Medical Malpractice: Impact of the Crisis and Effect of State Tort Reforms

Abstract

Many U.S. states are now in their fifth year of a medical malpractice "crisis", a period of volatility in the malpractice insurance market characterized by above average increases in premiums, contractions in the supply of insurance and deterioration in the financial health of carriers. Improving insurer financial ratios suggest that the malpractice crisis is now abating in some states, but malpractice crises are a recurring problem. This has been the third period of rapidly rising premiums in the last 30 years, following crises in the mid-1980s and mid-1970s. States, which are responsible for regulating malpractice insurance, have enacted a variety of reforms to prevent or temper malpractice crises, but there is a paucity of reliable information available to policy-makers about the effects of these reforms and the impact of the malpractice crisis on health care delivery. While a voluminous number of reports have been produced, most are not based on rigorous analysis. This report critically analyzes the available literature and discusses the best available evidence on two questions:

1) How does a volatile malpractice environment affect health care delivery? 2) What has been the impact of state tort reforms on premiums, claims frequency, claims payouts and physician supply?

While the weight of the evidence suggests that the malpractice crisis has had a modest effect on physician supply, the evidence base is not yet adequate to draw conclusions about whether patients' access to high-risk services has been compromised as a result. The literature evaluating state tort reforms, while problematic due to methodological issues, does offer some useful findings. Caps on noneconomic damages are the most common and most effective reform, although they disproportionately burden the most severely injured patients.

Keywords: malpractice, liability, insurance, litigation, crisis

JEL Classification: I10, K13, K41, G22