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Why the medical malpractice crisis persists even when malpractice insurance premiums fall.

IV. DO SOME STATES HAVE A PREMIUM CRISIS?

Some states have enacted legislation capping the amount of damage awards. Consequently, premiums in these states might be lower than those without caps. Thus despite offering compelling evidence against claims of a premium crisis on a national and regional basis, the AMA surveys may not be able to reveal a crisis for particular states if these crises occur in states without caps on awards. Several states place caps on the total award; however, most states that do cap awards typically limit payment for pain and suffering or punitive damages, rather than for loss of income or out-of-pocket expenses. As of October 2005, eleven states had laws capping damage awards for non-economic damages at $250,000; ten states had legislation that capped awards at between $250,001 and $499,999; thirteen states had legislation limiting non-economic damages at $500,000 or higher; and eighteen jurisdictions did not have any limits on damage awards. (122)

Some studies suggest, however, that the difference in premiums between states with award caps and those without them is slight. In 2003, the Government Accountability Office reviewed studies on the effect of statutory caps on premiums. The GAO concluded that there is disagreement as to whether caps on damages lead to lower premiums and that "a lack of comprehensive data on losses at the insurance company level makes measuring the precise impact of [state caps] impossible." (123)

In 2004, Kenneth Thorpe studied how award caps affect premiums. He estimated that in the twenty-five states with caps on damage awards, "premium[s] per physician ... were associated with a 12 percent reduction in premiums" compared to non-cap states. (124) In other words, averaging premiums in states with caps and premiums in states without caps for yielded a 12 percent difference in premiums among the two groups of states. Even if we accept Thorpe's conclusion and assume that premiums are 6 percent higher in states with caps than the AMA data indicate (because it averages between states with and without caps), premiums in these states would still be a very small percentage of total practice expenses. They simply would not be large enough to substantially affect net practice income. Using Thorpe's 12 percent finding, for example, premiums still constituted only 2 percent of total practice expenses in 2000. If the reported mean dollar values for premiums for physicians nationally are increased by 6 percent with other expenses and revenue remaining constant, premiums would be 8 percent of total expenses, net income reduced by $1,252.

The Thorpe study, however, averaged premiums across twenty-five states with caps on awards. This may hide premium differences among the individual states averaged, still allowing for the possibility of state-specific crises.

A recent study led by David Hyman on the effect of caps on non-economic damages in Texas found that the effect of caps is less than supposed because damage awards often are reduced to the lower limits of individual liability insurance coverage. (125) Expressed in 1988 dollars, the cap in Texas reduced the mean payout in cases with jury verdicts by $184,000, from $696,000 to $512,000. (126) Predicted payouts in settled cases declined by $56,000, from $313,000 to $257,000. (127)

Nonetheless, the only way to be certain that no state specific premium crises exist is to obtain reliable data from every state. Although no such data exists, there is a worthy alternative: Reliable data from a state that by all accounts should have a premium crisis if such a crisis exists.

A. Massachusetts as a Test Case

Based on all available information, if there are states with a premium crisis, Massachusetts should be among them. The AMA itself declared Massachusetts a "crisis state." (128) Why? Because Massachusetts has a soft $500,000 settlement cap that allows broad exceptions and that is "woefully inadequate," according to the Massachusetts Medical Society, another organization claiming a national premium crisis. (129)

"The AMA is disheartened that the medical liability environment in Massachusetts has deteriorated to the point where physicians are restricting services, and patients are losing access to care," said the AMA's Palmisano in 2004. (130) The situation outside of Boston is particularly worrisome." (131) Added Alan Woodward, then president of the Massachusetts Medical Society: "Our patients have world-class physicians and health care institutions, but this crisis has been steadily eroding the quality of our health care system for many years." (132)

Stoking the panic are data from the National Practitioner Data Bank (NPDB). These data indicate that, from 2000 to 2005, Massachusetts should have had higher premiums than most states because of its high malpractice settlement payments. Malpractice premiums reflect the size of malpractice awards and their frequency. The Massachusetts median settlement payment of $187,000 ranked fourth, and its mean settlement payment of $329,000 ranked sixth for all jurisdictions nationally. (133) At 4.34 payments per 100,000 people, the state is ranked 24th in the frequency of awards nationally, but had less than one fewer payment per 100,000 than the ninth highest state. (134)

Only Washington D.C. and Connecticut had both higher mean payment sizes and frequency. Since Massachusetts malpractice payments were among the highest nationally, its premiums should also be high compared to other states. Not the case. In Massachusetts, mean premiums were lower in 2005 than in 1990 for nearly all physicians.

B. The Massachusetts Study Data

Our study of Massachusetts premiums (the Massachusetts Study) used data from the state regulated mutual insurer, the Medical Professional Mutual Insurance Company, known as ProMutual Group (PMG), which since 1975, has been the state's main medical malpractice insurer. (135) Its insurance rates reflect prices available to most physicians.

In 1975, as a result of the exit of commercial malpractice insurers from Massachusetts, the legislature created the Massachusetts Medical Malpractice Joint Underwriting Association (MMJUA). The legislature converted it into the Massachusetts Medical Professional Insurance Association in 1993 and then in 1995 to ProMutual. Around the time of the formation of the MMJUA, Harvard affiliated hospitals created the Controlled Risk Insurance Company (CRICO) for its affiliated physicians.

Since their creation in the late 1970s, the MMJUA/ProMutual and CRICO controlled about 90 percent of the physicians' liability insurance market, each covering about half that market. (136) In 2005, A.M. Best (a U.S.-based rating agency focused on the insurance industry) reported that the ProMutual Group covered 77 percent of regulated professional liability insurance, which includes other medical professionals and health care institutions. Those physicians that did not purchase insurance from the ProMutual Group or CRICO purchased insurance from other state regulated insurers or from unregulated risk-retention groups and offshore insurers.

C. How Insurers Set Premiums

To understand changes in the cost of professional liability insurance, it helps to consider the various kinds of liability insurance available. Insurers sell several types of policies, each priced differently. Policies vary based on the time period covered and the dollar amount of liability coverage. Insurers set premiums based on three key variables: (1) risk of loss (which can vary with practice specialty and other factors), (2) the dollar amount of protection, and (3) the time period covered. (137)

Insurers calculate each practice specialty's risk of loss and assign it to a premium rate group. (138) Once insurers assign each practice specialty to a rate group, they can refine their risk assessment based on many other factors including the physician's claims history, length of time in medical practice, their work setting, and organizational affiliation. (139)

Policies specify a maximum amount that can be reimbursed both per claim and yearly for all claims. Massachusetts initially required that physicians purchase at least $100,000 of loss coverage per claim with coverage capped at a $300,000 yearly loss. (140) Starting in 1987, the Massachusetts Board of Registration required physicians to purchase up to $100,000 coverage per claim, capped at a $300,000 yearly loss. (141) In 2006, $l/$3 million coverage was the most frequently purchased amount of liability protection, and $2/$6 million coverage was the second most frequent level of protection purchased. (142)

Patients often do not file claims in the same year that the incident occurred, though statutes of limitation restrict the time that patients have to file. Professional liability insurance policies cover either periods when alleged negligence occurs, regardless of when claims are filed (occurrence policies), or periods during which patients file negligence claims (claims-made policies).

Physicians renewing a claims-made policy are covered from the first year that they owned the policy. Premiums are higher for claims-made policies in the second, third, and fourth years because the policies cover a longer time. Insurers also sell mature claims-made policies that cover five or more years of past practice.

Occurrence policies are more expensive than first through fourth year claims-made policies and less than mature claims-made policies. The cost of insurance through claims-made and occurrence policies generally converge over time because physicians who do not renew a claims-made policy need to purchase "tail insurance" for claims filed later.

D. Grouping Physicians into Five Practice Tiers

The Massachusetts study focused on $1/$3 million and $2/$6 million occurrence policies because together, these two types accounted for 81.2 percent of the policies in 2005. Occurrence policies are the second most expensive type of policy. Mature claims-made policies, which are slightly more expensive than occurrence policies, comprised 10.7 percent of all policies.

In 2005, 54.6 percent of PMG's policies were for $1/$3 million occurrence and 26.6 percent were for $2/$6 million occurrence. Nearly 66 percent of PMG's occurrence policies were for $1/$3 million coverage, 30.3 percent were for $2/$6 million; only 1.6 percent provided greater coverage. In 2005, 67.4 percent of all PMG's policies were for $1/$3 million coverage and 30.3 percent were for $2/$6 million coverage.

While the raw data provided information on each rate group, policy type, and dollar amount of coverage, reviewing the information for nineteen rate groups, six policy durations, and several levels of dollar coverage is much too cumbersome. Further, the data showed only small differences in premiums among the rate groups. To clarify the main trends, the Massachusetts study divided the nineteen rate groups into five tiers. The 2005 practice specialties in each tier and percentage of physicians in each tier are listed below, starting with the most expensive tier and descending to the least expensive tier:

* Tier 1. Four percent of physicians: OB/GYN, neurological surgery, and orthopedists performing spinal surgery.

* Tier 2. Four percent of physicians: Major vascular, cardiovascular, head and neck, traumatic, and orthopedic (except spinal) surgery.

* Tier 3. Five percent of physicians: Major general, abdominal, thoracic, plastic, cardiac and gynecological or hand surgery, and emergency medicine without major surgery.

* Tier 4. Eight percent of physicians: Anesthesiology and major surgery for emergency medicine, ronco-esophagology, colon and rectal, endocrinology, gastroenterology, geriatrics, neoplastic, nephrology, laryngology, otology, orhinolaryngology, rhinology, and urology.

* Tier 5. Seventy-eight percent of physicians: All other physicians, which includes sixty-five practice specialties.

The Massachusetts study supplied the most detailed data on malpractice premiums available. It reported:

* State regulated insurance manual rates for each practice specialty;

* Rate differences for six types of policies with varying duration of coverage;

* Rate differences based on the maximum dollar amount of liability protection;

* Discounts and surcharges to insurance manual rates that accurately reflect the actual amount that physicians pay;

* The percentage of physicians purchasing policies with various dollar limits on coverage and duration of coverage from 1990 to 2005. This shows changes in what kind of insurance physicians purchase, not just price changes for fixed coverage; and

* Long-term trends and short-term change from 1975 to 2005. ProMutual Group raised rates 5 percent in 2006, while in 2007 it did not increase rates, but instead decreased them for some high-risk specialties.

E. 30-Year Manual Rate Trends for the Five Practice Tiers

Figure 12 displays as a line graph the $l/$3 million occurrence manual rates from 1975 to 2005. Figure 13 displays the numerical values. These figures indicate the mean tier rates by averaging the rates of each practice specialty group within each tier. This does not account for differences in the number of physicians within different rate groups. That information will be provided later, but it will only include data from 1990 and later because ProMutual Group did not have such data prior to that time.

[FIGURE 12 OMITTED]

According to the data, mean insurance manual rates for all physicians grew only slightly over 30 years with rise and fall cycles. Mean rates increased from $7,095 in 1975, then declined to $5,811 in 1980 and then rose again to $19,855 in 1990. Rates then declined to $13,955 in 1995 before rising to $21,245 in 2005. The five tiers showed similar trends with the exception of Tier 1, which included practice specialties with the highest risk of liability and premiums.

Tier 5, which included 78 percent of physicians in 2005, experienced smaller rises and declines in the premium cycle than the mean for all physicians. Tier 5 rates rose from $3,870 in 1975 to their 30-year high of $12,165 in 2005. Tier 5 rates were $10,056 in 1990, its second highest year, up from $2,990 in 1980, its lowest year. Tier 4 rates stayed only slightly higher than the mean for all physicians.

