New York’s Medical Malpractice Insurance Troubles Caused By Flawed State Rate Setting and Raid on Rainy Day Fund
By Taylor Lincoln
Last summer’s decision of the New York State Insurance Department to authorize a 14- percent increase in medical malpractice insurance premiums was accompanied by a wave of warnings that rates were causing a doctor-shortage “crisis” and suggestions that the insurance industry was in dire straits that could not be cured by the rate hike alone. Gov. Eliot Spitzer appointed a “Medical Malpractice Liability Task Force” to “define the major causes of medical malpractice and of the high cost of insurance.”
Critics of the civil justice system, predictably, tried to use these purported crises to justify imposing an array of restrictions on New Yorkers’ legal rights. The most offensive proposal concerns newborns. It would deprive neurologically impaired infants of their legal rights, leaving their welfare to the whims of a state-run fund. Our research shows that these funds are failures in the two states that have conducted similar experiments with the rights of patients.
In reality, the data show that most of these “crisis” claims are vastly exaggerated and those that are valid have nothing to do with a proliferation in litigation. It is worth noting that the situation in New York state is, when compared with the national medical malpractice insurance marketplace, an aberration. Nationally, rates are generally stable or are even slightly decreased from previous levels.
This study examines the three plausible explanations for recent insurance rate increases and the financial struggles claimed by New York’s insurance providers: 1) an increase in litigation; 2) the combustion of poor state regulation and normal volatility in the insurance market; and/or 3) marked changes in the quality of patient safety.
We unequivocally conclude, in the first instance, that increasing medical malpractice litigation is not to blame for the insurance industry’s woes or its recent rate increases. The evidence irrefutably demonstrates that malpractice payments in New York fell to historic lows in recent years and that amounts paid out either went down or rose only modestly, depending on the measure used.
The combination of volatility in the insurance market and derelict state regulation is almost certainly the explanation. Insurance companies are still recovering from an eight-year period in which state regulators held rates stagnant. Meanwhile, the state in the 1990s raided nearly $700 million from the rainy-day fund of an insurance pool set up to cover risky doctors (those who are unable to obtain commercial insurance). When the pool suffered massive losses this decade, the state’s insurance providers were forced to absorb more than $500 million in red ink. Although more regulated than those in most states, New York’s insurance providers also suffered in recent years from some of the same problems that afflicted the industry nationwide – most notably, decreased investment income.
Even though New York has not seen an increase in medical malpractice litigation, the state should make use of the current focus on the subject to improve patient safety. While these steps may not immediately ameliorate insurance rates, they would undeniably reduce unnecessary injuries and deaths. The data indicate that New Yorkers suffer from a chronic incidence of inexcusable errors, such as wrong-site surgeries, wrong patient surgeries, and abandonment of foreign materials, such as sponges, in patients’ bodies. Meanwhile, an average of more than 550 New Yorkers a year have died since 1999 due to adverse incidents in the state’s hospitals – and these are just the incidents that have been reported. The state’s patient safety performance ranked 49th of the 50 states in a 2006 study by the independent rating organization Health Grades Inc.
The toll exacted by bad doctors is reflected in the program that covers physicians who cannot obtain commercial insurance. Only about 1 percent of the New York’s doctors are in the program, but they have committed malpractice at such an alarming rate that they are chiefly responsible for the program’s loss of more than $500 million this decade.
New York’s comptroller issued a report this past summer lambasting the state for inept oversight of suspect physicians. The comptroller’s findings were underscored by recent revelations that health officials delayed notifying more than 600 people that they had potentially been exposed to deadly diseases by a single physician improperly reusing syringes. Astonishingly, the state regards its investigation into the physician, Dr. Harvey Finkelstein, as a “non-disciplinary” matter.
Although increases to medical malpractice rates exceeded inflation for the past five years, overall rate increases have not been onerous. From 1991 to this year’s 14-percent hike, the average annual increase has been merely 3.5 percent – or about half the rate of medical inflation over the time period.
Claims by some that New York’s population of doctors is dwindling are the most absurd of all. By almost any standard – whether one examines the number of licensed doctors, practicing doctors, “at risk” specialists, or full-time equivalent doctors – New York’s doctor supply is higher, and healthier, than it has been in any year for which data are available.
One exception, though not notable, is the much-ballyhooed purported shortage of obstetricians. While the number of obstetricians did drop slightly this decade, the state’s birthrate actually declined at a faster rate, meaning that the small change in the number of obstetricians had little impact on access to care.
Among our key findings are:
1. New York is not facing a litigation crisis.
• Medical malpractice payments on behalf of doctors were only 0.61 percent of New York’s total medical expenses in 2004, the most recent year for which total medical expenses are available. Premiums were only 1.02 percent of total medical costs in 2004. The average percentage of costs expended for premiums was lower in the first five years of this decade than in the entire 1990s.
