There was a great study on the frequency of malpractice suits and settlements by specialty in the New England Journal of Medicine recently. Figure 1 contains the meat of the article. It turns out that Neurosurgery leads the list with number of malpractice suits, with about 19% of neurosurgeons being sued per year. However, the highest number of suits where a plaintiff gets paid were in general surgery, at about 4% a year. The lowest, as you might expect, was psychiatry, where 3% were sued and perhaps 0.5% of psychiatrists had a suit where the plaintiff was paid. The average was 7.4% of physicians sued per year and 1.6% made an indemnity payment. It was also interesting to see in Figure 3 that the highest mean indemnity payments came from the relatively low risk field of Pediatrics ($525K) followed by Pathology and Gynecology. Dermatology had the lowest mean payments at just over $100K. The medians were significantly lower than the means for all specialties, as most settlements are for a relatively low amount of money. In the higher risk specialties, 88% of physicians will be sued by age 45 (36% in low risk specialties) and 99% will be sued by age 65 (75% in low risk specialties.) However, only 75% of high risk specialty physicians and 20% of low risk specialty physicians will actually have a payment made on their behalf. That’s pretty remarkable that four out of five of many types of specialists will never have a “successful” malpractice suit brought against them in their entire career.
Of more concern from a financial planning standpoint is the concept of “outlier” awards. In the study, these were defined as indemnity payments of $1 Million or more. These are rare, less than 1% of all payments, and tended to come from OB/GYN, pediatrics, pathology, and anesthesia. It seems obvious to me that these awards come from catastrophic outcomes in young patients with a lifetime of earnings ahead of them. Why are these of such concern when planning? Take a look at your malpractice insurance policy. If you’re like many physicians, you are only insured up to $1 Million per occurrence.
I worry about cases like one that recently took place in Connecticut. The jury determined that the OB/GYN didn’t do a C-section soon enough and a kid had a bad outcome so it went ahead and awarded the family $8.6 Million in economic damages and another $50 Million in non-economic damages. $58.6 Million! Who carries insurance that could possibly cover that? It sounds like the case is still in appeal and the damages will most likely be dramatically reduced, and for all I know, the physician may not have to pay anything above and beyond his policy limits (aside from the tens of thousands of dollars a year in malpractice insurance premiums.) But $58.6 Million? What mistake by a single person is possibly worth that much? Most physicians will earn less than $10 Million in their entire career. How can one mistake be worth the amount seven doctors earn in their entire careers?
So how do you protect yourself against malpractice. Well, there’s the obvious risk management stuff. Practice competently and treat people nicely. The first reduces (but doesn’t eliminate) the number of bad outcomes and the second reduces (but again, doesn’t eliminate) the number of patients who bring suit against you. The intersection of bad outcomes and suits brought is where you run into trouble. To deal with that, physicians have tried two main techniques. The first consists of buying insurance, the second in not buying insurance.
Most physicians pay for malpractice insurance each year. There are general two types of insurance. The first is “claims-made.” The doctor pays a premium, and he is covered for any type of claim made while the policy is in force. When he leaves the practice or retires, he then needs to buy “tail coverage” for any claims that are made after the first policy lapses. These can be pretty expensive. In my specialty and state a mature tail costs $50-$60K. That’s a lot of money to come up with at the same time you’re moving and starting another practice. The other type of insurance, which is obviously more expensive, is “occurrence.” This covers you forever from any malpractice that occurred during the dates you were covered by the policy. No tail is required.
Occurrence coverage in my state (which has a $450K cap on non-economic damages and requires an affidavit of merit from a physician in the same specialty) as of 2009 cost $13K for internists, $67K for surgeons, and $95K for gynecologists. Some states are more, and some are less. But even in states that have major tort reform laws such as Texas ($250K cap on non-economic damages, OB/GYN and EM covered for first $100K of any judgment), you will stay pay at least $10K (IM), $27K (Gen Surg) and $33K (OB/GYN). In Connecticut, where the $58.6 Million judgment was awarded, rates can be as high as $35K (IM) $93K (Gen Surg), and $170K (OB/GYN). It’s pretty hard to make a decent living when the first $170K you generate goes to insurance. That’s a lot of deliveries. Even within a single state, there is quite a lot of variation in price between companies and it really pays to shop around each year. But when onerous regulations and huge awards occur, malpractice insurance companies simply pull out of the state, and the few remaining ones can really jack their prices up. Tort reform not only helps physicians earn a decent living, but it also benefits patients. Since Texas made serious tort reform premiums have gone down about 28% for the doctors, but there has been an increase of 60% in physicians applying for licensure, 86 counties have seen an increase in emergency physicians, 26 counties that didn’t have an emergency doctor now have at least one, and 10 counties that didn’t have an OB/GYN now have at least one. So there are benefits to doctors and patients alike. Doctors are no dummies. They know if they pay less $60K less for malpractice in another state that’s the equivalent of a $60K raise. All figures in this paragraph from this site and from 2009 data.