Tiers 1 through 3 rates were much higher than for most physicians, especially in their peak years. Tier 3 and 2 rates soared from 1980 to 1990, declined until 1995 or 2000 and increased thereafter. In 2005, however, they were lower than in 1990. Between 1990 and 2005, Tier 2 and Tier 3 rates declined by more than $10,583 and $5,326, respectively.

Only Tier 1 rates ended much higher in 2005 than in 1990. Although they declined from 1990 to 1995, between 1990 and 2005 the mean rate increased by $22,392 to $89,319.

These data reveal that something atypical is occurring for premiums of physicians practicing obstetrics, neurological, and spinal surgery. Their premiums are much higher than all other practice specialties. If there is any crisis in premiums, then it is for these practice specialties, which represent only 4 percent of practicing physicians. The data indicate that these practice specialties have atypically high premiums.

The key reason that premiums are higher for these practice specialties is that the kind of injuries occurring due to negligence can be much more harmful than in other areas. Although giving birth is relatively routine and safe for most women and their children, a small percentage of infants may be deprived of oxygen during birth, for example, and suffer catastrophic injuries. This can result in the infant surviving, but also requiring custodial care for the remainder of his or her life. Similarly, neurological surgery involving the spine may result in injuries leading to paralysis if the surgery goes awry. This too could require life-long care.

F. Distribution of Physicians by Dollar Amount of Insurance Manual Rates 1990 to 2005

Another way to analyze the price of liability insurance is to report the percentage of physicians charged different rates, separated by $10,000 increments. PMG began keeping this data in 1990. Figure 14 shows the distribution of physicians charged different manual rates per $10,000 increments from 1990 to 2005.

Between 1990 and 2005, physicians with rates under $20,000 increased from 72 percent to 78 percent. Within this group, physicians moved into higher premium levels. Physicians with high premiums more than $60,000--decreased from 8 percent to 4 percent. Physicians with premiums above $70,000 increased from zero to 4 percent. Those in the middle range--$20,000 to $60,000--decreased from 20 percent to 17 percent. Within the group as a whole, physicians moved to the middle. In 2005, 29 percent of physicians with $l/$3 million occurrence coverage had premiums under $10,000; 78 percent had premiums under $20,000; and 92 percent had premiums under $40,000. Only 4 percent of physicians had premiums above $50,000.

In 2005, 23 percent of physicians with $2/$6 million coverage had rates under $10,000; 63 percent had rates under $20,000, and 95 percent had rates under $40,000. Only 5 percent of physicians received rates above $40,000, only 1 percent more than $60,000. From 1990 to 2005, the highest rate group shrank while the lowest rate group expanded.

G. Adjusting Mean Manual Rates for the Number of Physicians in Each Rate Group

The previous statistics for the five tiers were computed by averaging the rates of each group. Some rate groups, however, have many more physicians than others. A more accurate measure of central tendency would take account of this by weighing the average with the number of physicians in each rate group. Figure 15 displays mean premiums since 1990 for each tier weighed by the number of physicians in each rate group. Again, PMG only has data on the number of physicians in each rate group since 1990.

Between 1990 and 2005, mean premiums for all physicians purchasing $1/$3 million occurrence policies decreased from $17,907 to $17,810. As noted previously, mean premiums for physicians collectively were not at an all-time high in 2005--the peak year was 1990. Premiums fell thereafter until 2000 before rising again to the amount charged in 2005.

Mean premiums in Tiers 5 and 4 also cycled down and up and ultimately rose just over $1,250 and $1,040, respectively, from 1990 to 2005. Rates for Tiers 1 through 3 were much higher than for most physicians, especially at their peaks. Tier 2 and Tier 3 rates declined until 1995 or 2000 and increased thereafter. Still, in 2005, those rates were lower than in 1990. Tier 2 and Tier 3 premiums declined by more than $5,375 and $7,526, respectively, between 1990 and 2005 and ended at $44,289 and $36,557. Only Tier 1 premiums were much higher in 2005 than in 1990. Tier 1 premiums increased from $28,825 in 1990 to $95,045 in 2005. Trends are similar for $2/$6 million coverage, with the exception of Tier 4 premiums which decreased from 1990 to 2005.

To summarize, these data support the previous findings: Premium rates for most physicians were not high and, in fact, declined from 1990 to 2005. However, physicians practicing obstetrics, neurological, or spinal surgery are the exception; they paid much higher premiums than all other physicians and their mean rates increased from 1990 to 2005.

H. Relation of Reported Premiums to Premiums of Other Policies

How do the premiums for the $1/$3 million and $2/$6 million occurrence policies just analyzed differ from the premiums of other policies?

Figure 16 shows 2005 premiums for PMG's 19 rate groups under $1/$3 million coverage and the percentage of physicians purchasing such policies from 1990 to 2005. Occurrence policies in 2005 cost $3,473 more than first-year claims-made coverage for rate group 1 and $65,740 more for rate group 19. Comparing mature claims-made premiums to occurrence policies, the former were $375 more than in rate group 1 and $7,763 more in rate group 19.

I. How Manual Rate Discounts and Surcharges Affect the Premiums Physicians Pay

After 1990, insurance manual rates became a less reliable measure of the amounts that physicians paid for insurance because PMG began to discount or surcharge rates. Initially, PMG discounted premiums for only some physicians. Around 2000 it increased the size and frequency of these discounts and started to impose rate surcharges for some high-risk physicians--nearly all physicians who were not high-risk received some discount, frequently around 5 percent, but some received much larger discounts than others. By 2000, however, PMG began increasing discount frequency and size as well as surcharging physicians.

In 2005, PMG discounted 88.7 percent of policies. (143) Sixty-five percent of physicians received discounts between zero and 25 percent while 23.6 percent received discounts between 25 percent and 50 percent. PMG also surcharged rates for 6 percent of physicians. Four-and-a-half percent of physicians paid surcharges under 25 percent and 1.4 percent paid surcharges above 25 percent. Adjusting the Tier 1 premiums for discounts and surcharges, physicians paying more than $70,000 fell from 4 percent to 2.7 percent; 1.1 percent paid $60,000 to 70,000, and 0.1 percent paid $50,000 to $60,000.

In 2005, 66.7 percent of all $1/$3 million occurrence policies were discounted by more than 12 percent. Reducing 2005 rates by just over 12 percent for Tier 5, and by only 5 percent for Tier 4, resulted in lower premiums than in 1990. Consequently, premiums for most physicians in Tiers 4 and 5 were lower in 2005 than in 1990. Mean rates for Tiers 2 and 3 were lower in 2005 than in 1990 even before adjusting for discounts and surcharges. Tier 1, however, continued to be the exception, having a higher mean premium in 2005 than in 1990 even after adjusting for its mean discount of $11,014.

As the above analysis makes clear, after adjusting for discounts, nearly all physicians in Tiers 2, 3, and 4 paid lower premiums in 2005 than they did in 1990. So, if premiums were actually a burden on practice income, they were a greater problem in 1990 than at any point between 1990 and 2005.

But what about Tier 1 physicians? Could they have experienced a premium crisis?

J. Obstetrics and Other Tier 1 Practice Specialties

Figures 17 and 18 reveal premium variations in Tier 1. Figure 17 displays dollar values for each of the Tier 1 practice specialties' mean and median manual rates, mean premiums adjusted by discounts and surcharges, and the lowest and highest premiums paid in 2000 and 2005. Figure 18 displays the percentage of physicians who received discounts in each of Tier l's specialties in 2000 and 2005.

According to the data, premiums for Tier 1 physicians with $1/$3 million coverage varied widely in 2005. The OB/GYN manual rate was $97,243, about $8,700 more than its 1990 level. Depending on rate-adjustment, however, OB/GYN premiums ranged from $48,622 to $145,865. Few Tier 1 physicians purchased $2/$6 million coverage in 2005. But nearly all OB/GYNs with $2/$6 million coverage paid the insurance manual rate with more paying surcharges than receiving discounts.

Since 1990, the highest rates were for OB/GYNs. To examine OB/GYN premiums in more detail, the Massachusetts study supplemented OB/GYN occurrence data with claims-made data. Figure 19 displays insurance manual rates, mean premiums adjusted by discounts and surcharges, the lowest and highest premiums paid, and the percentage of physicians who paid these rates for all $1/$3 million occurrence policies in 2000 and 2005. The data for $2/$6 occurrence was not reported since only 20 policies for this coverage were purchased, and that sample size is too small for any meaningful comparison.

In 2000, OB/GYN occurrence rates were $69,361, about $275 more than 1990 rates. Due to discounts and surcharges, however, 88 percent of OB/GYN's paid less than in 1990. Claims-made premiums reveal similar patterns as mean weighted premiums were lower than in 1990. By 2005, only 3 percent of OB/GYNs with occurrence policies paid the manual rate of $97,243 and twenty-nine percent paid less than the 1990 rate. Between 53 percent and 76.2 percent of OB/GYNs purchasing first year through fourth year claims-made policies received discounts, yet most paid more than 1990 rates. Premiums varied greatly: The highest were more than twice the lowest.

In summary, nearly all of the 97 percent of physicians in Tiers 2 through 5 paid lower premiums in 2005 than in 1990. Concerns that premiums are higher now than ever before are clearly unfounded. Only a few selective practice specialties appear to pay higher premiums. Even so, the premiums of the three practice specialties in the highest rate tier reveal great variation in premiums paid--some had substantial premium increases since 1990 while for others, premiums declined. For OB/GYNs, the practice specialty with the highest premiums, the most costly year for all physicians was not 2005. During that year, nearly a third of those physicians paid less than they did in 1990.

K. An Unrecognized Factor Leading to Selective Increases in Premiums

Premiums did not increase uniformly for high-risk physicians in the years following 1990; rather, they declined for nearly a third of physicians and increased substantially for most of the others. There is another factor not generally recognized that explains this phenomena: changes in medical underwriting. After 1990, PMG extended underwriting within practice specialties through premium discounts and surcharges based on individual risk factors. It reduced premiums for lower risk physicians and increased them for those with higher risks.

Physicians within Tier 1 paid identical premiums in 1990; by 2005, however, their premiums varied three-fold. In 2005, nearly one-third of OB/GYNs paid less than 1990 rates while 28 percent paid $28,150 or more than 1990 rates. Refining risk ratings contributed significantly to the increased premiums for high-risk OB/GYNs, while it lowered premiums for lower risk OB/GYNs. As a result, the cost of insurers lowering premiums for some OB/GYNs was a higher premium for high risk OB/GYNs.

If PMG changed all OB/GYNs the same amount in 2005, averaging high and low premiums and all discounts and surcharges, rates would have increased for this specialty by less than $16,900 since 1990.144 By both differentiating risk and charging premiums according to risk, premiums in 2005 instead varied between $48,621 (a decrease of $20,465 from 1990) and $145,865 (an increase of $76,780 since 1990). When OB/GYNs seeking lower premiums compelled insurers to compete for business, PMG lowered premiums for low risk OB/GYNs. Those low risk OB/GYNs then stopped subsidizing high-risk OB/GYNs. The result? Lower premiums for a few OB/GYNs, somewhat higher premiums for most, and much higher premiums for a few. In short, one reason that premiums increased for some OB/GYNs, is that insurers sought to price individual policies based on assessed risk rather than to spread that risk across all OB/ GYNs as a group.

