have been most severe for physicians in the critical specialties of obstetrics (46.5 percent), surgery (58.1 percent) and internal medicine (62.3 percent). These are the specialties in which the risk of malpractice litigation is the greatest. In addition to physicians, liability insurance premiums for hospitals, nurses and nursing homes have also increased significantly. For most hospitals, malpractice-related liability insurance costs have doubled over the past three years. Furthermore, many hospitals have eliminated trauma centers and other services that expose them to high risks of being included in malpractice lawsuits. In 2001, the premium range for obstetricians was $143,000 to $203,000 per physician in Florida, but only $23,000 to $72,000 in California. Non-Economic Damage Caps Lower Costs and Premiums The distinction between economic and non-economic damages is important for understanding divergent trends in malpractice costs between states. Typical elements of economic damage are lost earnings, medical expenses and personal care (attendants and handicapped-accessible facilities) for plaintiffs with physical or mental disabilities arising from malpractice claims. Non-economic damages are compensation for less tangible effects of injury 4

including pain, suffering, mental anguish and loss of consort (in death cases). Non-economic damage awards are highly affected by jurors emotional reactions to the case, especially their sympathy for the plaintiff. In addition to sympathy for the plaintiff, jurors non-economic damage decisions may reflect their personal experiences, perceptions and attitudes. The perception of jurors that the award will be paid by an insurance company with deep pockets is an important factor. These relatively small differences in annual growth rates have large consequences when the impacts are compounded over 24 years. If the California reforms had been adopted nationwide in 1976, medical malpractice premiums today would likely total only $2.5 billion today $3.2 billion less than the current amount of $5.6 billion (see Figure 5.) and $6.1 billion less than the $8.6 billion level likely to be reached as the current gap between premiums and underwriting losses is closed. 15 In recent years, nine other states have followed the California example and adopted limits or caps on noneconomic damages. The experience of these states has been similar: caps on non-economic damages slow the growth of medical malpractice claims and litigation costs. Because large medical malpractice damage awards typically contain large non-economic damage components, states with caps on non-economic damages have experienced fewer instances of mega-awards that have driven up litigation rates and costs in other states. 13 In 2001, the ten states that limited non-economic damages to $350,000 or less reported average medical malpractice insurance premium increases for surgeons, obstetricians and internists of 12 percent, compared to average premium increases of 44 percent in the ten states with no limits on non-economic damages. 14 The states without effective ceilings on non-economic damages experienced increases in medical malpractice premiums 3.7 times greater than states with ceilings. In 2001, the ten states that limited non-economic damages to $350,000 or less reported average medical malpractice insurance premium increases for surgeons, obstetricians and internists of 12 percent, compared to average premium increases of 44 percent in the ten states with no limits on noneconomic damages. Medical malpractice insurance premiums are increasing nationwide, but the difference between the experience of states with ceilings for non-economic damages and other states is remarkable. Between 1976 and 2000, malpractice insurance premiums nationwide increased 505 percent equivalent to 7.8 percent annual premium growth compounded over 24 years. California malpractice premiums grew 167 percent equivalent to a 4.2 percent annual growth rate. Defensive Medicine is an Expensive Consequence of Malpractice Litigation The direct costs of malpractice insurance add a $3.2 to $5.6 billion annual cost burden on an already strained health care system, but the full impact of uncurbed litigation is greater. Growing medical malpractice litigation indirectly raises health care costs by encouraging inefficient defensive medicine strategies and by encouraging physicians to flee practice specialties and locations where the risk of litigation and the cost of malpractice insurance are greatest. Care and caution are needed in all medical procedures, but the term defensive medicine refers to excessive caution in response to the adversarial atmosphere created by the malpractice litigation system. Defensive medicine is manifested in decisions to order extra tests, to obtain additional diagnostic reviews and to modify treatments in anticipation of litigation consequences. Economists who study the health care system have found that comparisons of patient care costs and outcomes in California to similar data from states without malpractice award limits provides a credible measure of the defensive medicine impact on medical costs and physician productivity. Studies of similar sets of patients 5

