COVER STORY

Malpractice crisis? Not here!

A handful of states have bucked the litigation trend. Tort reform is one reason. Demographics may be another.

By Robert Lowes
Senior Editor

South Dakota is known for bitter winters, but when it comes to medical malpractice litigation, the climate is downright balmy.

An FP in Sioux Falls covered by Midwest Medical Insurance pays just $2,423 a year in premiums—minus discounts—compared to the $21,000 that an insurer might charge an FP in Cleveland. And while ob/gyns in southern Florida face premium rates approaching $200,000, their South Dakota counterparts are paying only $13,325.

South Dakota belongs to a handful of states that represent the closest thing to safe havens in the current malpractice litigation crisis. Over the last 18 months, doctors in other parts of the country have endured blistering premium increases, some as high as 50 to 80 percent in Texas, Pennsylvania, and West Virginia. As a result, many physicians can't afford coverage and are turning away high-risk cases.

In some respects, malpractice carriers are making up for having charged doctors too little in the 1990s, when investment income could offset losses on claims. A stumbling stock market and the financial fallout of Sept. 11 helped spell an end to that era. Tougher times over the past year or two have prompted several carriers to exit the malpractice market.

Skyrocketing premiums also reflect the fact that doctors are getting hit harder in courtrooms: Plaintiffs are not only winning more cases—38 percent in 2000 compared with 34 percent in 1999—but coming away with more money, according to Jury Verdict Research. The median jury award, which includes damages levied against hospitals, rose from $700,000 to $1 million during that same period. As insurers pay more in claims and legal fees, they raise premiums accordingly.

What makes for a good litigation climate?

California, Colorado, Vermont, and Minnesota join South Dakota on our list of safe havens. They scored well in several key measures of malpractice calm. Premiums are low and stable. The states also were among those with the lowest median malpractice payments—awards as well as settlements—reported to the National Practitioner Data Bank from 1990 to 2000 on behalf of doctors embroiled in a malpractice charge. And they brought up the rear in Data Bank payments in 2000.

Similarly, these "oasis" states generated fewer payments per 100 doctors in 2000 than the national average. That suggests that doctors who practice in those states were less likely to be accused of malpractice, or that they fared better in court.

Not surprisingly, malpractice carriers in our safe havens collected more in premiums than they paid out in claims, legal fees, and administrative costs in 2000—a sign of financial strength in a troubled industry.

Predictably, too, trial attorneys in these locales have a tougher time than colleagues elsewhere. Look at the membership of the Million Dollar Advocates Forum, a group of trial lawyers who've won $1 million jury awards or settlements in all areas of civil litigation. Only seven Million Dollar Advocates hail from Colorado. Law-suit-happy Nevada has less than half the population of Colorado, but it's home to 41 such attorneys.

What makes the safe havens less litigious? Three—California, Colorado, and South Dakota—have laws curbing excessive jury awards. Except for California, the civil court systems in the five states we've highlighted are rated in the top 25 by corporate attorneys surveyed by the US Chamber of Commerce. The survey focused on overall treatment of tort and contract litigation, judicial competence and impartiality, jury fairness, and scientific and technical evidence.

Demographics may also help explain why some regions have escaped the malpractice crisis. Insurance executives and defense attorneys describe the people in those areas as more self-reliant, with more common sense, and less susceptible to "soak the rich" thinking than Americans elsewhere, especially those in big cities. "There's a mindset in the urban population that they should be taken care of," says defense attorney Walt Griffin in Flint, MI.

To be sure, some legal experts say factors such as race, income, and urbanization are overrated as predictors of litigiousness in a given region and how juries will decide cases. And there are always exceptions to generalizations. Still, when you notice that upper Midwestern states have some of the lowest malpractice premiums around, it's hard not to suspect a Lake Wobegon factor at work. "Swedish, Norwegian, and German farmers, when they're on juries, don't give away money," says St. Paul malpractice defense attorney Rich Thomas.

