Though I saw it all around
Never thought I could be affected
Thought that we'd be the last to go
It is so strange the way things turn

Tuesday, June 16, 2009

Just goes to show

Dear AMA,

It seems many of your members booed the President when he spoke about not capping malpractice awards with his tort reform. Afterwards some of your members trotted out the old argument that run-away juries and their high awards for malpractice are what's sending your rates higher.

I call shenanigans. See, in Ohio, the state I live in, we also had such an argument in 2002. Our State Legislature, in an attempt to correct for a problem that didn't exist (general practice doctors leaving the state in droves that resembled wildebeest migrations), did tort reform limiting malpractice award caps and raising the bar for bringing suit. Do you remember what the average change Ohio doctor saw in their malpractice insurance in 2003 (and 2004-2006)? It was only a 16% increase. To be fair, our averages over the previous decade were 12-18%, so it could have been 2% worse. Yes, in 2007 and 2008 premiums didn't increase as much as the national average, but they were still over 10%.

The insurance companies' response when asked why rates didn't decrease (as was the case in Texas)? They never said that lawsuits were the problem, and they never said they'd reduce rates if tort reform were passed.

It's not the lawsuits. It's the bond market and slumping "profits." As a professional organization that represents members who hold advance degrees, I expect better research, reasoning capacity, communication, and common sense. Also, if you wish tort reform, I demand open, searchable databases of past and current lawsuits, including the final outcome, of those lawsuits. It should be searchable by the doctor's name. It should also include any disciplinary action by the state and national boards.

Thank you for your time.


John the Scientist said...

First of all, absolute rates were already astronomical, so talking percentages without talking about the base is meaningless. Double-digit increases mean large amounts in absolute dollars. An OBGYN clinician paying $120,000 per year seeing even a 10% increase is taking a pretty hard hit.

I'm not sure where you got your insurance rate data, but it is wrong.

I have access to proprietary data at work, which I can not share, but I can say that this assessment is accurate.

There was a lag in the decline of Ohio premiums because of the statute of limitations - claims in the April 2003 - April 2004 stayed constant because of the statute of limitations of one year. Premiums went up 17% that year. Even when claims went down, insurers did not drop premiums right away, until they saw that the lower cases and damage caps were having an effect over several years. This is the same dynamic at play when gas stations don't lower their prices right away when crude falls - their income on this tank has to buy the next tank, and if prices bounce back up again they get caught short, so they wait to see if the proice of crude stays down before dropping the prce of gas. Also, I'm not sure about Ohio, but many states require insurers to keep a balance of reserve cash based on what they've paid out in recent years, and it would take a few years of lowered malpractice costs to affect the reserve rate.

But by 2007, average malpractice rates actually dropped.

In some high risk specialties, the premiums have dropped by 50% as the OBGYN reports here.

If you look at a $60,000 reduction in rates over a 50 week year, at 40 hours per week, at three patients an hour (about average for an OBGYN), that works out to $10 a patient. That means each full-paying patient (or their insurer) is now shelling out about 7.5% less on their bill on malpractice for each visit (assuming a $150 office visit bill), but Ohio Medicare and Family Services pays less than the going rates, so actually the full paying patients are subsidizing the Medicare patients (called cost-shifting in the literature), so in fact the share of saved malpractice insurance costs in an insured patient's bill is closer to 10%.

In my state, without tort reform, the average malpractice insurance for OBGYNs is over $250,000 per year. Some of that is COL differences, but still, to be paying over $40 per visit on malpractice insurance is insane. Tort reform works.

Insurers may not pass all the savings on to docs, but competition in this field means that they can't keep it all in their pockets either. If there was a monopoly in this field, I might buy your argument. But it does not jibe with the public information on malpractice insurance premiums in Ohio.

Steve Buchheit said...

John, thanks for the data. I'm willing to admit my data isn't accurate because I'm going from memory from sporadic news reports.

