Debunking Myths About Malpractice 'Lawsuit Crisis'
Chicago Daily Law Bulletin, 04/21/2010By Keith A. Hebeisen
Creating a story about a medical malpractice "lawsuit crisis" has been a concerted effort by those who have an interest in barring the courthouse door to patients. But this story is not true. Here is why.
The Illinois State Medical Inter-Insurance Exchange (ISMIE) blamed dramatic increases in "frequency" (numbers) and "severity" (amount) of claims for its 80 percent increase in malpractice rates between 2000 and 2004.
But when damages caps on medical malpractice cases were enacted in 2005, ISMIE had been generally paying fewer claims each year - 400 claims in 1998, 340 in 2000, and since then, fewer than 300 per year. By 2009, the number had fallen to 232.
ISMIE representatives have since admitted under oath that there was no actual data to support its claim of an increase in frequency of claims. Even the American Tort Reform Association (ATRA) general counsel Victor Schwartz has admitted that "there is no question that it is very rare that frivolous suits are brought against doctors. They are too expensive to bring."
ISMIE's filings with the Department of Insurance show that its average claim payment (severity) had essentially peaked by 2003 and had plateaued thereafter. The average payment per claim has not even kept pace with the rate of medical inflation .
ISMIE representatives have also admitted under oath that they had no actual data to support the assertion of an increase in severity in the period in which it drastically increased rates.
Since 1994, ISMIE's total annual payouts have been remarkably stable, while it has collected twice as much or more in premiums each year . Not surprisingly, ISMIE's business practices have generated record profits, also known as "net income," in the last 5 years.
ISMIE's net income of $50.2 million in 2006 and $40.1 million in 2007 represented the most profitable years in its 32-year history.
ISMIE's own data shows that the dramatic increases in premiums between 2000 and 2004 were not needed to pay claims because there was no increase in total payouts, claim frequency or severity.
The claim that there are three "judicial hellholes" in Illinois - Cook, Madison and St. Clair counties - is another malignant myth. These counties have been unfairly and falsely tagged by corporations and insurance company special interests (such as ATRA) as legal venues attracting soaring numbers of lawsuits resulting in excessive jury awards.
An academic study concluded that in Cook County, filings have remained relatively steady since 1998 - except for a decrease in 2004 - although there are some yearly fluctuations. In 2003, it was reported that the average jury award in medical malpractice cases tried in Cook County had dropped to a three-year low.
In St. Clair and Madison counties, from 1999 through 2003, ISMIE paid no more than 21 claims per year, with the average settled claim less than $400,000, and over 80 percent were less than$250,000. In those two counties from 1996 through 2003, there were only six verdicts in favor of the plaintiff - and only one over $1 million.
Before insurance reforms were enacted along with the damages cap in 2005, a competing insurance executive noted: "ISMIE's near-monopoly has really squeezed anybody from coming in here. Nobody knew how to set their rates." But there was a dramatic change in 2005.
Michael McRaith, director of the Illinois Department of Insurance, explained: "For the first time in the history of the state, [malpractice] insurance companies that want to compete for business in Illinois have access to actuarial information and loss and claims data. .We see more companies coming in and a stabilization or decline in actual rates . . [M]ore companies are looking at Illinois as a viable marketplace because of the availability of this data."
The cap on damages deserves no credit for the improvement in the insurance market and insurance leaders and tort-deform front groups have admitted as much.
"We wouldn't tell you or anyone that the reason to pass tort reform would be to reduce insurance rates." (Sherman Joyce, president of ATRA).
"Many tort reform advocates do not contend that restricting litigation will lower insurance rates, and I never said that in 30 years." (Victor Schwartz, general counsel of ATRA).
"We have never made the claim that a cap is going to lower insurance rates." (Ed Murnane, chairman of ATRA and the longtime president of the Illinois Civil Justice League).
Nor has there been a physician "exodus" from Illinois. Quite simply, Illinois has been gaining doctors, not losing them.
Since 1963, and particularly from 1998 to 2008, the American Medical Association has reported that the number of total patient-care doctors in Illinois steadily increased. Illinois has consistently had a higher rate of "physicians per 100,000 residents" than 12 of Illinois' 13 neighboring states, nine of which have caps on medical malpractice damages.
Illinois also has more doctors per capita than three other states - California, Ohio, and Texas - frequently cited by tort reformers because of their damages caps. Tellingly, the anecdotes about doctors fleeing Illinois abruptly stopped as soon as the damage cap went into effect in 2005 - rather odd since there had been no immediate drop in the very malpractice insurance rates that were supposedly making them leave.
Claims of a "medical malpractice" or "lawsuit" crisis were voiced in 1975, 1985 and 1995: a 10-year, repeating pattern further underscoring that insurance rates are related more to the business cycle and insurance company investment income, than to lawsuits or claims.
In response to each "crisis," Illinois enacted laws that drastically limited the rights of injured victims and court decisions struck down each of the laws or at least portions as unconstitutional.
In truth, the medical profession has had many exclusive and special legal protections since 1985, which include requiring a certificate of merit to file a lawsuit, no punitive damages, and limited legal fees for plaintiffs' (but not defense) attorneys.
In its 2000 filing with the U.S. Securities and Exchange Commission, ISMIE admitted that the Supreme Court's invalidation of the 1995 damages cap had not led to a higher level of claims and that ISMIE had "continued to experience lower claims frequency as compared to historical patterns."
Malpractice insurance rates may be high, but claims and lawsuits are not the root causes of these insurance "crises."
After the fourth consecutive cycle of "crisis," it is now crystal-clear that the factors leading to increased medical malpractice insurance rates are insurance company business decisions, their investment income, and other economic factors - all completely unrelated to actual lawsuit and claims experience.
The insurance industry's own data shows that medical malpractice claims and lawsuits in Illinois are stable in total payouts, frequency and severity. These facts provide a compelling vindication adjunct to the recent Illinois Supreme Court decision in Lebron v. Gottlieb, et al. (105641 and 105745, consolidated, Feb. 4, 2010), finding yet again that caps on damages violate the constitutional doctrine of separation of powers.
Keith A. Hebeisen is a partner in Clifford Law Offices P.C. and past president of the Illinois Trial Lawyers Association. He examines these issues further in The Whole Truth About Medical Malpractice and Insurance.