In 2005, 21 percent of OB/GYNs paid rate surcharges. Eight percent paid a 10 percent surcharge, 7 percent paid a 20 percent surcharge, 3 percent paid a 30 percent surcharge, and 3 percent paid either a 40 percent or 50 percent surcharge. Furthermore, 76 percent of OB/GYNs received discounts. Twenty-one percent of OB/GYNs received a 10 percent discount, 26 percent received a 20 percent discount, 27 percent received a 30 percent discount, and 2 percent received a 50 percent discount.

Insurers in other markets often employ individual risk rating. Health insurers that sell individual policies typically use risk rating, charging steep premiums to high-risk individuals or denying them coverage altogether. Most people, however, obtain health insurance through employers, which spreads the risk across all employees and makes insurance affordable for high-risk individuals. Enterprise liability is an equivalent mechanism to pool risk and subsidize high-risk individuals for malpractice insurance. It shifts legal and financial responsibility from individual physicians to organizations such as hospitals.

L. Changes in Policies Purchased

The analysis so far is of pure price increases and decreases for a constant product, namely insurance policies for a set dollar amount of coverage. Another reason for rising or decreasing expenditures is that people may purchase different products. When considering claims that premium costs are out of control, it is important to define what the product is that physicians are purchasing and whether the product has changed.

Car prices, for example, can increase because the manufacturer or dealers choose to charge more or because the kind of car people purchase changes over time. Consider cars throughout the last several decades: They have added features such as air-bag restraint systems, antilock brakes, catalytic converters to reduce harmful emissions, and computer chips to manage various functions. Manufacturers also redesigned engines to make cars more fuel efficient, changed the design and components to make them safer, and made numerous other changes in the material used and in the design.

In comparing cars of the past with those of today we need to consider the reasons for the price change: is it due to specific changes in the product, or has the price changed despite the product remaining the same? When purchasing professional liability insurance, the product is a defined dollar amount of liability protection for a certain period. Insurers have not significantly changed the configuration of their policies, and as a result, it is much easier to gauge pure price increase over time.

Furthermore, physicians may purchase a greater dollar level of coverage today than in the past, which increases the amount they pay, even if the price of the policy remains constant. They may purchase greater coverage because they risk greater liability, or because they are obliged to do so by state laws or hospitals as a condition for having practice privileges. They may also purchase higher dollar amounts of coverage on their own to obtain greater protection.

It is worth noting that the increased dollar amounts of liability protection do not cost proportionately more. This is because the probability of the physician being held liable does not increase based on the policy purchased. Further, physicians found liable for malpractice are not usually liable for the maximum amount of their policy.

Since 1975 the Massachusetts Board of Registration in Medicine required physicians to purchase up to $100,000 coverage per claim, capped at a $300,000 yearly loss. (145) Nevertheless, the most commonly purchased policy is $1/$3 million. Between 1990 and 2005, many physicians increased coverage limits and paid more for the new policies. Figure 20 displays the distribution of all policies by type and dollar coverage from 1990 to 2005. Physicians purchasing $1/$3 million policies decreased from 71.3 percent to 67.4 percent; those purchasing $2/$6 million policies jumped from 8.4 percent to 30.3 percent.

Physicians also switched to less expensive policy types. Those purchasing mature claims-made policies--the most expensive category--fell from 25.4 percent to 10.7 percent. Physicians purchasing occurrence policies--the second most expensive type-- increased from 72.6 to 83.2 percent. Physicians with first-year through fourth-year claims-made policies increased from 2 to 6 percent. Purchasing less expensive types of policies, however, is different. Since such changes are based on the duration of time covered, physicians would need to purchase other policies over that time.

How should we interpret changes in the kind of insurance policies that physicians purchase, particularly increases in the dollar amount of liability coverage? When physicians are compelled to purchase greater amounts of liability protection clearly that is a cost of practice they cannot avoid. In this case, it makes sense to consider such cost increases as an increased cost of practice even if the price of insurance has not increased. We can summarize this by saying that physicians needed to purchase greater levels of liability coverage to practice medicine.

But what about physicians who purchase greater amounts of liability protection even though they are not required to by state law, hospital policy, or other rules? If physicians need more protection because awards are higher and they cannot reasonably practice with the same amount of coverage as they did previously, it seems reasonable to take account of that also. If all or most physicians purchased greater dollar levels of liability protection, then it seems prudent to assume these physicians generally needed to purchase more insurance. But if over time only a small percentage of physicians purchase greater coverage, then it would be unreasonable to assume physicians need that extra insurance. Instead, their purchases should be considered as a reflection of their preferences, risk aversion, or other factors.

M. Comparison of ProMutual Group Premiums to Premiums of Other Insurers

As noted, the PMG dominates the Massachusetts Professional Liability Insurance Market outside of Harvard's CRICO. Its large size suggests that the bulk of its policies reflect what most physicians in the state pay. Still, if PMG's physicians had lower risk than other insurers, then its premiums might understate the prices paid by those other physicians. The evidence, however, suggests that this is unlikely. Indeed, there are strong grounds to assert that PMG's premiums are higher than other insurers, especially for high-risk physicians.

First, PMG cannot effectively preclude high-risk physicians. Massachusetts regulations prohibit insurers from refusing any applicant. It is true that Massachusetts insurers can cede risk and insurance premiums to a state mandated reinsurance program for any policy holder they do not wish to cover. The program would then divide the costs among insurers based on respective market shares. But ProMutual Group possesses between 88 and 91 percent of the market and would bear that portion of the cost regardless. Therefore, even if PMG cedes risk to the state pool, it would save very little money by doing so. The opposite is true of insurers who have a small market share. Since its start in 1995, the reinsurance plan included between zero and 10 percent of insurance sales.

Second, evidence suggests that PMG charges higher premiums than its competitors for physicians such as OB/GYNs. Two regulated insurers--Medical Protective and Connecticut Medical Insurance Company--appear to have developed niche markets by selling insurance to specialties that they believe are overcharged. In 2005, Medical Protective set lower rates than PMG: 14 percent, or $5,850, less for orthopedists and 11 percent, or $11,602, less for OB/GYNs. Still, the price that physicians actually paid is not publicly known because insurers do not disclose details about discounts and surcharges. Indeed, these insurers may sell insurance selectively to physicians with lower than normal risk for their practice specialty.

It also appears that some high-risk physicians have declined insurance from the ProMutual Group to purchase it at a lower price from other insurers. PMG analyzed Board of Registration of Medicine data in 1997 and found that OB/GYNs comprised 4 percent of Massachusetts physicians, the same amount as its policyholders. Between 2000 and 2005, however, the number of OB/GYNs that purchased insurance from PMG declined from 242 to 182 for S1/$3 million coverage and from 55 to 20 for $2/$6 million coverage.

Similarly, PMG's physicians in the top rate group for S1/$3 million occurrence policies decreased from 4.4 percent in 1995 to 3.2 percent in 2005. Tier 1 represented 8 percent of PMG's physicians in 1990 but only 4 percent in 2005. The percentage of PMG's business that included high-risk physicians also decreased as other insurers sought a niche market for such physicians by offering them lower premiums. This data suggests that some physicians switched from ProMutual Group to its competitors to reduce their premiums.

Physicians in PMG's highest rate group are also likely to pay at least as much as similar physicians insured by risk-retention groups or offshore companies. Physicians choose such unregulated insurance to pay lower premiums. Otherwise, they would be incurring greater risk by purchasing insurance with lower financial reserves and less state regulatory protection without receiving any financial advantage.

CRICO also probably charges lower premiums to its physicians than is available on the open market. If it does not, then Harvard receives no financial benefit from creating this self-insurance pool, but it incurs significant administrative burden and financial risk.

N. What Causes Premiums to Rise or Fall?

Many physicians think that rises in liability insurance premiums are due to increases in either the number of malpractice lawsuits or the number and size of court awards and out of court settlements. That is not an unreasonable inference, but it misses other causes. Over the long term, premiums must reflect the costs of malpractice liability that insurance companies pay. However, in the short term, changes in premiums are more closely related to market competition, the interest rate earned by insurers on their investments, and insurers' predictions about risk. Indeed, careful economic analysis reveals that there are cycles of rises and falls in premiums for all categories of insurance, which insurance analysts call underwriting cycles. (146)

Underwriting cycles are partly due to the long delay between when physicians purchase policies and when insurers incur loss. This increases uncertainty and complicates accurate pricing of insurance risk. Market competition induces insurers to lower premiums to increase their market share until they revise upward predictions of future liabilities and reserve needs. Insurers then increase premiums sharply to make up for liabilities incurred several years before based on more optimistic estimates.

Changes in the investment climate also contribute to underwriting cycles. As interest rates rise, so does insurer income from reserves. When interest rates decline, insurer investment income falls. (147) When insurer investment income declines, insurers typically raise premiums. And when insurer investment income increases, insurers typically lower premiums to increase their book of business. The result: underwriting market cycles. In what analysts refer to as hard markets, insurers carefully select risks, increase reserves, and raise premiums. During what analysts refer to as soft markets, insurers assume more risk, decrease reserves, and lower premiums. For instance, studies have shown that malpractice premiums rose in Texas in the 1980s and early 2000 because insurers changed long-term loss predictions and the investment climate soured, not because claims or awards increased in size or frequency. (148)

V. WHY THE CRISIS PERSISTS

A. Physicians Mistakenly Perceive a Crisis

Physicians and casual observers often conclude that there is a medical malpractice premium crisis because they rely on unreliable data or misinterpret accurate data. The most frequently reported data on malpractice premiums comes from the Medical Liability Monitor Reporter which reports average changes in premiums without distinguishing between the prices of premiums in different policies due to the dollar amount of coverage purchased, which of seven categories of policies are purchased, or the time period for which the physician is covered.

Most observers focus on the highest risk specialties. They believe the premiums for obstetricians and one or two other high-risk specialties represent what all other physicians pay. They do not understand that these high-risk practice premiums are atypical. Furthermore, many physicians and observers look at the premium rates published in the insurance manual, but in fact, insurers typically discount those rates for most physicians. Physicians also often fail to adjust for inflation, and therefore they exaggerate any premium increases that do exist. They forget to incorporate the periods of time during which premiums remained about the same or decreased. Thus, to many physicians, it appears that their premiums increase steadily when in fact there were cycles of rises and falls.

Furthermore, press reports often dramatize premium increases by reporting percentage increases rather than changes in the dollar amount that a physician pays. It sounds more dramatic to report that a physician's premium increased 10 percent or 20 percent than to report that the premiums increased by $2,000 or $4,000, often just a small fraction of the total premium amount.

The psychology of malpractice also prompts physicians to perceive a crisis. Being sued is traumatic. Even when courts decide they are not liable, sparing them financial loss, physicians incur high emotional costs. The fear of being sued again imposes a psychological toll. (149) The risk of being held liable for negligence challenges the physician's self-image and sense of professional competence, and that causes cognitive dissonance.

It should come as no surprise that many physicians perceive the risk of liability as a major burden, even when their own premiums are a small part of their practice's expense. Fear of malpractice may even skew physicians' perception of how much they pay for liability insurance. When physicians are financially squeezed they might perceive malpractice premiums to be the culprit. In fact, when a physician's income does not grow, fails to keep up with inflation, or declines altogether, the problem is not usually due to malpractice premiums; rather, the problem is more typically due to health insurers that clamp down on the size of physician fees and deny payment for services that they deem unnecessary. Malpractice premiums can be a convenient scapegoat for frustrated physicians. (150)

B. Key Actors Have an Interest in Maintaining the Perception of a Crisis

A real medical malpractice crisis serves no one's interest, yet the perception of a crisis advances the agenda of certain actors. Many of these actors promote the impression that a premium crisis exists or do nothing to correct that misperception. Let us review how the AMA, the tort reform lobby, politicians, the media, and health law and policy researchers benefit from the perception of a crisis.

