Medical Malpractice Premium Hikes Add to Overall Rise in Health Costs

Rising at the "highest rate since the mid-1980s," medical malpractice insurance premiums are adding to overall health care costs, the New York Times reports. While doctors and hospitals typically absorb additional costs associated with malpractice insurance, the Times reports that the added expenses are being "pass[ed]" to health care insurers and patients with "traditional" health coverage or those who pay directly for services. Overall, health care costs are expected to rise 10% this year, and malpractice premiums account for one-tenth of the increase, according to an estimate by Dr. William Jessee, chief executive of the Medical Group Management Association. Kenneth Abramowitz, a managing director who specializes in the health care industry at the Carlye Group, an investment firm, said, "The rising cost of malpractice coverage is becoming one of the most important factors driving inflation for physicians' services, particularly for high-priced specialists in surgery and obstetrics." The Times reports that malpractice premiums are also resulting in higher health care costs as physicians practice "more defensively," ordering extra tests and opting for procedures that "limit their risks" to shield themselves from litigation.

Lawsuit and Insurer 'Miscalculation'
Malpractice insurance costs increasing more than 30% in some states, and malpractice insurers "blame" are the price hikes on "big awards by juries and large settlements." For example, even though the number of malpractice suits has held steady, the average jury award between 1993 and 1999 increased 79%, from $1.95 million to $3.49 million. Mike Miller, senior executive in charge of malpractice coverage at the St. Paul Companies, the second-largest malpractice insurer, said the jury awards are a "backlash" against managed care, adding, "You have a jury pool today made up of people who are not happy with their doctor and their managed care provider." Also, the Times reports that malpractice insurers have kept prices "artificially low" to remain competitive and used revenue to invest in the "booming" stock market. As capital gains from the industry were down 30% last year from their high point in 1998, malpractice insurers "must" increase their prices to "avoid collapse," experts say. Carol Brierly Golin, editor of the Medical Liability Monitor, said, "The insurance companies wouldn't be in this position if they hadn't been so hungry for investment profits and had priced their product appropriately." Price increases vary by state, city, doctor and medical specialty, but St. Paul has increased its rates an average of 24% this year in 25 states, with increases of 65% in Ohio and Mississippi. The Times reports that as the "leading malpractice insurers" increase their rates, competitors are "expected" to match them (Treaster, New York Times, 9/10).