The doctor makes his cut. The lawyer and the insurance man take their cut. You just get cut.
Patients in doctors’ waiting rooms last fall were surprised to find some new reading materials stacked neatly beside the inevitable piles of National Geographic. Thoughtfully supplied by the Texas Medical Association (TMA), the medical profession’s trade organization and lobby, the little pamphlet shrieked its warning:
“No Texan can escape this epidemic . . . malpractice insurance rates here are out of control. They’ve soared as much as 600 per cent in the last five years . . . The insurance crisis is already having a crippling effect on health care in Texas . . . The threat of a severe doctor shortage is growing in Texas . . . It’s the most frightening kind of medical crisis because it threatens the life of medicine itself.”
Alarmed? Don’t be. Most of the foregoing is greatly exaggerated. Far from being out of control, malpractice rates for the first time in several decades are under some semblance of regulation. And though there may be a doctor shortage, it has little to do with malpractice: there just aren’t enough openings in Texas medical schools to handle all the qualified applicants, and more doctors are graduating from medical schools than can fit into residency programs. The TMA itself is requesting the Legislature to create 300 more residency positions. Still, even if malpractice isn’t the gravest crisis medicine has faced since Hippocrates first spoke his oath, it is a thorny problem. Neither doctors nor lawyers nor insurance companies are happy with the current situation, but each group is leery of any solution that might favor one of its rivals. It is a classic fight between large and politically powerful special-interest groups, and as usual the public is caught in the middle.
Rachel Gann wouldn’t be old enough to understand such things, even if she were alive today. In 1973 Rachel was left a quadriplegic at the age of four after an automobile accident in Canton, Georgia, which killed her mother. Her phrenic nerve, which affects breathing, was also injured, necessitating the use of a special respirator. Confined to an Atlanta hospital, Rachel was able to watch Sesame Street on television, learned to tell time, and was generally considered an alert and responsive child. Nonetheless, testimony would later show that hospital officials were pessimistic about her chances for survival.
In 1974 she was transferred to the Texas Institute for Rehabilitation and Research (TIRR), a highly respected Houston facility known for taking high-risk cases. TIRR also used a respirator, but unlike the Atlanta hospital, it did not use an alarm to warn the staff in case the respirator accidentally became disconnected. TIRR preferred instead to rely on personal supervision by nurses who were to be in the patient’s room at all times.
After Rachel had been at TIRR a week, her respirator became disconnected during a nurses’ shift change. Of the two nurses in Rachel’s room, one was at the medication area filling out forms for the shift change and had her back to Rachel. The other nurse was administering to another of the four patients in the room and also had her back to Rachel. A period of time passed—the length was later disputed at the trial—during which Rachel received no oxygen. She went into cardiac arrest and suffered severe and permanent brain damage. Houston attorney Mac Gann (no relation) sued TIRR on behalf of Rachel for well over $1 million.
The fundamental burden of the plaintiff in a malpractice case is to prove negligence. It sounds easy, but there are two major obstacles. First, all the records are in the hands of the defendants, and both doctors and hospitals have been known to do a little editing before turning them over for scrutiny. In Rachel’s case, her lawyer got upset when the hospital had a doctor review the records before it released them; then it delayed the release for four weeks and charged him $250 for the privilege of copying them. The second problem is that in order to prove that the hospital was negligent, Mac Gann needed an expert witness who could testify what acceptable practices were. But, as in all malpractice cases, expert witnessed can come only from the medical profession itself, and most doctors are loath to testify against other doctors. Add to that the antipathy most doctors feel toward lawyers suing for malpractice, and it becomes easier to see why lawyers claim there is a “conspiracy of silence” among doctors not to testify in malpractice cases. That in turn has led to the rise of a modern legal phenomenon: the so-called “traveling troubadours.” These doctors are professional witnesses for malpractice plaintiffs who advertise in lawyers’ magazines and travel the country, sometimes receiving fees of $1000 a day. Some attorneys for defendants in malpractice cases contend that there are doctors who literally make their living this way.