Although the AMA is the oldest organization representing physicians in the United States, its authority and membership has declined from its peak in the 1950s when it included about 60 percent of all U.S. physicians. Today less than one-third of practicing physicians are members, and numerous other physician organizations have grown to represent the divergent interests of various practice specialties. (151) This presents a problem for the AMA, which needs to maintain membership support and revenue to survive.

As the AMA searches for ways to convince physicians to become or remain members, it has focused on the legal reform of medical liability. Medical malpractice is a consensus issue. The AMA's call to protect physicians from liability unites physicians more than any of its other proposals.

If physicians ceased to perceive medical malpractice as a pressing problem, that would undercut the value of one of the AMA's most visible campaigns. The motivation for physicians to join the organization would be reduced. It is therefore in the AMA's interest to maintain the perception of a medical malpractice crisis. That helps explain why the AMA cries crisis when malpractice premiums rise but does not publicize the declines in premiums. It also helps explain why the AMA opposed the Clinton administration's enterprise liability proposal, which would have made hospitals liable for any negligence of hospital-based physicians. The proposal would have removed physician liability, ending the AMA's need to lobby for reform of medical liability law.

Rallying under the banner of "tort reform," a segment of American businesses seek to reduce the legal responsibility of corporations for harms caused by their economic activities. The organizations funded to advance this agenda want to restrict the ability of injured individuals to file lawsuits, restrict juries from awarding punitive damages, and cap the amount of compensation that juries can require firms to pay. These organizations also try to mobilize public opinion through the media, lobby legislators, and bring lawsuits to change liability rules.

These organizations, however, face a significant obstacle. A large segment of the public is unsympathetic to the interests of corporations and empathizes with individuals who are harmed by corporate action. These organizations therefore try to bolster popular support for their agenda by building coalitions with physicians seeking to change medical liability rules. They know that the public is more sympathetic to doctors than to corporations, and they believe that they can advance their aims by framing their agenda as reform of liability law in general rather than only for corporations. The tort reform lobby benefits when the public believes there is a medical malpractice premium crisis because crisis--however fabricated--is more likely to result in broader changes to tort law.

Politicians benefit from the perception of a malpractice crisis because it creates an easy way for them to garner electoral support with little political risk. Candidates for office can please most physicians by giving a speech supporting the reform of medical liability law whereas taking a stand on physician payment, health insurance, or other health policy issues are likely to divide physicians and lose votes. In addition, changes in medical liability law would not require tax increases or cuts in government programs, making it an even more attractive political stance. National candidates cannot be blamed for not producing legislative relief after elections because ultimately it is the states, not the federal government, that have jurisdiction over medical malpractice law.

George Bush backed medical malpractice reform in his presidential bids in 2000 and 2004. (152) Barack Obama also spoke in favor of reform, but used a more nuanced approach. Rather than support caps on awards, he promoted the use of projects in interested states to demonstrate the feasibility of alternatives to the litigation to resolve medical malpractice claims. (153) And in response, when Congress drafted the Affordable Care Act, it included small federal grants to support and evaluate demonstration projects in states that were interested in such experiments. (154)

Many journalists meanwhile like to write stories on the malpractice premium crisis because the topic appeals to general readerships. Editors are more likely to publish reports of a crisis than reports showing little or no change in premiums or analysis that is complex and inconclusive. Dry information and complex economic and social analysis do not make catchy headlines, hook readers, or sell papers. But reports of a crisis often do.

It is also an easy story to write. Simply report misleading numbers on rising premiums and sprinkle the text with quotes from the many physicians who complain about their rates or threaten to leave practice as a result of high premiums. Armed with a quotation from a physician stating how premiums affected his practice, reporters rarely feel they need to check how those premiums affect the physician's overall practice costs or income. Nor do many of these journalists ask whether the physicians would have retired early even if premiums had not increased, or whether the early retirement was due to physicians having earned enough money from their practice to build a sizable nest egg.

Good scholars should not skew their research results. Yet all policy scholars have a common bias--they believe that what they study is important. It is to be expected then that policy scholars who write on medical malpractice portray medical malpractice as a pressing problem or a crisis. Why else should anyone fund their research or read their studies? Malpractice researchers often differ in their assessment of the effect of current policies and the policies they recommend, but generally maintain that there is a crisis. Because it benefits those who write about medical malpractice for the policymakers and the public to believe that there is a malpractice crisis, we should not expect malpractice researchers to proclaim that there is not much of a problem. There is just too much incentive to claim otherwise.

(1.) Assessing the Need to Enact Medical Liability Reform Before the Subcomm. on Health of the H. Comm, on Energy and Commerce, 108th Cong. 68 (2003) [hereinafter Hearings] (statement of Donald J. Palmisano, President-elect, American Medical Association). The AMA has been one of the main groups that advocates for legal changes to make it more difficult for injured patients to recover compensation from physicians in lawsuits and to cap the amount of their compensation if courts find physicians liable. In advocating for such changes, the AMA has asserted the following position in public statements and testimony before Congress: (1) the cost of malpractice insurance has risen steadily and unabatedly; (2) that high premiums threaten the economic viability of medical practice and thereby precipitate a crisis; and (3) that malpractice premiums cause physicians to either stop practicing medicine or relocate to states solely in order to obtain malpractice insurance at lower cost.

(2.) Id. at 70.

(3.) Id.

(4.) Id. at 69.

(5.) Id. at 70.

(6.) Id.

(7.) Id. at 71.

(8.) In the 108th Congress, the bills were H.R. 1116, 108th Cong. (2003); H.R. 1124, 108th Cong. (2003); H.R. 1158, 108th Cong. (2003); H.R. 321, 108th Cong. (2003); S. 1374, 108th Cong. (2003); H.R. 1178, 108th Cong. (2003); H.R. 4124, 108th Cong. (2004); H.R. 446, 108th Cong. (2003); H.R. 447, 108th Cong. (2003); H.R. 485, 108th Cong. (2003); H.R. 1044, 108th Cong. (2003); H.R. 1249, 108th Cong. (2003); and S. 352, 108th Cong. (2003); in the 109th Congress, they were: H.R. 2657, 109th Cong. (2005); H.R. 2400, 109th Cong. (2005); H.R. 2291, 109th Cong. (2005); H.R. 2399, 109th Cong. (2005); S. 354, 109th Cong. (2005); S. 367, 109th Cong. (2005); S. 366, 109th Cong. (2005); H.R. 2731, 109th Cong. (2005), and S.1012, 109th Cong. (2005). Since then bills have been introduced to limit damage awards rather than to cap premiums. See H.R. 5480, 110th Cong. (2008); Patient Protection and Affordable Care Act, H.R. 3590, 111th Cong. (2009); H.R. 3459, 111th Cong. (2009); S. 2662, 111th Cong. (2009); S. 1734, 111th Cong. (2009); S. 1099, 112th Cong. (2011); and H.R. 4106, 113th Cong. (2014).

(9.) See note 8 supra and accompanying text.

(10.) Am. Med. Assoc., America's Medical Liability Crisis Map (on file with the author).

(11.) See, e.g., David A. Hyman et al., Do Defendants Pay What Juries Award? Post-Verdict Haircuts in Texas Medical Malpractice Cases, 1988-2003, 4 J. Empirical Legal Stud. 3, 38 (2007).

(12.) Tom Baker, The Medical Malpractice Myth 111 (2005); for another leading synthesis on medical malpractice, see Frank A. Sloan & Lindsey M. Chepke, Medical malpractice (2008); for a collection of interesting contemporary analyses, see generally William M. Sage & Rogan Kersh, Medical Malpractice and the U.S. Health Care System (2006).

(13.) Baker, supra note 12, at 111.

(14.) Id.

(15.) Medical Care Access Protection Act of 2006, S. 22, 109th Cong. [section] 8 (2006); Healthy Mothers and Healthy Babies Access to Care Act, S. 244, 110th Cong. [section] 8 (2007).

(16.) S. 22; S. 244.

(17.) S. 22; S. 244.

(18.) Rep. Hinojosa Gives Doctors a Break, U.S. Fed. News, May 18, 2005, available at 2005 WLNR 8130861.

(19.) Id.

(20.) Press Release, Am. Med. Ass'n., AMA Applauds President's Call for Medical Liability Reform (2005), http://www.philamedsoc.org/community/Resources/phl%20med%2002_05.pdf.

(21.) Senate Passes Medical Malpractice Insurance Legislation, U.S. State News, Apr. 15, 2008, available at 2008 WLNR 9871447.

(22.) Emergency Malpractice Liability Insurance Commission Act, H.R. 446, 108th Cong. [section] 3 (2003).

(23.) Press Release, Am. Med. Ass'n., AMA: Together We Can Fix Oregon's Medical Liability Crisis (2005) (on file with the author).

(24.) Id.

(25.) Frank A. Sloan, Responses to the Malpractice Insurance "Crisis" of the 1970s: An Empirical Assessment, 9 J. Heath POL. Pol'y & L. 629, 629 (1985).

(26.) Malpractice: The State Steps In, Time, May 5, 1975, at 82.

(27.) Id.

(28.) Malpractice Mess, Time, June 9, 1975, at 18.

(29.) Malpractice: MDs Revolt, Newsweek, June 9, 1975, at 58.

(30.) Id.

(31.) Sloan, supra note 25.

(32.) Id.

(33.) Id.

(34.) Hearings, supra note 1, at 76.

(35.) H.R. 5, 108th Cong. (2003).

(36.) Hearings, supra note 1, at 2.

(37.) Marc A. Rodwin, et al., Malpractice Premiums and Physicians' Income: Perceptions of a Crisis Conflict with Empirical Evidence, 25 Health Aff. 750, 757 (2006).

(38.) Id. at 750.

(39.) Medical Liability Monitor Reporter 27 (Aug. 2002) (on file with the author); see also Medical Liability Monitor Reporter 28 (Oct. 2003) (on file with the author).

(40.) Medical Liability Monitor, http://www.medicalliabilitymonitor.com (last visited Feb. 26, 2015).

(41.) LMS and Best Practices Medical Partners Enter Agreement for CALM Shoulder Screen Risk Management Tool, PRNewswire (Aug. 21, 2007), http://www.prnewswire.com/news-releases/lms-and-best-practicesmedical-partners-enter-agreement-for-calm-shoulder- screen-risk- management-tool-58318962.html.

(42.) See generally, Jacqueline Shoyeb, Study: Pa. Malpractice Fees Driving Away Young Doctors, Pittsburgh Post-Gazette, July 18, 2005, at Al, available at 2005 WLNR 11251412.

(43.) Joy Davia, Malpractice Insurance Soars, ROCHESTER DEMOCRAT & Chronicle, Feb. 25, 2003, available at 2003 WLNR 17961223.

(44.) Id.

(45.) See generally, Brandon Stahl, High-risk Health Providers Stay in Business Thanks to State Insurance, Star Tribune, May 5, 2013, http://www.startribune.com/local/206125891.html; Darshak Sanghavi, Medical Malpractice: Why is it so Hard for Doctors to Apologize?, Bost. Globe, Jan. 27, 2013, http://www.bostonglobe.com/magazine/2013/01/27/medicalmalpractice-why-hard-for-doctors -apologize/c65KIUZraXekMZ8SHlMsQM/story.html; Christopher Flavelle, Op-Ed, Pay Doctors Less, Pittsburgh Post-Gazette, Dec. 14, 2012, http://www.post-gazette.com/opinion/Op Ed/2012/12/14/Pay-doctors-less/stories/201212140254; Katharine Q. Seelye & Andrew Keh, Parent's Right, or Professional's Privacy?, N.Y. Times, Feb. 3, 2011, at A14.

