Medical myths: malpractice insurance not the only health-care culprit.

President George W. Bush in December renewed his call for Congress to rein in medical-liability claims. Speaking at a White House Economic Conference, Bush called for limits on damages in medical malpractice lawsuits as a means of curbing rising healthcare costs. "There is no doubt in my mind, by passing real, substantive medical liability reform, it will help control the rising costs of health care," Bush told the conference.

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Pete Coors, Colorado's unsuccessful Republican Senate candidate, also had called for medical-liability reform. Echoing the White House position, Coors blamed lawyers and malpractice suits as the driver of rising health-care costs in general. Coors' problem in making that case, however, was that Colorado already had effective malpractice-liability limits in place, and doctors' liability actually accounts for only a fraction of rising medical costs.

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In fact, despite a recent three-year double-digit rise in malpractice insurance premiums in Colorado, Bush and other politicians need look no further than this state to see the effect of limits on medical liability. State lawmakers implemented curbs on medical damages in 1988, nearly 17 years ago.

"Colorado probably has the most stringent tort reform in the country, in all areas, with caps on almost every possible kind of recovery--from medical malpractice to skiresort liability," says John Sadwith, executive director of the Colorado Trial Lawyers Association. The association's 1,200 members represent parties seeking to recover, by means of a civil lawsuit, costs related to a tort, or injury that is willful or the result of negligence.

Medical-malpractice payments here are limited to $1 million to cover both "economic" damages such as medical bills and lost wages, and "non-economic" damages--what used to be called "pain and suffering." No more than $300,000 may be assessed as "non-economic" damages.

Judges in Colorado do have the authority to exceed the $1 million cap if they find the limitation would be unfair to the litigant due to the extent of damages or loss of income.

Bush wants Congress to limit non-economic damages to $250,000--the same limit set in Colorado from 1988 to 2003. Other provisions sought at the federal level, such as limiting punitive damages to reasonable amounts and setting time limits for the filing of malpractice lawsuits, for example, are already part of the Colorado code.

To be sure, problems with medical malpractice litigation exist elsewhere.

The American Medical Association lists 19 states as in crisis, where escalating rates are forcing doctors to limit their practices or abandon rural areas. But 24 states have enacted some limits.

Colorado is one of six states the AMA says is experiencing few, if any, problems arising from skyrocketing premiums for medical-malpractice insurance.

So what can the rest of the U.S. learn from Colorado's experience?

The limits here were implemented following a five-year period during which physicians' malpractice insurance premiums rose anywhere from 20 percent to 73 percent a year.

After the limits were imposed, however, Colorado physicians experienced a period of relative premium stability. COPIC Companies, a nonprofit insurer owned by a trust set up to further health-care affordability and accessibility in Colorado, provides malpractice coverage for about 80 percent of Colorado doctors needing commercial insurance. Its rates rose less than 1 percent annually from 1989 to 2000.

However, the state's malpractice-insurance rates are again on the move--set to rise an average 15.9 percent in 2005 after two successive double-digit annual increases. Since 2000, rates have risen 2.7 percent in 2001, 6.7 percent in 2002, 14.2 percent in 2003, and 13.8 percent last year. Rates depend on the type of medicine a doctor practices. High-risk specialties like neurosurgery are the most expensive and family medicine the least.

Englewood family physician Dr. Nathan Persoff says his malpractice insurance rates probably doubled in the last decade, to around $10,000 a year. Physicians and surgeons in high-risk sub-specialties easily can pay four to 10 times that amount.

Unlike other businesses, however, Persoff and his fellow physicians can't easily pass on the increased cost to patients and their insurance companies. That's because along the Front Range, about 70 percent of all patient medical costs are controlled through managed care.

"The true crisis is not liability," Persoff said. Rather, it is the lack of a "cost-of-doing-business" factor in managed-care reimbursement rates. He knows of two neurosurgeons who left Colorado to practice in other states, and a third who went to a university setting, places where managed care was less of a factor.

So, are higher malpractice rates reducing access to medical care, as the Bush administration claims? The General Accounting Office last year found that, while practitioners in five states (Colorado wasn't among them) offered fewer high-risk services, such actions did not affect a state population's general access to health care.

COPIC does blame rising malpractice settlement costs for about one-third of the latest Colorado malpractice-insurance rate increases. The number of filed malpractice lawsuits rose to 258 in 2003 from 177 in 2000. While the number of claims relative to the number of insured physicians remained relatively stable across Colorado, the average amount paid out to settle those lawsuits rose to nearly $150,000 from around $90,000.

COPIC also says it has spent an average $3.5 million annually during the last four years to mount defenses to filed lawsuits that were later dropped or dismissed. Only about 16 percent of the lawsuits filed during the last four years actually went to trial, COPIC says, and almost half of those were thrown out.

The GAO reported that in addition to larger losses suffered by insurance companies, other factors figure into rising malpractice premiums. They include declining investment income at some insurers, the cyclical financial nature of the insurance industry, the pressure to drop premiums as profitability declines, and higher costs for reinsurance, which smaller malpractice insurance companies rely on to pick up costs in major claims.

According to National Underwriter Data Services, the medical malpractice "combined ratio," a measure of profitability, was 137.5 in 2003, the latest year for which data is available. This means for every medical-malpractice premium dollar collected insurers have been paying out almost $1.38 in claims and expenses. But lawyers say the losses are due to other expenses than claims paid.

"Doctors are being used by the insurance industry," said CTLA's Sadwith. "They don't really realize that the insurance businesses are losing money (in general), and it's not based on payout of claims. The doctors are almost pawns in this."

Most states, including Colorado, don't require insurance companies to justify their rates publicly, but merely require the rate hikes to be filed with the Division of Insurance before they are implemented. The nonpartisan Congressional Budget Office said in a report that the costs of malpractice claims account for a very small fraction of total health-care spending; so that even a very large reduction in costs related to malpractice for doctors would have a relatively small effect on total health-plan premiums.

WRITTEN BY JEANIE STOKES