The other alternative, although not one I can recommend, is to not get insurance. The theory behind this is that you don’t have to pay those egregious premiums, but also that you become a much less attractive target for malpractice suits, particularly if you have a solid asset protection plan. There are a couple of options between being fully insured and going completely bare. Some doctors get a defense-only policy. This covers the costs of their defense, but not the cost of a judgment. In some states, like New Jersey, if you choose not to purchase a $1 million malpractice insurance policy you must get a line of credit for $500K. All that does is transfer the risk from the insurance company to you. How many $500K judgments could you pay out of pocket before your retirement becomes working until age 85?
State laws and practice circumstances dictate whether going bare is really much of an option. First, the state must allow you to not have insurance without too many other onerous requirements. Florida, for instance, requires you to have at least $250K in assets. New Jersey requires that line of credit discussed. Unfortunately for many hospital based physicians, hospital privileges are often dependent on you having malpractice insurance. Second, the state must allow you to protect your other assets in the event of a suit. A strong homestead law and legal protection of retirement accounts, annuities, insurance policies, and even future wages is critical. You also need to post a sign in your office and have your patients signing a form acknowledging that you carry no insurance. Then, when you get sued, you go see a bankruptcy attorney rather than a defense attorney. When the plaintiff’s attorney realizes what’s going on, all of a sudden a $20K settlement looks pretty appealing.
But even in some counties in Florida, where as many as 1/3 of physicians were going bare a few years ago, there are still significant issues with doing so. First, in Florida you still had to pay the first $250K in damages. That’s no small sum to most of us. Second, you had to pay for your own defense. Remember that insurance covers the cost of the defense AND the damages.
Another option for those who don’t want to buy insurance is to work for an entity that self-insures. Many employees of state-owned universities are covered by the state. Military and VA physicians also have unique malpractice laws. For example, in the military, you can’t sue the doctor, only the federal government. And even if the government makes a payment to a plaintiff, the doctor isn’t necessarily reported to the databank if a panel of his peers finds no fault.
Many attorney’s websites have good information on the laws about medical malpractice. One of the better sites lists the laws by state. Be aware it isn’t completely updated.. I suggest you review your state’s laws and if considering moving to other states, perhaps check out the malpractice laws just as you would the school districts and neighborhoods.
I also suggest you talk to friends and family members who are attorneys, particularly those who work at firms that do medical malpractice prosecution. It has been an enlightening experience for me. It can be a dirty business. Some firms keep lists of doctors they won’t sue. Perhaps your friend or distant cousin will add you to the list. Also, some firms keep a hospital employee or even a physician on retainer to alert them when they see malpractice occur. The attorney then contacts the family about the incident to see if they’d like to sue. The attorneys I’ve talked to have similar goals to you and me. They want to preserve their income and they want to help those who have genuinely been the victims of malpractice. But they also agree that the victims and indeed the whole system would be better served by victim compensation funds than the current tort system. Physicians would still pay into it, and injured patients would still be paid from it, but we would get rid of the adversarial nature and high costs of litigation. Awards would be more reasonable, costs would be contained, and more of the injured would receive them. Many states already have variations of these. Some pay a portion of the award, such as any amount between $250K and $1.25 million or $100K and $500K. Other states approved the fund, but never implemented it. When I practiced in Virginia there was a fund to compensate patients injured at birth. The OB/GYNs had to pay in a large amount, but every physician licensed in Virginia, even those who didn’t delivery babies had to pay a few hundred dollars a year.
This is an area where you can make a difference. Shop around every year for malpractice coverage. Even if you don’t switch companies, you may be able to negotiate a lower rate with your existing company. Try to band together with other physicians, practices, or groups to get lower “group” rates. Remember that all politics is local. Get to know your state legislators. Contribute to their campaigns. Emphasize how tort reform, especially the implementation of no-fault patient compensation funds, will help physicians, victims, and access to care.