There's a lot in that presentation to digest, and without cross checking their resource data, I can say some of it makes sense. However, there are some basic research issues I have with it, 1) consider the source, 2) there are many slide with data but not enough information to correlate what they're trying to show, 3) they use some data comparisons that aren't apples to apples and when convenient switch compared samples (as someone who formerly made and designed these presentations I know why they do this). 4) Some of their slides were about "public/previous study perception vs. their reality" (which, fair enough, however some of it is statistical chicanery and requires one not to understand statistical analysis, ie. the "you really can't extrapolate you should do a 100% sample" argument - other statistical issues, the adjust some figures for inflation, but not other figures, there are two charts with the same title and header but show different data - I'm sure this would be explained by the presenter but it gave me a WTF moment). However, much of the industry data (that could be made sense of given the light information in the bullet points, which kudos to the presenter for not "just reading the slides") was enlightening.

However, much of my "data" concerns slide 31. The Doctors Company (a medial malpractice insurer) claims their average rate change from 2001-2005 was 14.8% with 2003 being 17.3%. I stated 12-18% average increases (for total industry) with a 16% increase in 2003. The refute my 2007 claim of an increase of 10% and show a decrease of 7.5%. They show no data for 2006 (see above comment about statistical sampling issues). So out of three of my data claims, I erred on one by misremembering the direction of the data.

So looking at this report the one thing I'm struck with is this, why is medical malpractice insurance prices based on a mutual concept over a market area (state wide) instead of a per practice/business basis like health insurance? That way, those 2% of doctors responsible for 50% of the indemnity would then be forced out of business because of their insurance rates (market forces), while lowering rates for the other doctors (less than 1% of doctors have 2 claims in a 10 year period, page 28).

Also let me point out here they claim that the rates only increased at a faster rate in the 2001-2006 window because of increased "severity" (page 33) however they don't show any historical data other than the 2001-2006 (throughout the report), and don't even show data points for 2006, I'll also point out that most insurance policies had large premium increases in 2001-2006 so it wasn't just malpractice. Why were there larger increases in these years while "tort reforms" were being passed? Some of what you said about cash reserves based on past claims has merit, however it also coincides with a period where the short-term bond market returns (where insurance companies are allowed to invest) went to returns of less than 5% ( - see 6 month treasury bonds, but most of the bond rates I checked saw decreases accelerate in the 2002-2005 time frame). In 2006 and 2007 bond rates stabilized and increased slightly. 2008 sucked. So, it would be interesting to see malpractice (and other insurance) data for 2008 and this year to see where rates are going (2007 was last year in the report you showed).

The article on the OB/GYNs includes a lot of quotes from people either invested in the outcomes (doctors or medical associations and litigation lawyers), but none from actual industry sources (except indirectly, mostly when they discuss "controversy" as to why the rates reduced).

Steve Buchheit said...

Do I think some tort reform is necessary? Yes. I'm also glad to see that 80% of the cases brought are dismissed without litigation or award (of course TDC presentation doesn't discuss ongoing negotiated settlements). And that a small percentage of those that go to trial are given awards. It would help everybody if a large percentage of those 80% of cases could be avoided, however that means restricting access to courts and remedies and would unduly burden the remaining 20% and create a "chilling effect".

However much of the reforms (not all) the TDC report gives only reduce the liability of the insurer. As I said, if you want tort reforms in the industry, I want an equal reform to give consumers of health care the information they need. That second part, of course, is the stumbling block for both insurers and doctors (and their associations). Without those changes tort reform and our ongoing focus on "the consumer market for healthcare" won't work for anybody.

Steve Buchheit said...

Also, another data point (I do math in my head, and their chart was bothering me). With page 32 of TDC report, they claim the average increase from 2001-2005 was 14.8% when it's actually 18.84%. They might be doing some statistical hijinx behind the scene (such as factoring in previous increases blah blah blah), but the basic math doesn't match. Also with adding in 2007 the average increase comes to 14.45% (again, no data is shown for 2006). Some other of their charts are also pinging in the back of my head, but I'd need longer to study them.