Mac Gann based his case on the contention that the hospital was understaffed and that this, coupled with its failure to use an alarm on the respirator, constituted negligence. He as well as TIRR’s attorney Bill Payne criss-crossed the country seeking expert witnesses, taking depositions, inspecting rehabilitation facilities, questioning users and critics of the alarm system, and reading over 3000 pages of medical records. At the trial Gann contended that Rachel’s respirator had been disconnected for three to four minutes; the defense countered that the time span was less than a minute. Payne contended that the hospital was less well staffed than usual, but argued that it still had a lower patient-nurse ratio than other Harris County hospitals. But the real battle centered around the alarm. Payne said the system resulted in a lot of false alarms and that nurses tended to ignore them as a result. He found cases in the Atlanta records of children who almost died because the staff ignored what they thought to be false alarms. Furthermore, Payne claimed that Rachel’s original spinal cord injury was so severe that she had already exceeded her life expectancy, and that the brain damage may well have begun before the respirator was disconnected.
The critical point in the drama occurred offstage, when the hospital’s insurance company offered to settle out of court on two conditions: first, that Rachel’s $100,000 hospital bill be paid, and second, that Rachel be moved from TIRR immediately. Gann and Rachel’s father faced an agonizing choice. They could take the $300,000, which might or might not be sufficient to take care of Rachel’s continuing medical needs (care of a paraplegic usually runs $150 to $200 a day; without deducting for attorney’s fees or rising hospital costs, the settlement was enough for less than six years) or they could gamble on an all-or-nothing decision by the jury. Gann’s expert witnesses and several nurses told him that if Rachel left the hospital and was transferred to a nursing home, she could not get the kind of care she needed and would not survive long. TIRR countered that Rachel was taking up bed space that could be used by patients who could still be helped and that the nonprofit hospital, which is dependant on charitable contributions, was being denied necessary funds as long as Rachel’s bill went unpaid.
Gann chose to reject the settlement offer; the case dragged on for four weeks, and the verdict was… not guilty. No malpractice. No damages. In July 1976, Rachel Gann was transferred to a small-town Texas nursing home. She died two weeks later.
The sad case of Rachel Gann illustrates one of the main things to keep in mind about the malpractice “crisis”: defendants—the doctors—win most of the time. Doctors fear that juries are overly swayed by their sympathy for a man in a wheelchair and will compensate them overgenerously, but the statistics tell a different story. Of the claims that go to court, doctors win 97 per cent. A number of those are thrown out by the judge long before they ever get to a jury, but even in the remainder of cases, doctors win four of every five verdicts. Bill Payne says, “Juries usually give the doctor the benefit of the doubt. This is unquestionably true in rural areas. When cases go to litigation, there’s a real doubt about whether the doctor was negligent. Legitimate claims are usually settled out of court.” Mac Gann puts it this way: “We settle our good cases and try our hard ones.”
The courtroom statistics are just the tip of the iceberg—93 per cent of all malpractice claims are settled out of court—but even the settlement statistics belie the doctors’ warnings of a crisis. The majority of claims—65 per cent—result in no payment at all, and only 3 per cent produce awards of more than $50,000. Concludes Houston insurance man Richard Cross: “There is no real malpractice crisis if you can read the numbers.”
Why all the fuss, then? It is true that malpractice rates are soaring—in some specialties like neurosurgery and orthopedic surgery they have quintupled in five years—but the real problem is deeper than that. Medicine is a high-risk profession, but it has always been high-prestige as well. Their mystical reputation as healers has enabled doctors to maintain public confidence and respect through the years. But the essential element of that equation was personal contact. Now medicine is changing. It is increasingly specialized, increasingly impersonal, increasingly costly, and increasingly arrogant. Even today hardly anyone sues his family doctor for malpractice, but the family doctor is less and less a major factor in modern medicine. The great bulk of malpractice claims comes in cases where the ties between doctor and patient are minimal or nonexistent, and this is what doctors fear the most, because that is the direction medicine is heading. The huge rise in malpractice claims doesn’t mean that doctors are getting less competent; it only means that the public is willing to look at its physicians as mere mortals capable of error like everyone else. That’s why the malpractice issue for doctors is as much a psychological crisis as a financial one.
It should be remembered, though, that doctors don’t win all the malpractice cases, and for a very good reason: there’s an awful lot of malpractice going on out there. One oft-cited federal study concluded that the principal cause of the malpractice crisis is malpractice. Doctors and hospitals are usually sued because they ought to be sued. Says State Board of Insurance Chairman Joe Christie: “The way to get the rates down is to count the sponges”—a reference to careless surgeons who sew patients up with various medical implements still left inside the body.
