Future Forum: Guilt, Innocence, and the Death Penalty 
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The doctor makes his cut. The lawyer and the insurance man take their cut. You just get cut.
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Lawyers usually take a malpractice case on the arrangement that if they lose the case they get nothing; if they win they get anywhere from a quarter to a half. The average seems to be around 40 per cent. Doctors object violently to the system: they say it stimulates lawsuits. “The more you sue, the more chances you have,” says one surgeon. “I’d practice medicine on a contingent fee basis: if you don’t live through the operation, I don’t bill your family, but if you live, I get one-third of your income.” One proposal involves a sliding scale of fees, with lawyers getting a smaller percentage as the award grows, but no one seriously envisions the lawyer-filled Texas Legislature approving such a plan.
Enough of lawyers. There’s plenty to say about insurance companies too. First, to put all this in perspective, it helps to know that of every dollar paid in malpractice insurance premiums, only 17 cents finds it way to the victim. Another 12 cents goes for attorney’s fees. The other 71 cents is gobbled up by the insurance companies.
“Doctors are so politically stupid,” says one Austin lawyer who isn’t involved in the malpractice controversy but is very involved in politics. “First of all, if they’d just kept their mouths shut instead of screaming like stuck pigs, there wouldn’t be so many malpractice suits. They’ve made the public so aware of malpractice that the first time a patient starts feeling bad he thinks it’s his doctor’s fault. But worse than that, if only they’d had the good sense to come up here two years ago and make insurance companies the black hats, they could have gotten everything they wanted from the Legislature. But no, they had to attack lawyers, for God’s sake! How stupid can you get?”
The Texas Trial Lawyers Association (TTLA), the plaintiff’s attorney lobby organization, charges that “many insurance companies are ‘ripping off’ Texas doctors and hospitals for oversized premiums in order to cover their losses in other parts of the country.” Of course it helps to remember that the TTLA is not exactly a disinterested party, but they do cite figures which show that Texas malpractice claims result in the lowest dollar awards of all major states—and just half the national average. The TTLA contends that heavy underwriting losses in California, combined with the bad investment year 1974, forced insurance companies to compensate elsewhere. The TTLA cites the example of Travelers Insurance Company, which, according to the TTLA, collected $3.5 million in premiums from selected screened low-risk doctors in Harris County. The company paid one claim of $1900 and has four more pending. Nonetheless Travelers requested a 371 per cent rate increase, and when it was refused, Travelers abandoned the field, leaving 700 doctors to find insurance elsewhere. The company says the TTLA, “admitted that the 700 Harris County doctors were dumped in a pool of 23,000 national doctors, including 14,000 from California.”
A Texas Hospital Association (THA) spokesman has a similar story about hospital malpractice insurance, which two years ago ranged from a low of $91 a bed to a high of $417. Argonaut Insurance Company covered 200 of Texas’ 600 hospitals, but in 1976 they requested a tenfold increase of up to $2000 a bed. The State Board of Insurance wouldn’t go along without seeing statistics to support the claim. Argonaut promised to provide these figures, stalled, then went out of the malpractice business in Texas altogether without ever attempting to persuade the SBI to reconsider.
The problem, as former UT law school dean Page Keeton, chairman of the special malpractice study committee, points out, is that “Texas doctors and hospitals are simply not a large enough pool on which to base insurance rates.” Insurance is a game of large numbers, and there is no way that, say, Travelers could afford to base its calculations on a handful of doctors in Houston. One large judgment in a lawsuit could prove ruinous. But since judgments in malpractice cases seem to be much lower here than elsewhere, Texas doctors and hospitals are inevitably penalized whenever they are lumped into a pool with others—particularly Californians. And when one looks at the figures—Argonaut took in $1.4 million in premiums from Texans in 1974 and paid out only $19,437—one can understand why THA lobbyist C. Dean Davis maintains, “Insurance companies are the villains. The premiums are not justified by Texas’ experience.”