Here, then, is a look at five states that have bucked the national trend—so far. Think hard before deciding to move to escape malpractice bad weather, however. Doctors in these bastions worry that the storm is coming their way.

California: The power of tort reform

California arguably qualifies as a safe-haven state even though its premiums aren't consistently rock-bottom. Some ob/gyns in southern California pay more than $60,000 for a mature claims-made policy with typical coverage limits of $1 million for one incident and $3 million for all incidents. However, a San Francisco internist can get coverage for only $6,064, less than what some internists in rural Iowa pay. And recent premium increases have been mostly mild compared with those in hot spots like Nevada.

What really distinguishes California is its median malpractice payment of $41,500—the smallest in the nation—reported to the National Practitioner Data Bank from 1990 to 2000. And California's rate of 1.9 payments per 100 doctors in 2000 was below the national average of 2.3. "California is actually having a pretty good experience," says Cheye Calvo, who tracks insurance issues for the National Conference of State Legislatures.

Calvo and others credit the Medical Injury Compensation Reform Act of 1975, the envy of doctors nationwide. The centerpiece of MICRA is a $250,000 limit on noneconomic damages—in other words, pain and suffering. The law also caps contingency fees for plaintiffs' attorneys. An attorney is entitled to no more than 15 percent of any amount over $600,000.

Another provision discourages plaintiffs from double-dipping by suing a doctor for medical expenses even though a health insurer already paid the plaintiff's bills. MICRA allows a defense attorney to disclose these and other so-called collateral payments to a jury, which can choose to subtract them from any award. In many states, evidence of collateral payments can't be introduced in a malpractice trial.

Colorado: Educated jurors favor physicians

Denver physicians gripe about declining reimbursements, but not about the cost of malpractice insurance, says internist David Downs, president of the Denver Medical Society.

"It's not a big part of practice overhead," says Downs, who pays $5,600 in premiums. "I really don't pay attention to it."

Copic Insurance, which insures most Colorado doctors, increased rates a mere 3 percent in 2001 compared to the national average of 15 percent. Another 5.6 percent hike—also relatively benign—occurred this year. Copic charges a standard rate of $9,844 for an internist, but various discounts can chop this down considerably. Plus, the company has maintained enough fiscal fitness to give doctors premium credits that have translated into markdowns as high as 20 percent. When all the math is done, that internist's premium is more like $6,000.

Premiums are low in Colorado for good reason. Median malpractice payments on behalf of Colorado doctors reported to the Data Bank were the fourth lowest in the nation from 1990 to 2000. The payment rate per 100 doctors in 2000 was 1.6, compared to the national average of 2.3.

As in California, insurance executives give thanks for tort reform—in particular, a $250,000 cap on noneconomic damages and $1 million on total damages. "Tort reform is clearly a must," says Copic CEO and pediatrician/allergist Jerome Buckley. "Too many juries have lottery mentalities."

Then again, Colorado juries get credit for exercising restraint. Denver defense attorney Mark Fogg says Centennial State jurors tend to respect a doctor's decision-making process because they themselves are highly educated. A shallow boast? In 1999, some 39 percent of Colorado residents held a bachelor's degree or higher—tops in the nation, according to the US Census Bureau.

Carol Golin, editor of Medical Liability Monitor, says another key to stable premiums is Copic's solid risk management program. "If you prevent adverse medical events," says Golin, "you won't have as many claims."

South Dakota: Small may be better

In 1999, the average South Dakotan earned $23,765, fourth lowest in the country. FP Mary Carpenter in Winner, SD, thinks that that statistic might explain why the state's median malpractice payment between 1990 and 2000 was the nation's eighth lowest.

"We're not a rich state," says Carpenter, a past president of the South Dakota State Medical Association. "A million dollars is a lot of money up here."