- The number of malpractice payments in New York is at an historic low. Each of the last five years ranks in the bottom five out of the last 13 years in the number of payments per licensed physician.
- The amounts paid out in malpractice payments (when adjusted for inflation on a per capita basis) were slightly higher over the past five years than in the preceding eleven years while the inflation-adjusted amounts paid out per practicing physician were slightly lower over the past five years.
- The types of cases leading to medical malpractice payments in New York are serious, and compensation levels accord with the severity of the injury. Of ten categories of outcomes tracked by the federal government’s medical malpractice database, the five categories resulting in the largest payments all involve permanent injuries or death.
- Deaths from adverse events are the leading cause of medical malpractice payments in New York. Although such cases yield only the 4th highest average payout (out of ten outcome categories), deaths occur at such an alarming rate that payments to grieving survivors account for the greatest amount of dollars paid.
- Costs for cases involving brain damage, blamed by some for rising insurance rates, are in fact modest in comparison with other types of cases. The category for injuries including brain damage ranks 5th of 10 in total amounts paid out. This fact exposes the lunacy of the radical proposal to deprive newborn babies of their legal rights and cede their care to a state-run fund. Any slight savings that might result from such an unjust experiment would barely reduce overall medical malpractice payments in New Y ork.
- The number of malpractice cases in the pipeline is virtually constant. The rate of cases initiated over the most recent five-year period was less than 2 percent up or down from previous years, depending on the measure used.
2. New York’s government is primarily responsible for insurance problems.
• Recent medical malpractice rate hikes and financial woes claimed by the insurance industry are due to three main factors:
- The need for insurance companies to catch up from an eight-year period in which state regulators held rates stagnant;
- The state government’s expropriation of nearly $700 million from the rainy-day fund of a program that insured high-risk doctors and its subsequent imposition of a policy that forced medical malpractice insurers to absorb all of the program’s losses, which have totaled more than $500 million this decade; and
- The insurance market’s typical boom-bust cyclical nature.
3. Receiving health care in New York is unsafe.
- An independent rating organization, Health Grades Inc., gives New York abysmal grades – ranking New York’s patient safety record 49th out of the 50 states, and grading the safety records of 47 percent of New York’s hospitals among the nation’s worst 15 percent.
- New Yorkers suffer from an unconscionable frequency of inexcusable errors, such as surgeries on the wrong body part or, even, the wrong patient. Meanwhile, adverse events in hospitals have claimed the lives of more than 550 New Yorkers a year since 1999 – and those are just the cases identified by a reporting system that notoriously undercounts incidents.
- The state’ s oversight of physicians is woefully inadequate. New Y ork’ s comptroller found that the state’s Office of Professional Medical Conduct (OPMC) failed to investigate about 175 doctors for whom investigations should have been triggered based on the agency’s existing criteria. Moreover, the comptroller found that the agency’s criteria for initiating investigations are too narrow and should be broadened.
- A sliver of doctors are responsible for nearly half of the dollars paid out for medical malpractice in New York. Physicians who made three or more malpractice payments between 1990 and 2006 – accounting for no more than 4 percent of New York’s doctors – were responsible for nearly half (49.6 percent) of medical malpractice dollars paid out on behalf of doctors in the time period. Only 10.8 percent of these physicians experienced disciplinary action affecting their license to practice.
- About 1 percent of the state’s doctors are in a program for those physicians who are unable to obtain commercial insurance. These doctors have made such staggering malpractice payments that they are chiefly responsible for the program’s losses of more than $500 million this decade. These losses, which commercial insurers must absorb on a shared basis, are largely responsible for the financial troubles the state’s insurers are facing.
4. New York’s population of doctors is flourishing.
- New York’s population of physicians is at an all-time high by numerous measures and its number of doctors in training is by far the highest in the country, with half- again as many residents and fellows as California and more than twice as many as any other state.
- The state’s slight drop in obstetricians between 2000 and 2005 was less than the decline in the state’s birthrate over the same time period.
5. New York doctors’ incomes will likely be unaffected by rising insurance premiums.
• Researchers have found that premiums consistently make up only a small percentage of doctors’ total expenses and that rising premiums have not, historically, depressed physicians’ incomes.
We have a series of recommendations, which should not be treated as comprehensive. They are summarized here:
- In a manner consistent with other health priorities, New York should refund the nearly $700 million it siphoned from the rainy-day fund of the insurance pool for high-risk doctors;
- The state should consider steps to prevent future boom-bust cycles in the malpractice insurance industry, such as setting a minimum annual rate increase indexed to inflation;
- The state should make a top priority of improving patient-safety;
- The state should improve its woeful oversight of physicians; and
- The state should take a hard look at the records of doctors who are unable to obtain commercial insurance. Malpractice payments by these physicians (who account for fewer than 1 percent of the state’s doctors) are largely responsible for the bind that New York finds itself in today.