A Miracle in the Making - Doctors For Medical Liability Reform

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A Miracle in the Making
How Texas Became a Model for Medical Liability Reform

In the debate over medical liability reform, both sides cite academic studies to support their position. While we have many good studies to support our position, we at Protect Patients Now believe that real world examples trump theory every time.

In 2003, Texas voters passed Proposition 12, a constitutional amendment that locked in medical liability reform, including unlimited compensation for “economic” damages and reasonable limits on “non-economic damages.” In the three years since reform was passed, Texas has been transformed from a state in crisis to a model for national legislation that has been introduced in the U.S. Congress.

Today, those who support reform of our national medical liability system must often confront many of the same arguments leveled against Prop 12. For that reason, Protect Patients Now has assembled the information contained in the following report, examining the causes and effects of the medical liability crisis in Texas and documenting the dramatic turn-around that has been called a modern “Miracle in the Making.”¹

The Crisis

Before Proposition 12 locked in medical liability reforms, Texas was a state in crisis.

Skyrocketing insurance premiums were forcing doctors to flee the state, quit medicine, or cut back on complex, life-saving procedures that carried a high risk of incurring a lawsuit.

The result was that patients across Texas were finding it increasingly difficult to access the specialized care they needed, when they needed it. Ambulances were being diverted because of a shortage of doctors. Many hospitals were unable to staff their emergency rooms.² Two out of every three Texas counties had no obstetrician,³ forcing expectant mothers to travel long distances to deliver their babies and often forego prenatal care altogether. Half of all counties had no pediatrician to treat sick and injured children.⁴

At the height of the crisis, Texas ranked 48th out of the 50 states in physician manpower.⁵
Texas averaged just 152 MDs for every 100,000 people, versus a national average of 196.⁶

Hardest hit and most at risk were the critically ill, the poor, and those living in rural or medically underserved areas.

Ironically, the best-trained and most talented doctors also found themselves in the crosshairs of this crisis. Because the most highly trained doctors often perform the most highly specialized and high-risk procedures, they were frequently singled out as targets for lawsuits. Consequently, doctors began to reduce the scope of their practices to reduce their insurance costs and the risk of career-threatening lawsuits. This, in turn, escalated the access to care crisis.

Even as the state’s population expanded, patients saw disturbing declines in critical medical specialties such as neurosurgery, obstetrics, orthopaedic surgery, and hard-to-recruit children’s doctors specializing in newborns and premature infants.⁷

The Cause

There was little debate as to the immediate cause of this medical exodus: skyrocketing medical liability insurance premiums.

In just four years, physicians saw their insurance premiums rise between 22.5 percent and 128 percent.⁸
Medical liability premiums paid by hospitals more than doubled between 2000 and 2003, reaching an average of $870,000 a year.⁹
Texas Nursing homes saw their coverage soar 2000 percent from 1999 to 2002.¹⁰

Many doctors had to take out loans simply to continue practicing medicine. Two-thirds of Texas doctors reported that they had to obtain bank loans, draw down their retirement savings, or take salary cuts to keep their practices going.¹¹ An astounding 6,500 doctors couldn’t afford to pay the escalating rates and were forced to practice without any liability coverage at all.¹²

Lawyers Gone Wild

“In some parts of the state, there are 300 lawsuits for every 100 doctors. No matter that 85% of these suits fail; at $20,000 - $40,000 a pop to put up a defense , doctors can’t afford the sky-high insurance rates. Thank the trial lawyers.”¹³
-- The Wall Street Journal, June 6, 2003

Before Proposition 12, Texas was famed for its “judicial hellholes,” where aggressive trial lawyers and overly-friendly judges produced mind-boggling, jackpot-style liability awards.

In the five years between 1996 and 2000, the already high frequency of claims against Texas doctors actually doubled.¹⁴

Frequency: Claims Against Texas Doctors Doubles In Five Years

Per 100 Physicians

Frequency: Claims Against Texas Doctors Doubles In Five Years

Source: Texas Department of Insurance

By 2002, claims against Texas doctors occurred at nearly twice the national average.¹⁵ It got to the point that one out of three doctors could expect to be sued in any given year.

Most of these suits had no merit. Eighty-six percent of all claims against Texas doctors resulted in not payment to the patient.¹⁶ But they still burdened doctors with heavy defense costs.

Jackpot Justice

The fact that the vast majority of suits were decided against the plaintiff didn’t discourage the trial lawyers, however, because as a revealing article in the Journal of the American Bar Association says, Texas lawyers were simply playing the numbers. Bring enough suits, regardless of the merits, and you’re bound to hit the jackpot with one of them.

“Before the 2003 changes in state law,” writes the ABA, San Antonio trial lawyer Glenn Cunningham “would round up seven or eight experts, take 15 to 20 depositions and easily spend $85,000 to $100,000 to work up a case. Apparently, the effort persuaded defendants they had problems…” and they often settled for “$1 million to $3 million.”¹⁷

This has been compared to “fishing with dynamite,” by Dr. Stuart L. Weinstein, Chairman of Doctors for Medical Liability Reform. As he says, such “legal extortion can certainly produce a big haul for a few layers. But it’s the society as a whole that pays the real price.”¹⁸

But the potential jackpot waiting at the end of these lawsuits was immense.