Likewise, having only 755,000 residents—and cities no bigger than Sioux Falls (pop. 124,000)—"promotes close relationships that work against exorbitant verdicts," says David Gerdes, the medical society's legal counsel. "Jurors are more likely to know the doctor who's on trial, so they try to give each side a fair shake."

Better rapport between doctor and patient may also translate into fewer suits, adds defense attorney Ed Evans in Sioux Falls. For that matter, Evans thinks that South Dakotans may simply be afraid of scaring off doctors by attacking them in court: South Dakota ranked 43rd in the nation in terms of physicians per 100,000 residents in 2000.

To play it safe, South Dakota passed tort reform capping noneconomic damages for malpractice at $500,000.

Minnesota: Jurors with missing fingers

Minnesota lacks a cap on noneconomic damages, but then, maybe it doesn't need one. The Gopher State reported the 11th lowest median malpractice payment from 1990 to 2000. And it was second to last in payments per 100 doctors in 2000.

Perhaps plaintiffs can't win much sympathy from Minnesota jurors turned stoical by long, snowy winters. "I've asked people during jury selection whether they've ever been injured," notes attorney Rich Thomas. "There will be farmers with missing fingers who won't raise their hands. I'll say, 'But you've lost some fingers,' and they'll reply, 'Oh, this is nothing.' "

Malpractice premiums are as modest. Midwest Medical charges $3,803 for internists, $3,169 for family physicians, and $10,142 for general surgeons. Those rates apply to doctors in the Twin Cities metro area of 2.9 million as well as doctors in Calumet (pop. 383), some 160 miles to the north. In other states, a malpractice carrier may charge urban doctors twice as much as rural doctors.

"We don't have a big-city jury award syndrome in the Twin Cities like you see in Philadelphia or Chicago," says Midwest Medical president Jack Kleven.

Vermont: No sense of entitlement

Judging by Vermont's malpractice climate, the Yankee temperament persists into the 21st century.

The state ranked seventh from the bottom in size of malpractice payments from 1990 to 2000. It held the same rank for payments per 100 doctors in 2000.

"The population is independent-thinking and self-reliant," says malpractice defense attorney David Cleary in Rutland, VT. "People don't look to government or institutions to wrap them in swaddling clothes from birth to death. They don't expect doctors to guarantee that they'll recover from an illness."

"Vermonters are down to earth," adds Brattleboro internist Carolyn Taylor-Olson, president of the Vermont Medical Society. "We're lucky to live among the people we do."

Lucky, indeed. Vermont internists insured by ProMutual Group pay a standard rate of $5,518 minus discounts. In contrast, ProMutual charges internists in neighboring Massachusetts $11,031. Premium rates for Vermont general surgeons are $15,239 compared to $27,244 for Massachusetts colleagues.

The times are a-changin' even in the good states

Right now, Vermont physicians have little in common with their Texas colleagues, who protested in the streets and marched on county courthouses in April because of runaway insurance premiums. Yet safe-haven states may not be safe forever.

Insurance industry fallout. When PHICO Insurance folded recently, the Vermont doctors that it insured had to scramble to find new coverage. The same thing happened in South Dakota when The St. Paul Companies pulled out of the medical liability business. FP Mary Carpenter was one of many South Dakota doctors who switched from St. Paul to Midwest Medical. "We have fewer insurance options, and that's a concern," says Carpenter. Noting that her state lacks a homegrown malpractice insurer, she worries that the financial problems of out-of-state companies will eventually hurt South Dakota doctors. "Risk gets spread out to everyone."

Tort-reform challenges. Trial lawyers have convinced many state courts to undo tort reform. Alabama, Illinois, Kansas, New Hampshire, Ohio, Oregon, Texas, and Washington put a lid on jury awards only to find those laws declared unconstitutional, according to the Health Care Liability Alliance, a lobbying group. California's MICRA has stuck so far, but the California Medical Association stays busy defending it. The CMA has filed friend-of-the-court briefs in three pending cases where plaintiffs' attorneys have sought to circumvent various aspects of the law.