(46.) See, e.g., Leonard J. Nelson et al., Medical Liability and Health Care Reform, 21 Health Matrix 443, 469 (2011); Aaron E. Carroll et al., The Impact of Defense Expenses in Medical Malpractice Claims, 40 J.L. Med. & ETHICS 134, 135 (2012); Jessica Wolpaw Reyes & Rene Reyes, The Effects of Malpractice Liability on Obstetrics and Gynecology: Taking the Measure of a Crisis, 47 New Eng. L. Rev. 315, 321 (2012).

(47.) See, e.g., Amy Sorrel, AMA Analysis Reaffirms: Tort Reforms Work, Am. Med. News (Mar. 3, 2008), http://www.ama assn.org/amednews/2008/03/03/prsa0303.htm.

(48.) Id.

(49.) See 2002 Rate Survey Finds Malpractice Premiums Are Soaring, Med. Liability Monitor, Oct. 2002, at I-IV (on file with the author); AMA Analysis Reaffirms: Tort Reform Works, Am. Med. News (Mar. 3, 2008), available at http://www.amaassn.org/amednews /2008/03/03/prsa0303.htm.

(50.) Am. Med. News, supra note 49.

(51.) U.S. Gov't Accountability Office, GAO-03-702, Medical Malpractice Insurance: Multiple Factors Have Contributed to Increased Premium Rates 1 (2003) [hereinafter GAO Report].

(52.) Id. at 9.

(53.) Id.

(54.) Interview with Stephen Langlois, Director of Underwriting-Actuarial Services, ProMutual Group (2005).

(55.) Id.

(56.) See, e.g., Kathryn Zeiler et al, Physicians' Insurance Limits And Malpractice Payments: Evidence From Texas Closed Claims, 1990-2003, 36 J. Legal Stud. s9, s37 (2007). ("[E]mpirical studies that fail to address policy size may generate findings that are suspect. For example, the Medical Liability Monitor (MLM), a widely used source of data, provides pricing information for $1 million primary policies. If many or most doctors carry policies with different limits, MLM-based studies may mischaracterize trends in insurance pricing.").

(57.) John Commins, MGMA: Docs Trim Practice Expenses, But Operating Costs Soar, HealthLeaders Media (Sept. 22, 2011), http://www.healthleadersmedia.com/content/LED-271265/MGM ADocs-Trim-Practice-Expenses-But-Operating-Costs-Soar#%23.

(58.) Id.

(59.) Tom Baker, Medical Malpractice and the Insurance Underwriting Cycle, 54 DePaul L. Rev. 393, 409 (2005); see generally Kurt Karl et al., Capital Markets and Insurance Cycles, 4 J. Risk Finance 40, 40 (2003).

(60.) Michelle M. Mello, The Robert Wood Johnson Found., Understanding Medical Malpractice Insurance: A Primer 12 (2006).

(61.) Id.

(62.) Barry R. Furrow et al., 2 Health law 349 (2d ed., 1995).

(63.) See Mello, supra note 60, at 12.

(64.) Id.

(65.) Id.

(66.) Id.

(67.) Baker, supra note 59, at 53.

(68.) Id.

(69.) Id.

(70.) Id.

(71.) Id.

(72.) Id.

(73.) See id. at 57.

(74.) Id.

(75.) Rodwin Et Al., supra note 37, at 755.

(76.) AO Report, supra note 51, at 27.

(77.) Am. Acad, of Actuaries, Subcomm. on Oversight and Investigations Comm, on Energy and Commerce U.S. House of Representatives Hearing on "Pennsylvania Medical Liability Insurance Crisis" (statement of James Hurley, ACAS, MAAA Chairperson), available at http://www.actuary.org/files/medmal_10feb03.4.pdf/medmal_10feb03.4.pdf.

(78.) David J. Nye et al., The Causes of the Medical Malpractice Crisis: An Analysis of Claims Data and Insurance Company Finances, 76 Geo. L.J. 1495, 1526 (1988); John Conyers, Jr., The Health Act--A Bad Prescription for Consumers, 27 Seton Hall Legis. J. 191, 193 (2003).

(79.) Conyers, supra note 78, at 193.

(80.) The surveys were conducted by the AMA Center for Health Services Research (1970-1992), Socio-Economic Monitoring System (1992-1999), and the Patient Center Physician Survey (2000). The AMA published this data in numerous publications, some of which reported data for one year only and others reported data for more than one year. There was often a lag between when the data was collected and when the AMA published reports analyzing the data. Unless otherwise provided, all figures (1-10) in Part III of this article rely on AMA data from one or more of the follow data sources. 1970 data from AM. Med. Ass'n, Profile of Medical Practice (S. G. Vahovich ed., 1973); 1986 data from Am. Med. Ass'n, Physician Marketplace Statistics 1978-1998 (M. L. Gonzalez & P. Zhang eds., 1999); Am. Med. Ass'n, Physician Marketplace Statistics (M. L. Gonzalez ed., 1988); 1996 data from Am. Med. Ass'n, Physician Socioeconomic Statistics 1997-1998 (M. L. Gonzalez & P. Zhang eds., 1998); and 2000 data from Am. Med. Ass'n, Physician Socioeconomic Statistics 2000-2002 (J. D. Wassenaar & S. L. Thran eds., 2003) [hereinafter AMA Surveys].

(81.) These AMA surveys collected data from self-employed physicians who were engaged in solo or group practice, which in 2000 represented 61.5% of practicing physicians in the United States.

(82.) The AMA surveys report a wide variety of data. It consistently reported national mean values for practice expenses, and practice revenue for all physicians and for practice specialties. It frequently reported values for the median, 25th percentile and 7th percentile of physicians nationally. Also, in reporting on regional trends the AMA reported income for all physicians but not for various practice specialties.

(83.) The AMA samples were consistently large with small standard deviations. For instance, in 2000, the AMA sample was based on 1,900 completed questioners.

(84.) See generally Jean M. Mitchell et al., Physicians' Responses to Medicare Fee Schedule Reductions, 38 Med. Care 1029, 1029 (2000).

(85.) Medicar Program: Revisions to Payment Policies Under the Physician Fee Schedule, 68 Fed. Reg. 63196, 63240 (Nov. 7, 2003) (to be codified at 42 C.F.R. pts. 410 & 414).

(86.) All dollar figures in this article are expressed in 2005 dollars. We chose to report 2005 dollars because one of the two principle studies from which data is drawn is expressed in 2005 dollars. By reporting the data in 2005, it is easier to compare our numbers with the other published studies. Readers interested in converting the values that we report in 2005 dollars to 2015 dollars, can do so by multiplying it by 1.20. They can obtain a CPI index calculator online that will make the conversion for them for any year they choose. See CPI Inflation Calculator, Bureau of Labor Statistics, http://www.bls.gov/data/inflation_calculator.htm (last visited Feb. 27, 2015).

(87.) See Bernard Black et al., Stability, Not Crisis: Medical Malpractice Claim Outcomes in Texas, 1988-2002, 2 J. Empirical Legal Stud. 207, 230 (2005).

(88.) The AMA did not report details on practice expenses for individual non-premium expenses in most years. I reported all the details on such individual expenses that I found in the AMA surveys.

(89.) Data drawn from the AMA surveys as reported in several AMA publications. The data was first analyzed for an article in Health Affairs where it was reported in constant 2000 dollars. In this article all this data has been reported in constant 2005 dollars so that it is comparable

(90.) Am. Med. Ass'n, Medical Liability Reform--Now! 10 (2013).

(91.) Id.

(92.) Id.

(93.) Id.

(94.) From 1986 to 2000, total mean premiums declined by $1,935 while total non-premium expenses increased $70,584.

(95.) The AMA distinguished between office expenses and furniture, supplies and utilities. The AMA included items other than these for office supplies.

(96.) Kenneth E. Thorpe, The Medical Malpractice 'Crisis': Recent Trends and the Impact of State Tort Reforms, 2004 Health Aff. W4-20, W4-26 (2004); see also Medical Liability/Medical Malpractice Laws, Nat'l Conf. of St. Legislature (Aug. 15, 2011), available at http:// www.ncsl.org/research/financial-services-and-commerce/medicalliability-medical-malpractice-laws.aspx.

(97.) H.R. 2754 (Haw. 2010), available at http://www. capitol. hawaii.gov/session2010/Bills/HB2754_.html.

(98.) H.R. Res. 14, 2010 Sess (Va. 2010), available at http://leg1.state. va.us/cgi-bin/legp504.exe?101+ful+HJ14.

(99.) The New England region: Massachusetts, New Hampshire, Vermont, Maine; the Pacific region: California, Oregon and Washington; the Mountain region: Montana, Idaho, Colorado, Wyoming; the Middle Atlantic region: New Jersey, New York, Pennsylvania, Delaware; the East North Central region: Illinois, Michigan, Ohio, Wisconsin; the West North Central region: Minnesota; the South Atlantic region: Florida; the East South Central region: Louisiana, Mississippi; and the West South Central region: Texas.

(100.) Supra Figure 2.

(101.) Maria Simbra, Disappearing Doctors--The High Cost of Rising Malpractice Premiums, Pittsburgh Business Times (Jan. 27, 2003), http://www.bizjournals.com/pittsburgh/stories/2003/01/27/focus4.html ?page=all.

(102.) Id.

(103.) Id.

(104.) Supra Figure 2.

(105.) Supra Figure 5.

(106.) Supra Figure 5.

(107.) Supra Figure 7.

(108.) Supra Figure 9.

(109.) A report by the Center for Studying Health System Change reveals that between 1995 and 2003 physician net income from medical practice declined 7% after adjusting for inflation and that the major factor was "flat or declining fees from public and private payers." Ha T. Tu & Paul B. Ginsburg, Ctr. for Studying Health Sys. Change, Losing Ground: Physician Income, 1995-2003 3 (2006). A study by professor Carol Simon, University of Illinois, and Patricia Born, an economist at the American Medical Association Center for Health Policy Research, shows that physician income declined from 1993 to 1994. They state that the "[d]ata ... are generally consistent with the hypothesis that managed care shifted the demand for physician services toward primary care providers while reducing utilization, fees, or both to physicians." Carol J. Simon & Patricia H. Born, Physician Earnings in a Changing Managed Care Environment, 15 Health Aff. 124, 127 (1996). The role of physician risk sharing and capitation is noted in Carol J. Simon & David W. Emmons, Physician Earnings at Risk: An Examination of Capitated Contracts, 16 Health Aff. 120, 120 (1997); see also Marsha R. Gold et al., A National Survey of the Arrangements Managed-Care Plans Make with Physicians, 333 NEJM 1678, 1678 (1995).

(110.) Gregory C. Pope & John E. Schneider, Trends in Physician Income, 11 Health Aff. 181, 191 (1992) (finding that "physicians' real income rose handsomely in the late 1980s.") Id. at 184. The authors concluded that the "[p]rovision of more services and higher profit per service contributed roughly equally to physician income growth in the 1980s." Id. at 188. The authors found that between 1982 and 1988, 42% of the growth of income was due to increased services and that 58% due to higher unit-profit margin. Id. at 188.

(111.) American Med. Assoc., AMA Council on Medical Services, CMS Report 12: Liability Insurance Premiums (2002) (noting the number in this AMA document are as reported and have not been converted in 2005 dollars) (on file with the author).