Some people in the medical community have argued that there is no malpractice. TMA lobbyist Ace Pickens says that the Medical Protective Company, which writes 60 per cent of the malpractice insurance coverage in Texas, hasn’t seen a case of actual doctor incompetence in 75 years. (Of course, Ace’s law firm represents both the TMA and Medical Protective, which have long enjoyed an extremely cozy relationship, so it’s not unusual for them to toss bouquets at each other.) Others tell a different story. Dr. Robert Derbyshire, an official of the New Mexico Board of Medical Examiners and a longtime crusader for stricter medical discipline, claims that one of every twenty doctors in the U.S. is incompetent. Study after study shows that millions of unnecessary operations are performed in the nation every year, resulting in more than 20,000 deaths. As many as two-thirds of all tonsillectomies and one third of all hysterectomies are unnecessary, and a Harvard Medical School survey found that in half of several thousand pelvic operations performed on women in New England, healthy uteruses were removed.
Nurses and hospitals come in for their share of the criticism. Rachel Gann’s nurse in Georgia, Carol Banning, told me, “There is a tremendous amount of nurse malpractice. The rule in record keeping is ‘cover your tracks.’ Recopy sheets if necessary. Doctors do this automatically and nurses are instructed to.” As for hospitals, 30 per cent of them account for all malpractice claims, and operative mortalities run four to five times higher in some than in others. Of course, some hospitals perform higher risk operations and can be expected to have higher death rates. Still, there is no doubt that some hospitals are safer than others. Perhaps the most staggering statistic in the entire malpractice area is one contained in a U.S. Health, Education, and Welfare study: as many as 7.5 per cent of all hospital patients are injured during the course of their care. That projects to almost 2.5 million injuries a year, and nearly a third—750,000 people—are injured due to negligence. Every one of them has the basis for a malpractice claim, yet only 6 per cent of them, or around 45,000 victims, actually seek redress.
These are the cold statistics. If anything, the reality of a malpractice case is even harsher. The family of a Midland banker sued Houston’s Methodist hospital for giving him two transfusions of Rh-positive blood after surgery, alleging the hospital knew or should have known that he needed Rh-negative blood. Jaundice, kidney failure, and a large settlement followed. The favorite horror story among malpractice buffs involves a Sacramento, California, doctor named John Nork. Between 1963 and 1970, Dr. Nork took Equanil, Preludin, and Donnatal and became addicted to them. In the 1973 trial of one of 25 malpractice cases against him, Dr. Nork admitted performing at least 36 unnecessary back operations, many of which permanently maimed his victims. He testified that the drugs rendered him incompetent and caused him to treat his patients improperly. Several of his patients nonetheless testified for him as character witnesses.
One of the largest payments in Texas history came in a Houston case that involved a 24-year-old woman represented by trial lawyer Jim Perdue. The version of the case that follows is mostly the plaintiff’s view of the facts, as taken from court records, but many of the facts were accepted by the defense attorney:
On February 15, 1970, Carole Davison went to the Homestead Clinic in northeast Houston and complained of discomfort in her abdomen. She was given a prescription and sent home. Six days later she returned and her examining physician diagnosed her condition as jaundice. He turned her case over to a surgeon who told Carole she had obstructive jaundice—a stone of obstruction in either the gall bladder itself or the duct leading into it. The surgeon decided to remove her gall bladder and scheduled the operation for March 2.
When Carole entered Homestead Hospital—which, like the clinic, was owned by her examining doctor—she no doubt noticed a number of young people walking around wearing white coats, looking and acting like doctors. In fact they were chiropractic students who passed themselves off to the patients and the public as MDs. Although federal regulations require that hospitals like Homestead which receive Medicare funds use only licensed physicians as assistant surgeons, a first-year chiropractic student was assigned to assist during Carole’s surgery. None of this was known to Carole or her husband.
The hospital also told Carole that anesthesia would be administered by an anesthesiologist—a licensed physician—but this was assigned instead to a nurse anesthetist. Proper medical practice dictates that the person supervising anesthesia must see the patient at least one day before the surgery, review the medical records, and become familiar with the case; but the nurse anesthetist didn’t review the records or discuss the case with the surgeon and saw Carol for the first time thirty minutes before the operation. The reason the nurse hadn’t run the routine preliminaries was that for 48 hours immediately prior to Carole’s surgery, she had been on duty at St. Joseph hospital, administering anesthesia to women in childbirth. One of the nurses on duty said later that the exhausted anesthetist has discussed delaying or rescheduling the operation, but the surgeon decided to proceed.