In Colorado last year, the state supreme court removed physical disfigurement and impairment from the $250,000 cap on non-economic damages.

Less predictable rural juries. "You're seeing an erosion of the differences between rural and urban venues," says Frank O'Neil, a senior vice president with malpractice carrier ProAssurance in Birmingham, AL. "Places in the South that never had a million-dollar verdict before have produced several in the last three years. It's dangerous everywhere."

More enterprising plaintiffs' attorneys. Defense attorney Ed Evans in South Dakota says the state's plaintiffs' attorneys are becoming as aggressive and innovative as their peers in Florida and Nevada. "We're seeing more claims like intentional infliction of emotional distress, which is an attempt to win punitive damages," says Evans. "The lawsuit will contend that the doctor said something rude like 'Your pain is in your head.' "

One plaintiffs' attorney is taking a novel approach—for South Dakota, at least—in a pending lawsuit filed by a woman unhappy with the results of breast augmentation surgery. "He's arguing it as a warranty problem, not malpractice," says Evans.

Regardless of what lies ahead, no state offers physicians a guarantee that they won't be taken to court—a fact that isn't lost on Mary Carpenter in South Dakota. Although she has never been sued, she's constantly afraid she will be.

"I don't think I'm unusual," she says. "Everybody who cares for patients has that on their mind."

The malpractice climate can vary dramatically in the same state

Want to escape the malpractice crisis where you live? Just move from one side of your state to the other.

In Ohio, insurer ProAssurance charges its lowest rates in the Cincinnati area. The standard rate for an FP is $12,650. That's not cheap, but it beats $21,375 for FPs in Cleveland, where rates are highest. The percentage gap is even wider for ob/gyns—$57,067 vs. $100,591.

Malpractice carriers charge less in Cincinnati because they spend less on malpractice claims and legal fees there. Insurance broker Charles Black Jr. in Columbus, OH, says Cincinnati is less litigious because it's culturally and politically conservative. "Cincinnati identifies with the Midwest while Cleveland identifies more with the East Coast," says Black, who also notes that Cleveland is more of a union town.

Do political leanings have an impact on the litigation climate? Perhaps. Hamilton County, home to Cincinnati, went for George W. Bush in 2000 while Cleveland's Cuyahoga County went for Al Gore.

A similar story plays in a trio of Michigan cities—Grand Rapids on the west side of the state, and Flint and Detroit on the east. An internist who practices in Grand Rapids (pop. 197,800) can get a $200,000/$600,000 malpractice policy from American Physicians Assurance for $8,486. But if he's in Flint (pop. 124,943), the rate jumps up to $13,500. And in Detroit (pop. 951,270), that annual premium is $19,285.

The car-plant towns on the east side—heavily unionized and Democratic—account for a disproportionate share of large verdicts in Michigan. "Maybe blue-collar workers tend to expect medicine to be perfect and to seek out legal reimbursements instead of accepting that complications happen," speculates attorney Walt Griffin.

By all accounts, a different mindset prevails in Grand Rapids. "It's a conservative, white-collar, Republican stronghold," says Griffin. Grand Rapids urologist Brian Roelof notes the area's heavy concentration of evangelical Christians and the presence of Zondervan, which calls itself the world's biggest publisher of Bibles.

"People here tend to think you're supposed to make it on your own," says Roelof, whose annual malpractice premium is $9,000. "So it's hard to get a judgment against a physician. And when that happens, the award is usually modest."

Where malpractice payments are lowest

Payouts to plaintiffs typically are smaller in states with solid tort reform measures.

States where malpractice payments are less frequent

Best civil court systems

1. Delaware
2. Virginia
3. Washington
4. Kansas
5. Iowa
6. Nebraska
7. Colorado
8. Utah
9. South Dakota
10. Connecticut

Source: US Chamber of Commerce

Robert Lowes. Malpractice crisis? Not here!.

Medical Economics

2002;13:86.