Malpractice Insurance Rates Increasing After Stable Period
August 1, 2024
Executive Summary
Malpractice insurance premiums are rising after being stable for years. The proportion of premiums that decreased over previous years dropped.
- The increases coincide with a drop in the number of malpractice claims.
- Higher severity and payouts contributed to the increased premiums.
- Defense costs have increased, which is reflected in premiums.
After a dozen years of medical malpractice insurance rates holding stable, a recent analysis by the American Medical Association (AMA) shows that 36.2% of medical liability insurance premiums increased over the previous year, the highest rate since 2005.
The AMA’s data include the 2013-2022 period. The report shows that premiums had been “increasingly stable through 2018, when 80.8% remained the same as in the previous year. Since then, however, stability has been slowing. Despite a small increase from 60.8% in 2020 to 64.0% in 2021, the proportion of premiums that remained the same fell to 56.1% in 2022.”
Premium decreases also have become less frequent, the report says. The proportion of premiums that fell in 2013 was 28.7%, but only 7.8% 2022. Most of the decreases, 62.9%, occurred in the six states that have a Patient Compensation Fund (PCF), in which physicians pay a surcharge in addition to the premium paid to insurers.
“Moreover, the premium decreases in the PCF states were entirely driven by decreases in the surcharge, rather than in the premium itself,” the report says. “Considering changes in only the premium — ignoring surcharges — there would have been no premium decreases at all in PCF states. Consequently, the share of all premiums (PCF and non-PCF states) that decreased would have been 2.9%, rather than 7.8%.”
The report says the most significant finding for the last four years is that more premiums have increased than in any year since the 2000s.
“The proportion of premiums that went up in 2018 almost doubled in 2019, from 13.7% to 26.5%. In 2020, this share grew to 31.1% of premiums that increased from the previous year,” the report says. “Once again, and despite a small dip in 2021, 36.2% of premiums increased in 2022, which was higher than in any year since 2005. And among the premiums that increased last year, the average hike was 8.1%.”
(The AMA report is available online at https://bit.ly/4clxceg.)
The AMA’s report focuses on the rise in medical malpractice insurance premiums, but what is notable is that this history of premium increases coincides with a decline in the number of malpractice claims in the last decade, says Paul F. Schmeltzer, JD, senior attorney with the Clark Hill law firm in Los Angeles. There are a number of factors contributing to this decline in claims, he says.
Tort reform measures, such as caps on non-economic damages, are helping to corral the cost of payouts, he says. Providers increasingly are relying on new technology to aid their clinical decision-making, improve patient safety, and reduce their liability risk. And insurers are employing data collection and analysis to identify the root causes of malpractice claims, leading to more effective prevention strategies, Schmeltzer says.
“However, the decrease in medical malpractice claims has been offset by an increase in payouts per malpractice claim due to the severity and complexity of the claims that are filed. As the complexity of medical treatments increases, so does the risk for error,” he says. “The medical malpractice claims being filed are leading to larger settlements and jury awards, particularly for catastrophic injuries. The legal costs of defending malpractice claims are also increasing. thereby contributing to the higher costs for insurers.”
While the COVID pandemic’s effect on medical malpractice insurance premiums remains unclear, the rapid adoption of telemedicine during pandemic introduced new dynamics in malpractice risk for providers, Schmeltzer says. In the past year, he says he has seen an increase in telemedicine clients confronting medical malpractice claims due to medication errors and misdiagnosis.
“Some healthcare practices are taking notable efforts to proactively mitigate their malpractice risk exposure through the implementation of a comprehensive risk management program and the adoption of patient safety initiatives such as checklists, protocols, policies, and procedures to address high-risk patients and treatments,” Schmeltzer says. “Electronic health records are increasingly rich with data analytics tools designed to monitor and improve patient care and identify patterns that could lead to malpractice claims.”
Schmeltzer also is seeing an increase in education and training programs for providers to educate them on best practices and new medical procedures. Healthcare organizations and providers can do their part to rein in the rising malpractice premium costs, he says. Providers have a critical role to play in patient safety and the reduction in the incidence and impact of malpractice claims. As the healthcare practice’s “face” for most patient interactions, providers must communicate clearly and honestly with patients about their care and potential risks to prevent misunderstandings that lead to malpractice claims, Schmeltzer says.
“Providers must ensure that all patient interactions, treatments, and decisions are thoroughly documented in the patient’s medical record, whether this is in a paper chart or electronic health record,” he says. “I cannot emphasize enough how important documentation is to preventing and defending against medical malpractice claims.”
If they have not already done so, healthcare practices should establish a comprehensive risk management program that includes regular audits, incident reporting systems, and analysis of near-misses, Schmeltzer says.
Practices should embrace and responsibly use technologies like electronic health records, data analytics, and artificial intelligence to monitor patient care and identify potential risks early, he says.
“It is also critical to develop and enforce standardized procedures and protocols to ensure consistency in patient care, especially for high-risk treatments. Healthcare practices must get everyone to buy the importance of having a culture of safety, where staff can report errors and near-misses without fear of retribution,” Schmeltzer says. “Important to this mission is continuous and periodic training and education to healthcare providers on the latest medical practices, legal requirements, and risk management strategies to reduce the practice’s exposure to medical malpractice claims. Risk mitigation truly requires a team effort.”
Attorneys Seeking Big Verdicts
“Nuclear verdicts” are responsible for much of the premium increases, says Robert G. Koch, principal and client advisor with Argus Risk Advisors, A World Company, in Iselin, NJ. Plaintiffs’ attorneys are going for cases with the biggest possible verdicts to make up for tort reform efforts in many states, he says.
“You’re starting to see these $10 million and more claims pop up all over the place. You also have lawyers that have basically started learning the system better, and legal defense costs are going up,” Koch says. “All these things factor into how a carrier then has to then turn around and make sure they’re solvent. Expenses have gone up and there is uncertainty in the market.”
Many insurers anticipated these trends and started raising premiums proactively rather than waiting until they felt the financial losses, he says. That makes it possible to impose 5% increases for a few years rather than hitting insureds with a 20% increase in one year, Koch explains.
“The market definitely is changing. There is a lot more work that has to go into taking care of clients and making sure that they’re in the right spots, and rates change from year to year from specialty to specialty,” he says. “Carriers look at things differently and it depends on how their historical data has looked over a period of time.”
Rising premiums can be countered by encouraging physicians to take advantage of risk management programs offered by carriers.
“Certain states have mandatory risk management where physicians have to do it, no matter what, but I also encourage a lot of our insurance carriers in other states to do risk management programs because it benefits them in a financial way,” Koch says. “They’ll give credit to physicians that do these risk management programs because they feel like it’s a proactive way of slowing down claims. I don’t think you ever really can stop it, but it definitely can help prevent poor situations and poor outcomes.”
Sources
- Robert G. Koch, Principal, Client Advisor, Argus Risk Advisors, A World Company, Iselin, NJ. Telephone: (800) 769-4624, x1368. Email: [email protected].
- Paul F. Schmeltzer, JD, Clark Hill, Los Angeles. Telephone: (213) 417-5163. Email: [email protected].
After a dozen years of medical malpractice insurance rates holding stable, a recent analysis by the American Medical Association (AMA) shows that 36.2% of medical liability insurance premiums increased over the previous year, the highest rate since 2005.
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