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How legal exploitation shaped the U.S. medical malpractice system

Howard Smith, MD
Physician
February 10, 2025
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Random mal-occurrences have always accompanied medical interventions, even under the best of circumstances. These are errors of nature. In the 1960s, some attorneys in California were the first to exploit these unfortunate random outcomes to their advantage. Lawyers made money from lawsuits.

There is a huge return on investment when an error of nature can be portrayed as a medical error. There is always a settlement value.

Creating a demand is easy: Capitalize on a “suspicion of fault.” It only takes an insinuation and a little bit of advertising space for a free legal consultation and a contingency fee. This spreads like wildfire.

It does.

Anticipating increases in liability insurance premiums, some states establish patient compensation funds. These funds are financed by malpractice carriers in the state as a percentage of a doctor’s annual liability premium, not at the expense of the taxpayer.

Malpractice insurance pays the threshold amount before the fund is tapped. Doctors are required to maintain liability limits in an amount no less than $250,000 per claim with $1 million for aggregate claims. However, lawyers file lawsuits claiming damages higher than the limits of liability, and soon, these funds go bankrupt.

Then come joint underwriting associations. Joint underwriting associations indemnify the first dollars; however, limits of liability are higher: $1 million per claim and $3 million in the aggregate. Also, surcharges for belonging to an association are paid by doctors. The theory is that lawyers will seek damages no higher than policy limits, so malpractice carriers are safe. The associations are safe because of surcharges. Again, this theory is a myth, and these associations find themselves endangered. Today, only eight states still have joint underwriting associations.

The 1960s become the 1970s and then the 1980s. During this time, malpractice carriers replace traditional “occurrence” policies with “claims-made” policies.

“Occurrence” policies provide open-ended protection for any and all claims that occur at any time during the duration of the policy. “Claims-made” policies indemnify alleged malpractice that only occurs and is reported during the duration of the policy. If a policy is canceled, so is coverage.

Claims-made policies are cheaper—at least at first—until reaching “maturity” five years after the transition. If a claims-made policy is canceled, a doctor must purchase a prior acts rider or tail insurance.

Next come self-insurance, mergers, physician-hospital partnerships, reciprocals, captives, no-fault insurance, birth injury compensation funds, deductible plans, outcomes-based practice guidelines, and the ever-popular “I’m sorry” laws. These are little more than desperate measures to escape the crisis.

Between 2003 and 2006, premiums doubled, and a malpractice crisis is acknowledged. What follows are tort reforms—scores of them. Tort reforms are regarded as the ultimate solution for the malpractice crisis.

Tort reforms require legislation. By 2017, 98 tort reforms are enacted nationwide specific to medical malpractice. To pass tort reforms, legislators, who are attorneys, have more interests in common with attorneys, who benefit from lawsuits, than they have with the medical profession, who are sued. These legislators are in bed with those attorneys.

There is always defensive medicine. Defensive medicine is a medical intervention that only serves to protect the provider, who authorizes the service, from a potential allegation of negligence by the patient, for whom the service is authorized. The patient often regards defensive medicine as the doctor’s exercise of an “abundance of caution.”

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Any stability of claims cannot be credited to these so-called solutions because there is always a random lag time between the occurrence of a claim and the reporting of a claim. During that lag time, there was only the illusion of stability. Indeed, some savings are passed on to physicians by malpractice carriers, but just enough so that premiums are essentially unchanged. This produces an illusion of stability.

Medical Liability Monitor data show that, for almost a decade starting in 2010, most premiums increase no more than 10 percent. But the crisis is not mitigated.

During that decade, premiums for doctors in high-risk specialties range from a low of $50,000 per year to a high of $215,000. Believing this is stability is delusional at best.

In 2018, the illusion of stability comes to an end when average premiums increase by about 10 percent. More seriously, a higher proportion of claims incur a greater severity of losses.

Today, there are at least 85,000 medical malpractice suits filed every year; 60,000 are frivolous. There are more lawyers in the U.S. than ever before. There is also a parade of bureaucrats who are self-proclaimed health policy experts.

In 2004, 34 percent of all physicians in practice in the U.S. were sued for medical negligence. Today, it is 55 percent.

Howard Smith is an obstetrics-gynecology physician.

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