That decision had fatal consequences for Carole. During major surgery, anesthetic drugs are supplied in such quantity that they completely relax the muscles of the respiratory system, rendering the patient unable to breathe on his own. Every few seconds the anesthetist must press a “breathing bag” in order to provide oxygen for the unconscious patient, while at the same time closely observing the patient’s vital signs—pulse, heartbeat, blood pressure, respiration, and color. Color: it was the circulating nurse, not the anesthetist, who first noticed Carole’s hand turning blue. Then she noticed the anesthetist was asleep and not pressing the breathing bag. She touched the anesthetist’s leg; the sleeping nurse awoke, realized the patient was in trouble, and started pressing the breathing bag. No good. The patient wasn’t receiving any oxygen. It appeared that the endotracheal tube was blocked, but various efforts to remove the obstruction failed. Carole’s heart stopped beating. Eventually the surgeon and chiropractic student succeeded in restarting her heart, but Carole’s body was deprived of vital oxygen for several minutes, resulting in permanent and irreversible brain damage. From then on she was decerebrate—conscious, but unable to move or talk. After being discharged from Homestead, she spent a few months in a charity hospital, ending up in a nursing home, where she did little more than lie there and stare, shrinking up like a prune. In 1975 she died.
Perdue’s first step was to obtain the medical records and turn them over to a friendly anesthesiologist for review. The anesthesiologist’s conclusion: the records were fishy. Perdue says, “The anesthesia records and the doctor’s operative report did not reveal anything that actually occurred.” The lawyer then hired a private investigator to nail down that the surgical assistant was not a doctor and to verify that the nurse anesthetist had been asleep. Perdue also retained an economist to estimate how much damages he should seek, based on past and future medical cost and the loss to the family of Carole’s services as a wife, mother, and housekeeper. He also started looking for an expert medical witness on the subject of resuscitation. After five or six unsuccessful tries, he found a doctor who would testify that if resuscitation had taken place within two or three minutes after cardiac arrest, Carole’s brain damage would not have been so severe. The expert estimated that eight to ten minutes could have elapsed—crucial evidence to show that the nurse had been asleep. She and the defense attorney steadfastly denied that she had been dozing on the job, but during the jury selection process, the defense suffered an embarrassment. While Perdue was discussing the implications of the nurse falling asleep during an operation, he happened to notice that the nurse was asleep in the courtroom. The defense attorney was also hampered by not being able to produce a key witness. Soon thereafter, the defendants settled for $550,000 and upon Carole’s subsequent death paid her young child another $200,000.
It should be clear by now that a good portion of the blame for the malpractice crisis must be shouldered by the medical community itself. What may be less clear is why the public should care who wins their intramural scrimmage between special-interest groups. The answer is that, no matter what doctors would have you believe, you and not they are paying for the skyrocketing cost of malpractice insurance. An extra $2 to $10 for each day in the hospital, an extra $100 to $200 for each operation, and extra $1 to $2 for every office visit is directly attributable to rising malpractice insurance rates. That totals about $1 billion that Americans are shelling out annually. To that must be added another $3 to $5 billion for a growing practice called “defensive medicine,” a euphemism for doing everything possible to avoid a possible lawsuit. That means endless tests, x-rays, and second opinions—not always necessary, but safe. And lucrative.
Doctors are paying more, to be sure, but most of the burden falls on surgeons. In California, where more than twenty jury awards have gone into seven figures, some surgeons who want coverage of up to $1 million must pay $77,674 a year in premiums. In Harris County, where three-fourths of all Texas claims originate, an orthopedist pays $14,400 for the standard $100,000-per-claim/$300,000-a-year policy and $26, 900 for $1 million/$3 million. Before you shed too many tears, consider that (1) it’s fully deductible and (2) a skilled orthopedic surgeon in Houston can anticipate making anywhere from $200,000 to $500,000 a year, depending on how hard he wants to work. Rates for general practitioners are nowhere near as high unless they perform surgery. (One of the little-noted aspects of the malpractice crisis is that it has forced some doctors out of the operating room. That could actually benefit the public, since surgical death rates vary considerably, depending on the surgeon’s skill, the hospital facilities, and the risk involved in the operation.)