During the 1990s, the average award literally quadrupled, reaching an astounding average of $1.4 million.¹⁹

And this was simply for non-economic damages; it doesn’t include payment for economic losses and medical expenses. Clearly there were a few big winners, but all Texans were losing access to high-risk and life-saving care that might expose doctors to potentially career-threatening litigation.

Many doctors simply became worn-down by the obvious abuses of the system. They had gone into medicine to heal, not to spend the precious time they should have been helping patients fending off the likes of Mr. Glenn Cunningham and his armies of high-paid witnesses.

For many others, practicing their specialty simply became unaffordable, as each meritless suit and jackpot verdict hiked premiums even for those doctors that had never been sued.

The Debate

Reform advocates said the problem was a medical liability system that put the interests of lawyers ahead of the interests of patients and their doctors.

The trial lawyers said that the epidemic of lawsuits had nothing to do with it. According to them, greedy insurance companies were artificially inflating doctors’ premiums in order to make up for stock market losses and to stoke corporate profits.

In their on-going lobbying efforts to block national liability reform legislation, the trial lawyers continue to lay the blame for our national crisis at the feet of “greedy insurance companies,” so it’s worth examining how much sense this claim made in the Texas context.

Greedy Insurance Companies?

At the time, the Texas Department of Insurance Analysis investigated the lawyers’ contentions and firmly rejected them: “Underwriting loses [from rising lawsuits and jury awards] are the major factor affecting rates, not insurance company investment losses.”²⁰

In fact, while the lawyers’ grievance against greedy insurance companies had a superficial populist appeal, it never made a lot of sense given that those same insurance companies were incurring massive losses that were driving them out of business or out of state.

Between January, 2001 and September 2003, 13 out of 17 liability carriers went out of business, left the state, or began withdrawing from the business because of large losses.²¹
Eight nursing home liability carriers shrank to one.²²
Between 1996 and 2000, cumulative losses for Texas liability carriers exceeded $432 million.²³

Loses by Liability Carriers 1996 - 2000 ($432,801,750!!)

Losses By Liability Carriers 1996 – 2000

Source: Texas Department of Insurance

The Real World Test

The real world test came when Texans passed Proposition 12.

Prop. 12 placed reasonable limits on non-economic damages at $750,000 (($250,000 for physicians, $250,000 for the first hospital or health care facility, and $250,000 for any additional facilities). These are damages awarded for what is sometimes called “pain and suffering.” It’s important to realize that economic damages remain completely unlimited, including compensation for all lost income or income-equivalents (in the case of a homemaker, for instance) and all medical and rehabilitation expenses.

Reform advocates stressed that it was the non-economic damages that were most frequently abused in the then-current system. If the reformers were correct, limiting non-economic damages at reasonable rates would soon lead to a reduction in medical liability premiums and an increased willingness of doctors to set up or continue practicing in Texas.

If the lawyers were right, Prop. 12 should have made little or no impact on the insurance rates paid by doctors.

As it turned out, the effects of Prop. 12 were more dramatic that even its most ardent boosters expected.

The Texas Turn-Around

Almost immediately after the measure passed, companies cancelled planned increases and began slashing rates.²⁴

Shortly after the passage of Prop. 12, The Doctors Company cancelled a planned 20 percent increase and in February 2005 announced a 14 percent cut.²⁵
Three years after Prop. 12 every single carrier in Texas had cut its rates, most by double digits.²⁶
New carriers have started coming to Texas and today insure some 13 percent of the market.²⁷

Many hospital systems have saved $10 million or more on their liability premiums since the passage of Prop. 12.²⁸

A dramatic illustration of why can be seen in analyzing the number of medical liability filings in the state’s most populous county, Houston’s Harris County. After a mad rush on the part of the trial bar to file before the vote on Prop. 12 in the summer of 2003, the number of filings plummeted to less than half the previous norm: from 550 the year before passage to 204 the year after.

Medical Liability Filings - Harris County

Number of lawsuits

Medical Liability Filings – Harris County

Source: Harris County District Clerk’s Office

The Doctors Return

Patients have been the prime beneficiaries, as doctors have begun flooding back into the state, including those in highly-trained, high-risk specialties. Texas has added about 7,000 physicians since the passage of Prop. 12. and the Texas Medical Board is anticipating a record 4,100 applications for new physician licenses in 2006, a 38 percent increase over the previous record in 2005.²⁹

After years of decline, the numbers of medical specialists are growing. Poor and medically underserved areas are seeing a much needed influx of physicians. And doctors are once again able to take on medically complex cases.

Since reform, Texas has gained 24 neurosurgeons.

Neurosurgeons in Texas (1999 - 2005)