have found that controlling the excesses in the malpractice litigation system could reduce current health care costs by 5 percent to 9 percent without sacrificing quality of care. 16 This impact translates into a saving of $38.2 billion to $68.8 billion out of $764.8 billion total expenditure for physician and hospital services in 2001. Studies of similar sets of patients have found that controlling the excesses in the malpractice litigation system could reduce current health care costs by 5 percent to 9 percent without sacrificing quality of care. Physician Flight Limits Supply and Drives Up Costs Physician flight has been observed as a growing problem arising from litigation and rising malpractice premiums. Physicians are moving from high-cost, highlitigation states to locations where the risk of litigation is less. The Washington State Medical Society has reported a 31 percent increase in doctors moving out of that state where surgeons, obstetricians and other critical specialists experienced malpractice insurance premium increases as high as 55 percent in 2001. Similar reports have come out of Oregon, where malpractice insurance premiums increased as much as 56 percent in 2001. Washington and Oregon both have experienced doctors moving to neighboring California to find a lower risk climate for their practices. The University of Nevada has estimated that the Las Vegas area has only half the number of obstetricians needed to serve the population adequately. The shortage reflects both doctors leaving and new medical graduates being reluctant to move to the area because of rising malpractice insurance costs. Nevada is among the states without a cap on non-economic damages. The impact of the litigation has been particularly severe in obstetrics. In Putnam and Jackson Counties of West Virginia, the only hospitals serving these rural communities have closed their obstetrical units because doctors cannot get affordable insurance to cover that high litigation risk practice specialty. Pregnant women are forced to drive for hours over winding, icy mountain roads in search of an available hospital delivery room. Nationwide, the American College of Obstetrics and Gynecology reported in 2002 that 73 percent of obstetricians in the 12 states worst hit with premium increases have either retired, relocated or limited their practices to reduce their potential liability risks. The dimensions of physician flight from malpractice litigation costs are suggested by recent trends in total employment data for physicians. Between 1999 and 2001, the number of full-time, year-round practicing physicians per thousand of the population in the United States declined from 2.5 to 2.3 a 6 percent drop. The total number of private physicians in full-time, year-round practice in 2001 was 657,000-a 2.9 percent drop from the peak of 677,000 in 1999. Anecdotal evidence suggests larger numbers of physician retirements in 2002, and additional impacts on critical specialties from doctors decisions to limit practices or shift to specialties with less liability exposure. The total number of private physicians in full-time, year-round practice in 2001 was 657,000 a 2.9 percent drop from the peak of 677,000 in 1999. Although the total number of private practice full-time physicians fell nationwide, the number practicing in California, where non-economic damages limit litigation costs, increased by 17.6 percent, from 34,000 in 1999 to 41,000 in 2001. The number of practicing physicians in California grew five times faster than state population growth, while the number of physicians relative to the population was shrinking elsewhere in the nation. The number of practicing physicians in California grew five times faster than state population growth, while the number of physicians relative to the population was shrinking elsewhere in the nation. The falling number of private practice physicians since 1999 runs counter to the trend of the 1980s and 1990s. The constrained supply of physician services is reflected in overall price increases for medical services and in the 6

earnings of physicians. For the 12 months ending December 2002, the average price level for medical services rose 5.6 percent, more than twice the 2.4 percent rise in all consumer prices. Between 1999 and 2001, the mean real annual earnings of physicians in full-time, yearround practice increased 29.1 percent, while real earnings of all other full-time, year-round workers increased 7.6 percent. The trends in medical service prices and physician incomes indicate a growing gap between physician supply and demand. Although the precise impact of malpractice litigation on physician supply is unknown, the impact of even a small percentage supply change is significant in terms of the value of lost services and the number of patients potentially denied medical care. If malpractice litigation has reduced the supply of physicians by just 3 percent to 5 percent compared to what it would have been, the impact in terms of 2001 reference data is 20,000 to 33,000 fewer practicing physicians and $13.3 to $22.6 billion in potential physician services lost or shifted onto remaining physicians. To the extent that the demand for extra services is shifted to the remaining physician stock, the result is higher medical services prices and lower quality as the physician time available to each patient is reduced. Alternatively, the loss of 3 percent to 5 percent of practicing physicians is equivalent to 8.4 to 14.1 million people being denied medical services. 