(112.) Id. (emphasis added)

(113.) Medicare Program: Revisions to Payment Policies Under the Physician Fee Schedule for Calendar Year 2004, 68 Fed. Reg. 63,196, 63,213 (Nov. 7, 2003).

(114.) Id.

(115.) See Medicare Program: Proposed Revisions, 72 Fed. Reg. 38,122 (July 12, 2007) (to be codified at 42 C.F.R. pts. 409, 410, 411, 413, 414, 415, 418, 423, 424, 482, 484, 485 and 491).

(116.) Medicare Program; Proposed Revisions to Payment Policies Under the Physician Fee Schedule for Calendar Year 2004, 68 Fed. Reg. 63,196, 63,240 (Nov. 7, 2003) (to be codified at 42 C.F.R. pts. 410 and 414).

(117.) Medicare Program, 68 Fed. Reg. at 63,240. Chart compiled by the authors.

(118.) Id.

(119.) See David Cay Johnston, Richest Are Leaving Even the Rich far Behind, N.Y. Times, June 5, 2005, http://www.nytimes.eom/2005/06/05/national/class/HYPERFINAL.html?pagewanted=all&_r=l& (citing chart titled "The Wealthiest Benefit More from Tax Cuts").

(120.) AMA data on physicians do not provide separate income data for women and men physicians. The Census data on earnings used above provide separate income data for women and men and no average for all individuals in these categories.

(121.) Figures for all other occupations are derived from Historical Income Tables: People, U.S. Census Bureau, http://www.census.gov/hhes/www/income/data/historical/people/ (last updated Sept. 16, 2014).

(122.) States that capped damage awards for non-economic damages: At $250,000 (AL, AR, CA, CO, ID, IN, KS, ME, MT, NC, TX); caps between $250,001 and $499,999 (AK, GA, HI, MI, MO, NV, NJ, OK, SC, UT); caps at $500,000 or higher (FL, IL, LA, MD, MA, MS, NE, NM, ND, OH, SD, VA, WV); jurisdictions without caps (AL, AZ, CT, DE, IA, KY, MN, NH, NY, OR, PA, RI, TN, VT, WA, WI, WY and Washington, D.C.). See Liability: Limits on Damage Awards, Am. Acad, of Family Physicians (Oct. 2005), available at http://www.aafp.org/dam/AAFP/documents/advocacy/legal/liability/ ES-LiabilityDamage-1005.pdf. See also Medical Liability/Medical Malpractice Laws, Nat'l Conf. On St. Legislatures, http://www.ncsl.org/research/financial-services-and-commerce/medical-liability-medical-malpractice-laws.aspx (last updated Aug. 15, 2011). Fourteen jurisdictions do not have a damage award limit or cap, thirty-eight jurisdictions have a limit or cap. Connecticut and Minnesota allow for a court to review of the damage awarded, but does not specify a specific limit or cap.

(123.) GAO Report, supra note 51, at 42.

(124.) Thorpe, supra note 96, at W 4-26-27.

(125.) David A. Hyman, et al., Estimating the Effect of Damages Caps in Medical Malpractice Cases: Evidence From Texas, 1 J. LEGAL ANALYSIS 356, 400 (2009).

(126.) Id.

(127.) Id.

(128.) Mass. Med. Soc., Adding Value, Making a Difference--2004 Annual Report 6-7 (2004) http://www.massmed.org/about/mms-2004annual-report-(pdf).

(129.) Mass. Gen. Laws ch. 231, [section] 60H (2000); Mass. Med. Soc'y, Background: Massachusetts Medical Liability Crisis (June 14, 2004) (on file with the author).

(130.) Massachusetts Becomes 20th State in a Medical Liability Crisis, PR Newswire (June 14, 2004), http://www.prnewswire.com/news releases/massachusetts-becomes-20th-state-in-a-medical-liability-crisis74960777.html.

(131.) Id.

(132.) Id.

(133.) U.S. Dept of Health & human Servs., Health Res. & Servs. Admin., National Practioner Data Bank--2005 Annual Report 72 (2005) http://www.npdb.hrsa.gov/resources/reports/2005NPDBAnnualReport.pdf.

(134.) Id. Calculations based on National Practitioner Data Bank. Data adjusted by state population from U.S. Census data for 2001-2004.

(135.) The author had restricted access to the raw data used to compile the figures in this section. As a result of this restriction, the Editor was unable to review the raw data before going to print.

(136.) See Johston, surpa note 119 (citing the chart "The Wealthiest Benefit More from Recent Tax Cuts").

(137.) Sloan & Chepke, supra note 12, at 5-15, 34-36.

(138.) ProMutual Group had eight rate groups in 1975. As it obtained more information, PMG refined its risk analysis. It used fifteen rate groups by 1990 and nineteen by 2005.

(139.) In 1990, PMG began to selectively discount rates within practice-specialty rate groups based on these and other factors. In 2000, PMG increased the frequency and size of its discounts and occasionally imposed surcharges on physicians it deemed high-risks.

(140.) 243 Mass. Code Regs. 2.07 (16) (1987).

(141.) 243 C.M.R. [section]2.07(16).

(142.) States vary on whether they require physicians to purchase liability insurance, and if so, what amount. However, even if states do not mandate that physicians must purchase a minimum dollar amount of liability insurance, often hospitals require that physicians do as a condition for granting physicians privileges to practice in the hospital.

(143.) PMG discounted rates in 2005 as follows:

* Interns, residents, and fellows working in a facility insured by PMG: 25% or 15%;

* Physicians in first and second year practice: 50% and 25%;

* Physicians in academic settings or community service treating patients 21 hours a week or less: 50%;

* Emergency medicine physicians: up to 20%;

* Physicians covered by the Federal Tort Claims Act: between 25% and 50%; and

* PMG reduced premiums additionally up to 25% for physicians deemed low-risk and surcharged physicians deemed high-risk up to 25%. Physicians with no closed claims over $10,000 received discounts between 3% and 15%, based on the duration of clean claims. Group practices with a favorable claims history also received discounts.

(144.) This number is obtained by taking the 2005 mean discount-and-surcharge-adjusted premium for $1M/$3M occurrence policies ($85,970) and subtracting the 1990 manual rate ($69,970) for $1M/$3M occurrence policies. See Figure 19 supra.

(145.) 243 Mass. Code Regs. 2.07 (16) (1987). Many states do not require physicians to purchase malpractice liability insurance and many states that do require that they purchase a low level of coverage. See Hyman et al., supra note 11, at 55.

(146.) Baker, supra note 59, at 396.

(147.) Kurt Karl et al., Capital Markets and Insurance Cycles, 4 J. Risk Fin. 40, 40-46 (2003).

(148.) Black, supra note 88, at 253.

(149.) See, e.g., Sara C. Charles, Jeffrey R. Wilbert, & J. Franke, Sued and Nonsued Physicians' Self-Reported Reactions to Malpractice Litigation, 142 Am. J. Psychiatry 437, 437 (1985) (discussing whether reactions reporting are unique to physicians being sued); see Sara C. Charles, Coping With a Medical Malpractice Suit, 174 W. J. Med. 55, 55 (2001).

(150.) The risk of liability also helps physicians justify their entrepreneurial practices that boost their income with little or no benefit to patients. Physicians often challenge insurers denial of payment by arguing that they need to perform those tests, exams, and services in order to protect themselves from malpractice liability. In fact, physicians typically receive income from performing those tests that have marginal or no value, while the risk of liability for not preforming them is small and remote.

(151.) See generally Marc A. Rodwin, Medicine, Money & Morals: Physicians' Conflicts of Interest (1993) (discussing the AMAs growth and policies); Marc A. Rodwin, Conflicts of Interest and the Future of Medicine: The United States, France, and Japan (2011).

(152.) U.S. President George W. Bush, Remarks Following a Discussion on Medical Liability Reform in Collinsville, Illinois, 10 (Jan 5, 2005), available at http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=CP D. See also Peter Baker, Bush Campaigns to Curb Lawsuits; President Says "Junk"' Litigation Is Driving Small-Town Doctors Out of Business, WASH. Post, Jan. 6, 2005, http://www.washingtonpost.com/wp dyn/articles/A50603-2005Jan5.html.

(153.) U.S. President Barack H. Obama, Address Before a Joint Session of the Congress on Health Care Reform, 7 (Sept. 9, 2009), available at http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=CP D.

(154.) See, e.g., Michelle M. Mello et al., Implementing Hospital-based, Communication-and-resolution Programs: Lessons Learned in New York City, 33 Health Aff. 30, 30 (2014) (providing the results of one demonstration project with five New York City hospitals).

Marc A. Rodwin, Justin Silverman, & David Merfeld [[dagger]]

[[dagger]] Marc A. Rodwin is a Professor of Law at Suffolk University Law School; Justin Silverman is an attorney at law in the law office of Justin Silverman, Esq.; David Merfeld is a CPA in private practice and a graduate of Suffolk University Law School. Thanks to Luke Shiundu Wanami and Soraya Sabri for their research assistance and thanks also to Tasha Levenson for her revisions and to Trish McLaughlin for her help in preparing the figures.
Figure 2. Mean malpractice premiums, non-premium expenses, and total
practice expenses for all self-employed physicians nationally,
1970-2000 including dollar changes for selected periods.

                          1970        1986        1996        2000

Non- Premium expenses   $115,589    $188,127    $253,349    $258,812
Malpractice Premium      $6,730      $22,803     $17,554     $20,868
Total Expenses          $122,319    $210,930    $270,903    $279,680

                         $ Change     $ Change     $ Change
                        1996-2000    1986-2000    1970-2000

Non- Premium expenses     $5,463      $70,686      $143,223
Malpractice Premium       $3,314      ($1,935)     $14,139
Total Expenses            $8,777      $68,751      $157,362

Note: Data adjusted by the CPI and expressed in constant 2005 dollars.

Figure 3. Mean medical malpractice premiums and non-premium expenses
for self-employed physicians surveyed by the AMA, selected years
1970-2000.

        Malpractice Premiums  Non-Premium Expenses

2000             7%                 $279,680
1996             6%                 $270,903
1986            11%                 $210,930
1970             6%                 $123,319

Note: Mean total expenses are shown in the bar graph.
Data adjusted by the CPI and expressed in constant 2005 dollars.

Note: Table made from bar graph.

Figure 5. Mean gross practice revenue, non-premium expenses,
malpractice premiums and net practice income, 1970-2000 including the
dollar change for each variable and selected periods.

                                     1970         1986         1996

All Physicians Practice Revenue    $333,854     $444,484     559.236
Total Practice Expenses            $122,319     $210.930     $270.903
Non- Malpractice expenses          $115.589     $188.127     $253,349
Malpractice Premiums                $6.730      $22,803      $17.554
Net Practice Income                $211.535     $233.555     $288,333

                                                $ Change
                                     2000      1996-2000

All Physicians Practice Revenue    $539.967    ($19.269)
Total Practice Expenses            $279.680      $8.777
Non- Malpractice expenses          $258,812      $5,463
Malpractice Premiums               $20.868       $3.314
Net Practice Income                $260,287    ($28.046)

                                   $ Change     $ Change
                                  1986-2000    1970-2000

All Physicians Practice Revenue    $95.483      $206,113
Total Practice Expenses            $68.751      $157.362
Non- Malpractice expenses          $70,686      $143.223
Malpractice Premiums               ($1.935)     $14.139
Net Practice Income                $26.732      $48.751

Note: Data adjusted by the CPI and expressed in constant 2005 dollars.