Indeed, a simple look at the balance sheet for 1974 is enough to make anyone think about rushing out and starting an insurance company. In addition to Argonaut’s figures, Medical Protective Company collected $6.4 million and paid out only $2.4 million, while Hartford Insurance collected $372,232 and paid out a mere $582. And that doesn’t even include investment income, which in a normal year often runs 7 per cent or more.
Insurance industry lobbyist Forrest Roan angrily denounces such figures and accuses the industry’s critics of using faulty data and faulty logic. There is something to the faulty logic contention: insurance claims have what is known as a “long tail”; their cases may take several years to settle and the rise in malpractice payments hadn’t really started showing up by 1974. In any event, one cannot meaningfully compare a year’s premiums with the same year’s payouts. But it is hard to accept Roan’s insistence that insurance companies are losing money on malpractice. Between 1970 and 1974, according to study committee data, they took in $45 million and paid out $14 million. Even allowing for some long tails, that looks like a pretty substantial gap—until you consider that a Houston attorney recently filed a $30 million suit.
There is one sobering fact about the insurance companies’ role in the malpractice controversy, and it stems from one of the most outrageous abuses in the entire malpractice area. Hospitals are required to inform insurance companies of injuries to patients but do not tell the patients themselves, for fear they might sue. The companies have to know in order to set aside reserves in case the patient realizes what’s happened to him. Still, some hospitals continue to be haphazard about reporting injuries, giving insurance companies an excuse to estimate how much additional money should be salted away in something called “incurred but not reported” reserves. This means more tax-free dollars for investment, more return, and more profit—but investment earnings don’t go into the calculation of insurance rates. Insuranceman Richard Cross points out that a company like Medical Protective can withstand a few underwriting losses: “With $79 million drawing seven per cent a year, it couldn’t matter less.” A group of Detroit doctors who studied the malpractice issue pointed out that Medical Protective had increased after-tax return on investment—that means profit—from 11 per cent in 1965 to 32 per cent in 1975, “which outstrips the performance of every major corporation or industrial group in America.”
All the name calling and all the statistics point toward the conclusion that there is plenty of blame to be spread around. But they suggest something else, too, and that is that the malpractice crisis involves far more than money. The doctors and lawyers don’t really like each other very much, and the bitterness runs far deeper than this particular controversy. Perhaps it is just that they are rival professionals competing for public esteem. No doubt, too, doctors envy the fact that no outsider ever sits in judgment on a lawyer’s work: a lawyer is answerable only to his fellow lawyers, including judges. Even when laymen take part, in the form of juries, they are operating on the lawyer’s turf under the lawyer’s rules. But a doctor has no such insulation. The malpractice crisis has penetrated his professional vulnerability; now he too must answer to lawyers, and he doesn’t like it a bit. Many of the laws doctors are proposing—early statutes of limitations, ceilings in damages—are designed to restore some inviolability to the medical profession, to give doctors a territory where prying lawyers can’t reach. The lawyers understand this, of course, and they are just as determined not to let the doctors escape their clutches.
What is missing from the whole malpractice debate is any admission by any of the participants that their own house could stand some cleaning. Doctors bristle at any suggestion that they should be reexamined and relicensed at regular intervals, leaving the way open for lawyers to argue, with some justification, that the adversary legal system and malpractice suits offer the only mechanism for policing incompetence in the medical profession. Incompetence is rarely the basis of disciplinary action against a doctor, and the State Board of Medical Examiners doesn’t even list incompetence as a grounds for sanction. Lawyers have turned an equally deaf ear to any proposal that could conceivably cut into their income, and the bar has made no efforts to end abuses of the legal process in malpractice cases. Meanwhile, insurance companies moan that in this fierce partisan struggle, they’re only the political football. Their primary interest seems to be keeping rates high enough for their own protection, regardless if the effect this has on doctors or, ultimately, the public. Lawmakers are sharpening their cleats and lobbyist coaches are giving last-minute signals to their teams as the big legislative scrimmage nears. And despite what the insurance companies may say, one unavoidable fact emerges from all the rest: you are the football.
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