New actuarial study says 25-30% savings on medical professional liability costs could be achieved if tort reform bill is passed in Massachusetts

A new actuarial study calculates estimated savings to medical malpractice premiums if tort reform is passed in Massachsuetts.

Waltham, Mass (PRWEB)Oct. 10 2003--- A new actuarial study released today says that total savings of approximately 25 to 30 percent on medical liability costs could be achieved if proposed changes in medical liability laws now before the state legislature are approved.
   
Milliman USA, a global consulting and actuarial firm that specializes in insurance, health care, and employee benefits, performed the analysis at the request of the Massachusetts Medical Society. The purpose of the study was to estimate what potential savings in liability costs could be realized if the Societys legislative medical liability reform package is enacted. The bill, with seven provisions, was filed last December. A public hearing on the bill takes place October 9.
   
This analysis offers compelling information that liability reform would have substantial benefits for our health care system and our physicians," said Thomas E. Sullivan, M.D., president of the Massachusetts Medical Society. Physicians in Massachusetts are crumbling under the weight of soaring insurance premiums, and its affecting patient care. Relief is needed sooner rather than later."
   
Liability premiums for many Massachusetts physicians rose an average of 20 percent on July 1, following three years of 9, 14, and 12.5 percent hikes. Higher-risk specialties, such as obstetrics and neurosurgery, are seeing even bigger jumps, with some rates doubling. The relentless rise is forcing some doctors to leave Massachusetts, retire early, curtail services, or change careers.
   
Sullivan, a Danvers-based cardiologist in private practice, said that the working environment for physicians in the state continues to deteriorate and that liability costs and concerns have become a driving force behind the erosion. He cited the findings of the Medical Societys recently-released Physician Workforce Study and its MMS Physician Practice Environment Index as evidence of this situation.

The 2003 Workforce Study found critical shortages in at least eight specialties along with growing difficulty in recruitment and retention of physicians. The Index, a statistical measure of factors affecting the environment in which physicians provide care, plunged 3.9 percent in 2002 --the second largest drop since 1993 and its ninth straight decline.

Both studies clearly show the need for liability reform," said Sullivan, The cost of liability insurance has now become the main driver of the Index, and liability concerns are forcing physicians to contemplate career changes as never before. Further, the fear of being sued is real and pervasive and leads to expensive 'defensive medicine, putting added burdens on our health care system. Tort reform can be a huge shot in the arm, not only for physicians, but also for their patients and the health care system overall. Its vital medicine for a serious condition, and as an added incentive, it will not cost the state or the taxpayers any money in this era of strained budgets."

Sullivan also called attention to a September UMassBoston/McCormack School poll of Massachusetts voters that found a substantial percentage of Massachusetts adults -- 83 percent -- believe the issue of medical malpractice insurance in healthcare today is either a major problem" or crisis" and that 74 percent favor limits on the amount patients can be awarded for pain and suffering" or noneconomic damages in lawsuits. The UMass poll is consistent with the findings of several other local and national polls on the issue.

The bad news is we have huge problem with the current liability system," said Sullivan. The good news is that the public recognizes it."

The Milliman study examined the likely savings that would occur if the following five of the seven changes in the proposed legislation take place:
·Reduction of the pre-judgment interest rate from its current 12 percent to market rates.
Now, plaintiffs receive a 12 percent annual rate on the dollar amount of any judgment, going back to the date of the filing of the claim.
·Payment of judgments over $50,000 to be made over time rather than one lump sum.
·Consideration of future collateral sources" such as health insurance in reducing judgments by those amounts so as not to collect twice for damages.
·Elimination of joint and several liability." All defendants are now equally responsible to satisfy a judgment, no matter who is principally responsible. The change would mean that each of the defendants would not pay any more than their individual share of responsibility.
·Imposition of a firm cap of $500,000 cap on noneconomic damages, including those referred to as pain and suffering." The state now has a cap of $500,000, but a waiver provision exists, allowing judges and juries to bypass the cap, leading to large awards. The proposed legislation provides for a firm cap, unable to be waived. Medical expenses and other economic costs, such as lost wages, would not be capped and would still be covered in full as they are now.
   