Figure 7. Mean gross revenue, non-premium expenses, malpractice
premiums and net practice income for all self-employed OB-GYNs
nationally, 1970-2000 including the dollar change for each variable
and for selected periods.

                              1970         1986         1996

OB/GYN Practice Revenue     $376,512     $523,761     $634,930
Total Practice Expenses     $139,433     $266,334     $332,529
All Non-Malpractice         $127,720     $214,136     $288,707
  Premium Expenses
Malpractice Premiums         $11,713      $52,198      $43,822
Net Practice Income          $237,09     $257,427     $302,401

                              2000       $ Change
                                        1996-2000

OB/GYN Practice Revenue     $626,049     ($8,882)
Total Practice Expenses     $350,565      $18,035
AH Non-Malpractice          $306,106      $17,399
  Premium Expenses
Malpractice Premiums         $44,459         $636
Net Practice Income         $275,484    ($26,917)

                            $ Change     $ Change
                           1986-2000    1970-2000

OB/GYN Practice Revenue     $102,288     $249,537
Total Practice Expenses      $84,231     $211,132
AH Non-Malpractice           $91,970     $178,386
  Premium Expenses
Malpractice Premiums        ($7,739)      $32,745
Net Practice Income          $18,057      $38,406

Note: Data adjusted by the CPI and expressed in constant 2005 dollars.

Figure 9. Self-employed physicians: regional variations in mean
malpractice premiums, total expenses, net income; premiums as a
percentage of total expenses and new income, selected years
1986-2000.

                             Middle          East North
          New England       Atlantic          Central

          $A      %B       $A      %B       $A      %B

Medical Malpractice Premiums
1986     19.1      --     26.5      --     23.8      --
1996     17.9      --     22.1      --     21.1      --
2000     14.4      --     26.3      --     21.2      --
Total Expenses
1986    168.5     11%    187.8     14%    189.4     13%
1996    211.1      8%    248.7      9%    262.8      8%
2000    298.7      5%    267.3     10%    291.2      7%
Net Income
1986      206      9%    222.3     12%    251.6      9%
1996    242.1      6%      288      8%    285.4      7%
2000    222.1      7%    229.3     11%    241.7      9%

          West North        National        South Atlantic
           Central

          $A      %B       SB       %B       $A       %B

Medical Malpractice Premiums
1986     24.3      --                       25.6       --
1996     14.3      --                       16.2       --
2000     17.2      --                       21.4       --
Total Expenses
1986    236.2     10%      211      11%    233.1      11%
1996    275.3      5%    270.9       6%    325.3       5%
2000    223.2      8%    280.1       7%    280.9       8%
Net Income
1986    229.7     11%    233.5      10%    239.4      11%
1996    313.9      5%    288.3       6%    294.2       6%
2000    236.4      7%    260.3       8%    230.9       9%

          East South         West South         Mountain
            Central            Central

          $A       %B       $A       %B       $A       %B

Medical Malpractice Premiums
1986       18       --     14.4       --     21.3       --
1996     15.7       --     14.3       --     18.7       --
2000     23.3       --     17.7       --     21.8       --
Total Expenses
1986    236.9       8%    247.5       6%    186.3      11%
1996    298.7       5%    266.9       5%    278.9       7%
2000    296.1       8%    269.2       7%    264.6       8%
Net Income
1986    250.3       7%    249.7       6%    208.8      10%
1996    335.9       5%    299.9       5%    295.1       6%
2000    258.4       9%    256.5       7%    223.8      10%

             Pacific          National

          $A       %B       $A       %A

Medical Malpractice Premiums
1986     22.8       --     22.8
1996     14.7       --     17.6
2000     16.7       --     20.9
Total Expenses
1986    209.5      11%      211      11%
1996    247.1       6%    270.9       6%
2000    297.3       6%    280.1       7%
Net Income
1986    225.7      10%    233.5      10%
1996    262.2       6%    288.3       6%
2000    215.6       8%    260.3       8%

Note: Data adjusted by Consumer Price Index to constant 2005 dollars.

$A: Thousand dollars;
%B: Premiums as a percentage of the variable (total expenses, net
income, or revenue) in the year shown in column 1.

Figure 10(a). Allocation of gross practice revenue for physicians
nationally, 2004, as determined by Medicare. (117)

Medical Equipment            2%
Malpractice Premiums         4%
Drugs, Medical Materials     4%
Other Expenses               6%
Office Expenses             12%
Office Payroll              19%
Physician Earnings          53%

Note: Table made from pie chart.

Figure 10(b). Malpractice premiums as a percentage of total practice
expenses for physicians nationally, 2004. (118)

Medical Equipment           4%
Malpractice Premiums        8%
Drugs, Medical Materials    9%
Other Expenses             14%
Office Expenses            26%
Office Payroll             39%

Note: Table made from pie chart.

Figure 11. Mean physician income relative to mean income for all full-
time year round workers and people with professional degrees,
doctorates, and master's degrees in 2000.

                  Full Time    Physicians   Professional
                   Workers                    Degrees

All Physicians                  $260,287
Men                $59,884                    $135,501
Women              $39,701                    $69,126

                    Ph.D.       Master's
                                Degrees

All Physicians
Men                $104,039     $88,123
Women              $60,523      $51,705

Sources: Full Time Worker Income from U.S. Census Bureau, Table P-37
Full-Time Year-Round All Workers by Mean Income and Sex: 1955-2013;
(121) Physician income from AMA Surveys; Professional Degree,
Doctorate, and Master's Degree income from U.S. Census Bureau, Table
P-18 Educational Attainment-People 25 years Old and Over by Mean
Income and Sex: 1991-2013.

Note: Data adjusted by the CPI and expressed in constant 2005 dollars.

Figure 13. Massachusetts mean manual premium rates for all physicians
and physicians divided into five tiers for $1-$3 million coverage
occurrence policies unadjusted by count, 1975-2005.

            1975       1980       1985       1990

Tier 5     $3,870     $2,990     $9,215    $10,056

Tier 4     $8,978     $7,460    $22,211    $23,276

Tier 3    $14,152    $11,984    $41,561    $41,883

Tier 2    $20,098    $17,184    $60,594    $55,269
Tier 1    $18,547    $15,827    $58,263    $66,927

5 Tier     $7,095     $5,811    $19,028    $19,855
Average

            1995       2000       2005

Tier 5     $7,202     $7,472    $12,165

Tier 4    $16,325    $16,538    $24,417

Tier 3    $26,998    $25,625    $36,557

Tier 2    $33,271    $30,013    $44,686
Tier 1    $58,055    $61,148    $89,319

5 Tier    $13,955    $13,987    $21,245
Average

Figure 14. Distribution of physicians by dollar amount of manual
premium rates, prior to discounts and surcharges, for occurrence
policies of $l-$3 million and $2-$6 million coverage, 1990-2005.

S1/S3 Million Occurrence Policies

                 1990      1995       2000     2005

Under 10K         56%       70%       70%       29%

10K to 20K        16%       16%       16%       49%

20K to 30K        14%        5%        7%        8%

30K to 40K         2%        4%        3%        5%

40K to 50K         2%        1%        1%        4%

50K to 60K         2%        4%        4%        0%

60K to 70K         8%        0%        0%        0%

Over 70K           0%        0%        0%        4%

Count           5,632     9,438     7,179     5,678

S2/S6 Million Occurrence Policies

                 1990      1995      2000      2005

Under 10K         17%       56%       39%       23%

10K to 20K        62%       33%       46%       40%

20K to 30K         9%        5%        8%       20%

30K to 40K         3%     0.80%        2%       12%

40K to 50K         0%     0.60%        2%        2%

50K to 60K         2%     0.60%        0%        2%

60K to 70K         0%     0.09%        0%        0%

Over 70K           7%        4%        3%        1%

Count             670     1.067     2.209     2.358

Figure 15. Mean manual premiums for five physician tiers weighted by
the number of physicians in each rate group for $1-$3 million and $2-
$6 million occurrence policies, 1990-2005 including percentage of
physicians in each tier, 1990-2005.

$1/$3 Million Occurrence Policies

             1990        1995        2000        2005

Tier 5      $9,119      $7,098      $7,281      $10,375
              72%         78%         79%         78%
Tier 4      $23,875     $15,988     $16,331     $24,916
              14%         8%          7%          8%
Tier 3      $41,932     $27,039     $25,376     $36,557
              4%          5%          5%          5%
Tier 2      $51,815     $37,024     $32,856     $44,289
              2%          4%          5%          4%
Tier 1      $66,220     $60,981     $65,612     $95,045
              8%          5%          4%          4%
5 Tier      $17,807     $12,891     $12,551     $17,810
Mean
No. of       5,632       9,438       7,179       5,678
Doctors

$21 $6 Million Occurrence Policies

             1190        1995        2000        2005

Tier 5      $13,446     $8,812      $10,214     $14,658
              83%         90%         84%         84%
Tier 4      $31,127     $21,104     $22,601     $30,153
              8%          4%          8%          12%
Tier 3      $62,464     $38,569     $35,961     $45,422
              3%          1%          2%          2%
Tier 2      $71,225     $52,160     $46,511     $55,003
              0%          1%          2%          2%
Tier 1      $94,307     $83,236     $95,867    $117,541
              5%          4%          3%          1%
5 Tier      $20,872     $13,115     $15,067     $18,722
Mean
No. of        670        1,067       2,209       2,358
Doctors

Source: Medical Professional Mutual Insurance Co.

Note: All data adjusted by CPI and expressed in constant 2005 dollars.
Practice specialties divided into tiers charged similar rates.

Figure 16. 2005 manual premium rates in dollars for first-year claims
-made--mature claims-made policies and occurrence policies for $1-$3
million coverage, percentage distribution of physicians purchasing
occurrence policies by rate group, 1990-2005.

Rate       1st       2nd       3rd       4th     Mature    Occur-
Group     Year      Year      Year      Year     Claims     rence
         Claims    Claims    Claims    Claims     Made
          Made      Made      Made      Made

1         1,650     2,749     4,125     4,950     5,498     5,123
2         2,092     3,485     5,229     6,274     6,970     6,493
3         3,559     5,930     8,897    10,675    11,863    11,050
4         3,873     6,454     9,682    11,616    12,908    12,023
5         4,021     6,704    10,055    12,064    13,405    12,413
6         4,528     7,546    11,318    13,580    15,089    14,055
7         5,068     8,447    12,674    15,208    16,897    15,739
8         5,613     9,356    14,033    16,838    18,709    17,327
9         5,881     9,803    14,706    17,646    19,607    18,266
10        6,111    10,184    15,277    18,332    20,370    18,974
11        7,716    12,862    19,293    23,151    25,724    23,822
12        7,880    13,135    19,701    23,641    26,268    24,327
13        8,131    13,553    20,331    24,396    27,108    25,251
14       11,842    19,737    29,606    35,527    39,474    36,557
15       14,270    23,781    35,672    42,807    47,563    44,046
16       14,527    24,212    36,320    43,582    48,425    44,846
17       23,350    38,918    58,377    70,054    77,836    72,080
18       29,386    48,975    73,463    88,156    97,951    90,710
19       31,503    52,502    78,754    94,506    105,006   97,243

         Percentage Distribution of Physicians
Rate       Purchasing Occurrence Policies by
Group           Rate Group 1990-2005

              1990     1995     2000     2005

1             7.0%     9.5%    11.9%    14.2%
2             4.1%    14.3%    14.4%    14.7%
3            44.7%    10.7%    10.8%    12.7%
4             9.9%    22.6%    21.3%    21.8%
5             2.1%     1.7%     1.7%     1.4%
6             1.8%     2.4%     2.6%     2.3%
7             2.2%     5.8%     5.6%     4.7%
8             6.3%     4.9%     5.3%     3.4%
9             0.1%     3.0%     1.9%     0.5%
10            8.0%     2.8%     3.1%     2.6%
11            2.2%     0.1%     0.0%     0.2%
12            1.7%     2.3%     2.5%     2.5%
13            1.6%     5.5%     4.9%     5.2%
14            2.8%     4.9%     5.0%     5.4%
15            5.6%     2.6%     3.1%     3.0%
16                     1.4%     1.6%     1.3%
17                     0.6%     0.5%     0.2%
18                     0.5%     0.4%     0.6%
19                     4.4%     3.4%     3.2%

Total
Number
of
Physicians    5,632   9,438    7,179    5,678

Source: Medical Professional Mutual Insurance Co.

