What is Causing the Dramatic Rise in
Medical Malpractice Insurance Rates in Texas?

By Melanie R. Margolis

Medical malpractice insurance costs have risen dramatically in Texas during the last few years. Some startling statistics concerning medical liability insurance in Texas are:

The American Medical Association's Web site has general information on rates across the country. See "Professional liability insurance rates go up, up; doctors go away; High-risk specialists were the hardest hit in 2001, forcing some to drop services" at http://www.ama-assn.org/sci-pubs/amnews/pick_02/prl10107.htm.

On May 6, 2002, the Texas House Committee on Insurance heard testimony to examine the status of the medical liability insurance market and what affects the cost of coverage. Jose Montemayor, Texas Insurance Commissioner, updated the Committee on a study in progress by the Department of Insurance on the subject. In addition, physicians, a trial lawyer, and representatives of insurers presented their views to the Committee. Frequency, severity, availability, and accessibility were the buzzwords of the day.

Frequency refers to the number of medical malpractice claims filed. Representatives of the Texas Medical Liability Trust, the largest medical malpractice insurer in Texas (insuring 10,000 Texas physicians, approximately one-third of Texas physicians), argued that the number of malpractice claims filed has increased to a current rate of 23% of physicians having claims filed against them, up from 13% in 1991. Committee members pushed the insurer on the point, seeking to clarify that all malpractice claims filed, as defined by the insurers, do not result ultimately in lawsuits. Hartley Hampton, a member of the Texas Trial Lawyers Association Executive Committee, testified before the committee that the number of malpractice claims in Texas is at a four-year low, and he noted that a recent Harvard study found that only 2%-10% of victims of malpractice ever seek compensation.

Severity refers to the cost of ultimately closing medical malpractice claims. Representatives of the Texas Medical Liability Trust cited a huge spike in severity since 1996. This view is also held by the American Medical Association. See "Malpractice awards pushing insurance premiums higher: Juries are awarding higher dollar amounts in malpractice cases, hitting physicians in the pocketbook" at http://www.ama-assn.org/sci-pubs/amnews/pick_01/prl10305.htm. Some of the legislators theorize that a handful of big cases may be driving the cost increases. For additional information on the view that medical malpractice insurance premiums are not rising because of lawsuits, visit the Web site of the Association of Trial Lawyers of America (ATLA) at http://www.atla.org/medmal/index.htm. According to ATLA, a handful of doctors and the greedy insurance companies are to blame. The ATLA Web site says relatively few doctors are responsible for a disproportionately large percentage of malpractice cases. ATLA also points out that in 1999, the most recent year for which data was available, insurance companies made a 14.2% profit on malpractice business, and, by contrast, they made only an 8.2% profit on property/casualty business. See http://www.atla.org/medmal/notcause.pdf.

Availability of medical liability insurance to physicians is decreasing. Only four companies are still selling medical malpractice insurance in Texas. In some cases, physicians are unable to obtain coverage because it is simply unavailable in their areas. Some physicians cannot afford the rates charged for the coverage they need. The amount of coverage they need is generally determined by the hospitals and/or clinics at which they are on staff. When physicians are not able to find or afford coverage, accessibility becomes an issue.

A number of physicians testified at the hearing that they know physicians who are no longer working at hospitals because they cannot meet hospital requirements for malpractice coverage minimums. Physicians are moving away from practices considered to be at high risk for malpractice claims. Ob/Gyns are cutting back on delivering babies. Other specialists are cutting back their hospital practices and are providing only outpatient services. When a physician stops practicing, another physician's practice becomes more crowded, and patients face longer waits for care and treatment. This is particularly problematic in rural areas. When physicians are unable to obtain malpractice insurance coverage in rural areas, they leave patients with no nearby specialists to provide needed care.

California and Arizona have been successful at controlling these rising costs. Other states, including Pennsylvania and West Virginia, like Texas, have been struggling with the issue. Physicians remain caught by the insurance industry between a rock and a hard place. As Representative Glenn Lewis (D-Ft. Worth) noted at the May 6th hearing, physicians are being squeezed by the malpractice insurers and health insurers. The malpractice insurers are continually raising physicians' malpractice insurance rates, and the physicians are unable to recoup those cost increases by charging more for their services because their non-negotiable, low reimbursement rates are determined by managed care plans and Medicare. Sadly, patients ultimately have the most to lose. It is unclear how Texas legislators will attempt to remedy this problem in the 2003 Legislative Session. For now, they continue gathering data, trying to determine the source of the problem, and looking at how other states are addressing the issue.