17 These are impacts that could be avoided if limits on non-economic damage liability were in place to curtail excessive growth of litigation and litigationrelated cost burdens on the health care delivery system. Alternatively, the loss of 3 percent to 5 percent of practicing physicians is equivalent to 8.4 to 14.1 million people being denied medical services. The Bottom Line: Malpractice Litigation Impacts Employers and Employees Figure 6 summarizes the costs imposed on the nation by unrestricted medical malpractice litigation. The total cost of unlimited malpractice litigation is $54.8 to $97.5 billion. This is the cost burden on the national health care system that could be saved if curbs on non-economic damages such as those in California were adopted. These costs represent up to 12.7 percent of the $764.8 billion spent on hospital and physician services in 2001. 18 The savings resulting from elimination of these costs could be passed through to employers and employees in the form of lower health insurance plan premiums. In terms of 2001 health insurance costs, the result of curbing medical malpractice excesses would be a reduction in total employer-sponsored health insurance plan costs of $17.4 to $30.9 billion. The 7.2 percent to 12.7 percent cost saving would lower average employer costs by $198 to $353 per covered employee. The employee share of annual plan costs would be reduced by $59 to $109 per employee. The total cost of unlimited malpractice litigation is $54.8 to $97.5 billion. Rising costs of employer sponsored health insurance benefits have been identified as a major cause of declining access to health insurance coverage for families. Empirical studies have found that a 3.0 percent rise in health insurance costs results in a 1.0 percent fall in the number of employees covered by employer-sponsored plans. 19 These findings mean that the excess costs of uncurbed medical malpractice litigation result in loss of health care coverage for 1.5 to 2.7 million employees and their families. These findings mean that the excess costs of uncurbed medical malpractice litigation result in loss of health care coverage for 1.5 to 2.7 million employees and their families. 7

Litigation is a Costly and Ineffective Approach to Health Care Quality The medical malpractice litigation system is a costly approach for identifying and correcting medical errors. In addition to cost, litigation is an ineffective way of correcting errors and improving health care quality because the litigation system has a high error rate. Figure 7 shows that in 2001 only 33 percent of malpractice claims closed were found to have merit by the tort law system. No study has found more than 43 percent of claims made were of sufficient merit to result in a payment. The tort system s poor performance for identifying systemic problems in health care delivery and litigation s lengthy delays result in too little incentive for correction and improvement of health care quality. A review of malpractice claims by Harvard researchers confirmed the finding that few claims actually represent negligence and demonstrated that the litigation system is no better than a random lottery for identifying and compensating injuries. 20 Because of the inefficiency and inaccuracy inherent in the improvement systems that have been found effective for improving quality, lowering cost and boosting productivity in other service industries and in technologically complex manufacturing operations. Removing the obstacles to continuous quality improvement systems will require legal changes that go beyond simple curbs on non-economic damages, but the economic benefits of quality improvement are potentially enormous. Implementation of effective continuous quality improvement systems in hospitals could improve patient outcomes and simultaneously reduce costs by up to 30 percent. 21 Such outcomes would result in additional savings more than twice as large as those associated with curbs on non-economic damages. The medical malpractice litigation system is a costly and ineffective approach that ultimately fails to protect patients. Its primary impact is to increase costs that employers and employees pay for health insurance, to reduce the number of employees and their families covered by affordable employer sponsored health plans, and to reduce access to healthcare in communities impacted by physician flight from liability risks. Notes 1 Insurance Information Institute, briefing at http:// www.iii.org/media/presentations/medmal, based on Towers- Perrin study. 