Two provisions of the legislative package -- one requiring experts to be certified in the same specialty as the defendant physician and the patient safety section requiring insurers to report aggregate data -- were not evaluated in the study as their impact on costs cannot reasonably be quantified.

Milliman USAs actuary William Murphy, who conducted the study, said the relationship between estimates of medical professional liability costs and insurance prices is complex. It is reasonable to expect, however, that if the projected savings are realized, future malpractice insurance premiums should ultimately be commensurately lower than they otherwise would have been."

The 25 to 30 percent total saving reflects the aggregate effect of all reforms combined.

Murphy also estimated savings for all five proposed changes as if they were enacted independently of one another. He found each would result in reduced costs: pre-judgment interest by 8.2 percent; periodic payments, by 4.6 percent; future collateral sources, by 4.6 percent; elimination of joint and several liability, by 3.3 percent; and imposition of a firm cap of $500,000 for pain and suffering, by 12.7 percent.

The combined effect of all the changes taken together, however, is expected to be less than the simple addition of the individual benefits because the benefits are not additive, Murphy said. Each time you put into effect a reform that reduces costs," said Murphy, that means additional reforms or savings apply to a smaller base. Hence you get less savings as additional reforms are put into place."

Murphy said the savings would accrue to the health care system" -- physicians, hospitals, providers, insurers, patients, businesses -- anyone who is helping to pay for the losses," he said.

In quantifying the above estimated cost savings, Milliman used Massachusetts-specific data where available and data from other states where necessary, adjusting the data to reflect conditions in Massachusetts believed to differ from those in other states. Further, the estimates were calculated using reasonable assumptions for each of the five proposed changes. For example, one assumption in calculating the savings from reducing the pre-judgment interest rate was that any change would result in a savings for all claims that result in a verdict or finding, but only partial savings will be achieved on settlements.   

Also, the costs examined by Milliman in the study were those specifically related to the predominant payers of such costs, that is, insured and self-insured physicians, surgeons and hospitals. Further, estimates of savings in the study apply to total costs borne by medical care providers and their insurers, that is, indemnification paid to claimants, together with defense and other administrative expenses. Finally, estimated savings are in relation to costs as they would exist without the changes.

The latest Milliman study for the Massachusetts Medical Society is available at www.massmed.org/pages/milliman.pdf

The Milliman analysis is consistent with the findings of previous actuarial studies on the effect of caps on medical malpractice insurance. In a separate 10-year study from 1990-2001 of 15 large states, Milliman concluded that states with caps on noneconomic damages have below-average medical malpractice losses. In a study presented to the Ohio Medical Malpractice Commission, Pinnacle Actuarial Resources, an Illinois-based national company, examined six states that have avoided an insurance crisis and found that all have implemented caps on non-economic damages and limits on attorney contingency fees. Actuarial studies by the international consulting firm of Tillinghast, a division of Towers Perrin, have also pointed to similar potential savings with caps on non-economic damages.

In addition, the Milliman study on the potential impact of the Massachusetts Medical Societys legislation follows an extensive June 2003 study of medical malpractice litigation by the Employment Policy Foundation of Washington, D.C. (www.epf.org) a nonprofit, nonpartisan research and education foundation founded in 1983 that focuses on workplace policies and trends.

The EPFs major findings were that unlimited, uncapped medical malpractice litigation adds nearly $98 billion to the cost of hospital and physician services; increased the annual cost of employer-provided health insurance by nearly 13 percent; decreased by nearly 3 million people the number of workers and their families covered by employer-provided health insurance; caused a six percent decline in physicians in the US and causes lost access to critical medical services for some 14 million people; and resulted in malpractice underwriting losses of $8.6 billion in 2001 - double that of 10 years earlier.

The Massachusetts Medical Society, with more than 18,000 physicians and student members, is dedicated to educating and advocating for the physicians and patients of Massachusetts. Founded in 1781, the MMS is the oldest continuously operating medical society in the country. The Society owns and publishes The New England Journal of Medicine, the Journal Watch family of professional newsletters, AIDS Clinical Care, and produces HealthNews, a consumer health publication. For more information, visit www.massmed.org

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