Note: All data adjusted by CPI and expressed in constant 2005 dollars.

Figure 17. Top three practice specialty manual premium rates and mean,
median, low, and high premiums adjusted for discounts and surcharges
for $1/$3 million and $2/$6 million occurrence policies.

                                   Mean
                     Manual     Discount/       Low
                                Surcharge
                    Premium      Adjusted     Premium
                                 Premium

2000 $1/$3 Million Occurrence Policies

Ortho/ Spinal *     $43,687      $33,028      $21,844

Neurology           $62.182      $46,481      $31,091

Ob/Gyn **           $69,361      $53,172      $34,681

Tier 1 Mean         $61,148      $50,134        N/A

2005 $1/$3 Million Occurrence Policies

Ortho/Spinal *      $72,080      $60,028      $36,040

Neurology           $90,710      $74,056      $45,355

Ob/Gyn **           $97,243      $85,979      $48,622

Tier 1 Mean         $86.678      $82,936        N/A

2000 $21 $6 Million Occurrence Policies

Ortho/Spinal *      $61,442        N/A          N/A

Neurology           $87,451      $64,268      $43,726

Ob/Gyn**            $97,550      $76,723      $48.775

Tier 1 Mean         $85,998      $74,647        N/A

2005 $2/$6 Million Occurrence Policies

Ortho/Spinal *      $89,559      $80,603      $71,647

Neurology           $112,706     $112,706     $112,706

Ob/Gyn **           $120.823     $122,962     $108,741

Tier 1 Mean         $110.978     $116.429       N/A

                     Median
                   Discount/       High
                   Surcharge
                    Adjusted     Premium
                    Premium

2000 $1/$3 Million Occurrence Policies

Ortho/ Spinal *     $30,581      $56,794

Neurology           $43,527      $80,837

Ob/Gyn **           $55,489      $90,170

Tier 1 Mean                        N/A

2005 $1/$3 Million Occurrence Policies

Ortho/Spinal *      $57,664      $85,496

Neurology           $72.568      $108,852

Ob/Gyn **           $77,794      $145,865

Tier 1 Mean                        N/A

2005 $2/$6 Million Occurrence Policies

Ortho/Spinal *        N/A          N/A

Neurology           $61,216      $96,196

Ob/Gyn**            $78,040      $117.060

Tier 1 Mean                        N/A

2005 $2/$6 Million Occurrence Policies

Ortho/Spinal *      $80,603      $89,559

Neurology           $112,706     $112,706

Ob/Gyn **           $120,823     $157,070

Tier 1 Mean                        N/A

Source: Medical Professional Mutual Insurance Co.

Note: All data adjusted by Consumer Price Index and expressed in
constant 2005 dollars.

* Ortho/Spinal: Orthopedics performing spinal surgery;

** OB/GYN includes OB/major surgery.

Figure 18. Percentage distribution of physicians receiving various
discounts and surcharges in top three practice specialties, for $1-$3
million and $2-$6 million occurrence policies, 2000-2005.

                       Ortho/Spinal Surgery *

                  $1/$3Million    $2/$6 Million
                   Occurrence      Occurrence

                  2000    2005    2000    2005

50% Discount       8%      6%      0%      0%
40% Discount       22%     0%      0%      0%
30% Discount       24%     28%     0%      0%
20% Discount       26%     28%     0%      50%
10% Discount       6%      17%     0%      0%
Manual Rate        8%      11%    100%     50%
10% Surcharge      2%      6%      0%      0%
20% Surcharge      0%      6%      0%      0%
30% Surcharge      4%      0%      0%      0%
40% Surcharge      0%      0%      0%      0%
50% Surcharge      0%      0%      0%      0%

                              Neurology

                  $1/$3 Million   $2/$6 Million
                   Occurrence      Occurrence

                  2000    2005    2000    2005

50% Discount       18%     7%      22%     0%
40% Discount       15%     0%      7%      0%
30% Discount       23%     30%     36%     0%
20% Discount       23%     21%     7%      0%
10% Discount       10%     30%     14%     0%
Manual Rate        5%      5%      7%     100%
10% Surcharge      0%      0%      7%      0%
20% Surcharge      5%      7%      0%      0%
30% Surcharge      3%      0%      0%      0%
40% Surcharge      0%      0%      0%      0%
50% Surcharge      0%      0%      0%      0%

                       Obstetrics/Gynecology

                  $1/$3Million    $2/$6 Million
                   Occurrence      Occurrence

                  2000    2005    2000    2005

50% Discount       11%     2%      0%      0%
40% Discount       14%     0%      33%     0%
30% Discount       19%     27%     17%     0%
20% Discount       34%     26%     10%     0%
10% Discount       10%     21%     27%     6%
Manual Rate        6%      3%      7%      82%
10% Surcharge      0%      8%      0%      6%
20% Surcharge      4%      7%      7%      0%
30% Surcharge      2%      3%      0%      6%
40% Surcharge      0%      1%      0%      0%
50% Surcharge      0%      2%      0%      0%

Source: Medical Professional Mutual Insurance Co.

Note: Ortho/Spinal: Orthopedics performing spinal surgery.

Figure 19. OB-GYN manual rates and mean, low, and high premiums
adjusted for discounts and surcharges, for 2000 and 2005 for $1-$3
million first year through mature claims-made and occurrence policies,
1990 manual rates.

2000

Ob/Gyn $1/     Count       2000         Mean         Low
$3 Million                Manual     Discount/     Premium
Policies                   Rate      Surcharge
                                      Adjusted
                                      Premium

1st Year CM      0        $9,313
2nd Year CM      0       $19,849
3rd Year CM      0       $36,567
4th Year CM      0       $60,031
Mature CM        31      $74,561      $63,016      $37,281
Occurrence      242      $69,361       $3,172      $34,681

2005

Ob/Gyn $1/     Count       2005         Mean         Low
$3 Million                Manual     Discount/     Premium
Policies                   Rate      Surcharge
                                      Adjusted
                                      Premium

1st Year CM      21      $31,503       27,303       22,052
2nd Year CM      IS      $52,502      $60,902      $36,751
3rd Year CM      4       $78,754      $72,847      $55,128
4th Year CM      13      $94,506      $87,963      $66,154
Mature CM        13      $105,006     $102,583     $52,503
Occurrence      182      $97,243       85,979      $48,621

2000

Ob/Gyn $1/       Median        High         1990
$3 Million     Discount/     Premium       Manual
Policies       Surcharge                    Rate
                Adjusted
                Premium

1st Year CM                                $6,100
2nd Year CM                               $16,763
3rd Year CM                               $31,242
4th Year CM                               $52,383
Mature CM       $59,649      $96,930      $68,359
Occurrence      $55,489      $90,170      $69,086

2005

Ob/Gyn $1/       Median        High         1990
$3 Million     Discount/     Premium       Manual
Policies       Surcharge                    Rate
                Adjusted
                Premium

1st Year CM     $25,202      $47,255       $6,100
2nd Year CM     $63,002      $78,753      $16,763
3rd Year CM     $66,941      $102,380     $31,242
4th Year CM     $85,055      $113,407     $52,383
Mature CM       $105,006     $136,508     $68,359
Occurrence      $77,794      $145,865     $69,086

Source: Medical Professional Mutual Insurance Co.

Note: All data adjusted by CPI and expressed in constant 2005 dollars.

CM: Claims made.

Figure 20. Estimate, distribution of polices sold by dollar amount of
coverage and by major types of policy, 1990-2005.

YEAR            TYPE OF POLICY            $1M/    $2M/    Less than
                                           $3M     $6M     $1M/$3M

1990   Less than Mature Claims Made       1.2%    0.4%      0.1%
       Mature Claims Made                 17.0%   2.6%      1.5%
       Occurrence                         53.1%   5.4%      6.4%
       Total % of S Coverage Purchased    71.3%   8.4%      8.1%

1995   Less than Mature Claims Made       0.9%    0.3%      0.0%
       Mature Claims Made                 16.4%   2.3%      1.1%
       Occurrence                         66.6%   8.9%      3.5%
       Total % of $ Coverage Purchased    83.9%   11.5%     4.6%

2000   Less than Mature Claims Made       0.3%    0.2%      0.0%
       Mature Claims Made                 10.9%   2.3%      0.2%
       Occurrence                         61.0%   22.9%     0.6%
       Total % of $ Coverage Purchased    72.2%   25.4%     0.8%

2005   Less than Mature Claims Made       4.8%    1.2%      0.0%
       Mature Claims Made                 8.0%    2.6%      0.1%
       Occurrence                         54.6%   26.6%     0.6%
       Total % of $ Coverage Purchased    67.4%   30.3%     0.7%

YEAR            TYPE OF POLICY            More than   Undefined
                                           $2M/$6M

1990   Less than Mature Claims Made         0.0%        0.2%
       Mature Claims Made                   0.0%        4.3%
       Occurrence                           0.0%        7.7%
       Total % of S Coverage Purchased      0.0%        12.3%

1995   Less than Mature Claims Made         0.0%        0.0%
       Mature Claims Made                   0.0%        0.0%
       Occurrence                           0.0%        0.0%
       Total % of $ Coverage Purchased      0.0%        0.0%

2000   Less than Mature Claims Made         0.0%         0.0
       Mature Claims Made                   0.1%        0.0%
       Occurrence                           1.3%        0.1%
       Total % of $ Coverage Purchased      1.4%        0.1%

2005   Less than Mature Claims Made         0.0%        0.0%
       Mature Claims Made                   0.1%        0.0%
       Occurrence                           1.5%        0.0%
       Total % of $ Coverage Purchased      1.6%        0.0%

YEAR            TYPE OF POLICY            Total % of
                                          Each Type
                                          of Policy

1990   Less than Mature Claims Made          2.0%
       Mature Claims Made                   25.4%
       Occurrence                           72.6%
       Total % of S Coverage Purchased      100.0%

1995   Less than Mature Claims Made          1.2%
       Mature Claims Made                   19.8%
       Occurrence                           79.0%
       Total % of $ Coverage Purchased      100.0%

2000   Less than Mature Claims Made          0.6%
       Mature Claims Made                   13.5%
       Occurrence                           85.9%
       Total % of $ Coverage Purchased      100.0%

2005   Less than Mature Claims Made          6.0%
       Mature Claims Made                   10.7%
       Occurrence                           83.2%
       Total % of $ Coverage Purchased      100.0%
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Title Annotation:IV. Do Some States Have a Premium Crisis? through V. Why the Crisis Persists, with footnotes, p. 198-234
Author:Rodwin, Marc A.; Silverman, Justin; Merfeld, David
Publication:Health Matrix
Date:Jan 1, 2015
Words:15436
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