2 Judgments and settlements are based on data reported by Jury Verdict Research based on case results reported by attorneys. Coverage for settlements is likely less comprehensive than for jury verdicts. Cases settled in early stages of litigation may be omitted. Closed case data from Insurance Information Institute shows the mean payment for all cases closed with a payment doubling from $63,750 in 1991 to $135,941 in 2001. 3 Physicians Insurers Association (PIA), statement before joint hearing of the U.S. Senate Judiciary Committee and the U.S. Senate Health, education, Labor and Pensions Committee, Feb. 11, 2003. The PIA mutual insurance companies cover about 60 percent of physicians nationwide. For cases handled by multiline commercial insurers, including both physicians and hospital defendants, available data indicates that 38 percent to 43 percent of claims were closed with a payment to the plaintiff. 4 Employment Policy Foundation estimate based on data reported by PIA. 5 The counter-argument that compensable acts of malpractice have increased is inconsistent with the relative stability of initial claims filed. 6 PIA, Feb. 11, 2003, p 16. 7 Medical underwriting losses includes indemnity payments, loss adjustment and litigation defense expenses and other underwriting expenses. The reference here is to gross underwriting loss. Some commentators also present net underwriting loss, which is the difference between gross underwriting loss and earned premiums. 8 Employment Policy Foundation estimate based on review of data from multiple sources. Some analysts have estimated the share ultimately received by the plaintiff to be as low as 28 percent with the remaining 72 percent of funds expended divided among plaintiff lawyers, plaintiff expert witnesses and the claims adjustment, defense and underwriting costs of insurers. 9 Including allocated administrative overhead and underwriting costs associated with issuance of policies. 10 Employment Policy Foundation analysis of Missouri Department of Insurance data. 11 The proportion of physicians without malpractice 8

insurance is thought to be small (but increasing). The exact proportion without insurance is unknown, but its increasing occurrence means that the actual average cost of insurance for those with coverage is slightly higher than the calculated amount shown in the text. 12 Multiline commercial insurers also rely on surplus earnings from some lines of insurance to offset extraordinary losses in other lines. 13 Effectiveness of limits on non-economic damages is an important consideration. California and other states that have kept premium increases low provide no exception to the ceiling. Other states have enacted ceilings that can be bypassed easily under broad interpretations of severity or injury or aggravating circumstances. 14 U.S. Department of Health and Human Services, Confronting the New Health Care Crisis, July 2002, p. 10. 15 Employment Policy Foundation calculations based on the 4.2 percent long-term annual compound growth rate for California premiums derived from analysis of data presented in testimony of Lawrence E. Smarr, President, Physician s Insurers Association, U.S. Senate Judiciary Committee and U.S. Senate Health, Education, Labor and Pensions Committee, Feb. 11, 2003, p. 25, exhibit 21. The estimated national level of total premiums paid in 1976 was $0.94 billion. 16 D. Kessler and M. McClellan, Do Doctors Practice Defensive Medicine, Quarterly Journal of Economics, 111:353-390, 1996. Also D. Kessler and M. McClellan, How Liability Law Affects Medical Productivity, National Bureau of Economic Research Working Paper No. 7533, February 2000. 17 Based on $1,595 per capita consumption of physician services in 2001, reported by U.S. Department of Health and Human Services. 18 U. S. Department of Health and Human Services, National Health Expenditures Accounts. 19 J. Gruber and M. Lettau, How Elastic Is the Firm s Demand for Health Insurance? National Bureau of Economic Research Working Paper No. 8021 July 2000. 20 A.R. Localio and A.G. Lawthers, Relation Between Malpractice Claims and Adverse Events Due to Negligence: Results of the Harvard Medical Practice Study III, New England Journal of Medicine, 325: 245-251, July, 25, 1991. 21 Donald M. Berwick, As Good As It Should Get: Making Healthcare Better in the New Millennium, National Coalition for Healthcare, 1998, cited in U.S. Department of Health and Human Services, Addressing the New Healthcare Crisis, March 3, 2003. Established in 1983, the Employment Policy Foundation is a research and education foundation whose purpose is to provide policymakers and the public with the highest quality economic analysis and commentary on U.S. employment policies affecting the competitive goals of American industry and the people it employs. The global marketplace and the pace of technological change are redefining products, production, markets, the nature of work, employer-employee relationships, workplace skills and the workplace itself. Unfortunately, federal and state policymakers have often imposed broad requirements without fully understanding their economic, social and human resources consequences. Through policy analyses and economic studies, EPF seeks to encourage an employment policy framework that will facilitate 9