We’ve been hard enough on the doctors; now its time to turn our attention to their arch enemies, the lawyers, and to the ultimate beneficiaries of the rate increases, the insurance companies. Doctors attribute the lion’s share of the blame for their plight to lawyers. Attorneys have even ruder things to say about doctors, whom they feel are crybabies or wose, and who, they correctly fear, are bent on ending a remunerative system that pays handsome dividends for lawyers. Lawyers also have some rather nasty things to say about insurance companies and their role in all this. Not surprisingly, insurance industry spokesmen have unflattering observations on the integrity of both doctors and lawyers. After listening to representatives of these dignified professions vilify and defame each other, one might conclude that doctors are butchers, lawyers are liars, and insurancemen a pack of thieves.
It’s more complicated than that, of course, but let’s follow that argument for a while. Take the lawyers. What enrages doctors is the proliferations of frivolous lawsuits. Dr. Donald Butler of Houston, whose $1 million countersuit may make Texas legal history, complains, “A large number of suits have minimal merit. The plaintiff’s attorneys just don’t investigate. Their intent is to collect the maximum amount with a minimum of work. The reason attorneys file these phony lawsuits is that insurance companies find it cheaper to settle them than to fight them. The frivolous suit is legal blackmail.”
Butler says one medical malpractice lawyers boasts of filing 100 to 200 malpractice claims a year. Another plaintiff’s attorney “has sued probably half the doctors in the community,” claims a Pasadena doctor. “Usually he sues you for a preposterous amount and then offers to settle for a fraction of it.”
A similar problem is the practice of suing everyone even remotely connected with the case. One Houston lawyer listed 85 defendants; that doesn’t quite equal the 116 named in an Illinois case. Since any doctor who gets sued usually has to pay a 25 per cent surcharge on his malpractice insurance premiums—even if he is later found not negligent—these frivolous claims can wreak a lot of havoc. In a typical abuse of this type, Dr. Betty Stephenson, a Houston anesthesiologist, was sued because her name was still on the stationary of her former group practice, even though she had left six months before the alleged malpractice occurred. Yet the plaintiff refused to drop her name from the suit. One doctor was sued twice by patients he had never seen simply because he was chief of the hospital’s surgical staff. And an ophthalmologist (an eye doctor) was sued ostensibly for removing a kidney, but actually for having the same last name as someone who had.
It doesn’t help their already strained relations with doctors that lawyers exhibit little concern about the problems of frivolous suits and multiple defendants. Houston attorney George Pletcher, a member of the special study committee created by the 1975 Legislature to study the malpractice issue, told me with a straight face that “frivolous suits don’t amount to a hill of beans and don’t affect premiums.” Mac Gann jokingly refers to the practice of suing everyone in sight as “scaring all the cats out of the alley.” The New York bar has proposed a system of penalties for unfounded suits, but the less-than-vigilant State Bar of Texas has so far looked the other way.
Doctors may be taking the remedy into their own hands. After a large countersuit against a Chicago attorney was successful, Cook County enjoyed a 24 per cent drop in malpractice filings. Dr. Butler has led the way in Texas with a $1 million countersuit filed against Houston attorney John Holloway.
Butler and another doctor treated a patient named Mary Morgan, who later complained that a nurse had injured her by badly inserting an intravenous needle, causing her wrist to swell up. Without her knowledge or approval, Holloway, when suing the hospital, included Butler and the other doctors as well. During the trial, Holloway asked Butler to examine the plaintiff’s wrist for a knot or swelling; Butler did so and found neither. The judge admonished Holloway for not preparing his case properly, and the jury exonerated all defendants. After the verdict, Butler says, Holloway admitted that the doctors were not guilty, extended his hand, and said “No hard feelings?” Butler answered with his countersuit.
Such countersuits may become more and more prevalent. Already the Houston Surgical Society is considering a fund for countersuits. “It excites the doctor because it has a measure of revenge,” says one lawyer. But so far plaintiffs’ lawyers have been reluctant to represent aggrieved doctors—perhaps because countersuits are a new and difficult area of law, perhaps because lawyers have their own version of the “conspiracy of silence.”
Just as lawyers have resisted doctors’ complaints about frivolous lawsuits, they have been hostile to far-reaching solutions to the malpractice crisis affecting their own profession. The study committee looked at several possible reforms, including screening panels to sort out frivolous claims, submitting disputes to binding arbitration, and scaling down contingent fees. One reason lawyers resist screening panels is that doctors want them to be composed entirely of medical representatives. Doctors also want the findings of the screening panel to be admissible evidence in court, but lawyers instinctively fight anything that limits their ability to proceed in court. That’s why binding arbitration isn’t popular with trial lawyers either. But nothing is as odious to them as an attack on their beloved contingent structure.
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.