Medical Malpractice Liability Crisis Meets Markets: Stress in Unexpected Places

Originally published by the Center for Studying Health System Change (HSC), a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.

Medical Malpractice Liability Crisis Meets Markets: Stress in Unexpected Places

Although the root causes of surging medical malpractice insurance premiums remained hotly debated, the ripple effects were becoming visible across communities nationwide, threatening patient access to care and driving up health care costs. This September 2003 issue brief by Robert A. Berenson, Sylvia Kuo, and Jessica H. May drew on HSC's 2002-03 site visits to 12 nationally representative communities. Across these markets, the severity of malpractice problems varied widely, but in several locations, physicians were altering how and where they treated patients in response to liability pressures.

Wide Variation in Malpractice Pressure Across Markets

While physicians and hospitals in 11 of the 12 communities studied raised concerns about malpractice insurance costs and availability, the intensity of those concerns varied enormously. In some markets, rising premiums were treated as a manageable cost pressure. At the opposite extreme, skyrocketing rates and even the outright unavailability of coverage were changing how physicians practiced medicine.

Miami stood out as the most severe case. Many physicians there had responded to exorbitant premiums by dropping malpractice coverage entirely, a practice known as "going bare." Obstetricians in the area had operated without liability coverage since the 1980s malpractice crisis, and by 2003 many other specialists, including neurosurgeons, and even some primary care doctors had followed suit. Florida law required only that uninsured physicians post a notice in their offices disclosing that they had assets to cover at least $250,000 of any judgment. Since the state's bankruptcy statutes protected homes and assets held in a spouse's name, many physicians saw personal bankruptcy as the most practical response to a large award.

Northern New Jersey and Cleveland faced volatile conditions, with some physicians, particularly obstetricians, reporting premium increases of 100 percent or more. In Boston, Little Rock, Phoenix, Seattle, Orange County, and Greenville, annual increases of 20 to 30 percent prompted occasional changes in practice patterns. Conditions in Lansing and Syracuse were comparatively stable. Indianapolis was a notable outlier where professional liability problems went virtually unmentioned, likely due to the state's far-reaching, provider-friendly tort reform enacted in the 1970s.

How Liability Pressures Changed Patient Care

Beyond the well-known pattern of defensive medicine, where physicians order excessive tests to protect themselves from lawsuits, HSC researchers documented a range of less recognized responses. Physicians were referring growing numbers of patients to emergency departments, safety net hospitals, and academic health centers rather than treating them in their offices. Many specialists, wary of liability exposure from caring for uninsured or high-risk patients, declined to provide on-call emergency department coverage or accept elective referrals from safety net clinics.

In at least six of the 12 communities, many obstetrician-gynecologists had stopped delivering babies to reduce their malpractice premiums. Some practice groups concentrated deliveries among a few physicians to lower the group's overall insurance costs. In Little Rock, many family physicians had abandoned obstetrics entirely. Hospitals in Phoenix, Cleveland, Seattle, and Miami had dropped maternity services or restricted high-risk deliveries.

Low-income patients were disproportionately affected because of incorrect physician assumptions that they were particularly litigious. Patients with serious or complicated conditions were also more frequently referred away, since adverse outcomes in their cases seemed more likely. While some of these referrals, particularly for trauma care, neurosurgery, and high-risk obstetrics, may have directed patients to more specialized facilities, the overall pattern contributed to emergency department overcrowding and disrupted continuity of care.

Shifts in Provider Relationships and Insurance Market Dynamics

The malpractice environment was reshaping relationships among physicians, hospitals, and health plans. Under EMTALA, hospitals bore responsibility for emergency department coverage, but liability concerns combined with the burden of treating uninsured patients led many specialists to either refuse on-call duty or demand payment from hospitals for taking calls. In Miami, where going bare was widespread, the legal doctrine of joint and several liability meant that other defendants in a malpractice suit could be held individually liable for the entire award, regardless of their actual share of responsibility. This created a chilling effect on referrals between insured and uninsured physicians.

The liability insurance market itself played a role. Withdrawal of major carriers from markets including Miami, Cleveland, Seattle, and northern New Jersey reduced competition and subjected physicians to stricter underwriting. A crude form of experience rating was emerging, where individual doctors with even a single judgment or settlement faced higher premiums or outright coverage rejection. Some physicians responded by giving up independent practice to seek employment at hospitals or federally qualified health centers, where they could obtain institutional coverage.

Many hospitals turned to self-insurance, which let them directly manage their own claims experience and provide affordable coverage to employed physicians. For example, Boston's Controlled Reciprocal Insurance Co. had long insured Harvard hospitals and their employed doctors, shielding them from the premium increases hitting community-based physicians. This consolidation of liability coverage under hospital umbrellas aligned with patient safety efforts that focused on systemic error prevention rather than individual blame.

Malpractice and Patient Safety

The Institute of Medicine's landmark report "To Err Is Human" had recommended creating blame-free environments where medical errors could be reported openly and addressed through safety improvement programs. Physicians responsible for patient safety activities across the 12 communities generally viewed the malpractice environment as either neutral or harmful to these efforts. Many worried that reported data would not receive the same legal protections as information generated through traditional hospital peer review.

A related development was the 2001 Joint Commission standard requiring hospitals to disclose unanticipated outcomes to patients. While risk managers traditionally resisted disclosure for fear of arming plaintiffs' attorneys, growing evidence suggested that patients who received forthright explanations of adverse events were actually less likely to file lawsuits than those kept in the dark about what had gone wrong.

Policy Implications

While severe breakdowns in patient access remained uncommon across the 12 communities, the research documented clear evidence that malpractice pressures were altering physician behavior and patient care in unexpected ways. As the Institute of Medicine had noted, the tort system was widely considered a poor mechanism for preventing medical injury and compensating its victims. From damage caps to specialized health courts to nonjudicial compensation systems, policy proposals abounded. The HSC research underscored that any reform of the malpractice system needed to carefully consider how changes would influence physician decision-making and affect the patients who depended on them.

Sources and Further Reading

Centers for Medicare and Medicaid Services — Federal health care programs and EMTALA requirements.

Health Affairs — Peer-reviewed health policy research.

American Medical Association — Physician advocacy and malpractice policy resources.

Robert Wood Johnson Foundation — Health policy research and Community Tracking Study funding.