How Much Malpractice Coverage Does Your Doctor Have?
I recently suffered a grave injury during a hearing and balance test. The internal carotid artery on my right side dissected, a result of applying torque to my neck so a computer could get better readings from electrodes attached to my skin. A massive blood clot formed, blocking the artery 80-90 percent. I suffered blinding headaches, nerve damage, and other problems, and was hospitalized for over a week. Still, I count myself lucky. I’m alive and, apparently, I didn’t suffer a stroke. My doctors remain hopeful that, with time, I’ll recover.
Suppose I had died. My estate might have had a sizeable malpractice claim against the doctor who treated me. I’m a 49 year old male employed at a good salary. My lost future income would have run into the millions. My claim would also have had strong jury appeal. Ear exams should never kill people. The extraordinary result would strongly have suggested a medical mistake.
Assume with me that my “hard” damages, meaning my health care costs, lost wages, and other expenses, would have been $3 million. One might then infer that $3 million would be a realistic amount for my estate to recover. That would probably be wrong. Although the law allows recovery of economic damages in full, most doctors carry much less than $3 million in malpractice insurance and insurance is the only source from which my estate would have been able to collect.
This is the lesson of 14 years of medical malpractice litigation in Texas. Using a database of over 9,000 claims against doctors that closed with payments from 1990 to 2003, my colleagues and I discovered the following:
• Patients injured by medical malpractice rarely recover more than their physicians’ insurance policy limits.
• Malpractice payments stack up at the policy limits, suggesting that insurance policies cap recoveries even when patients deserve much more.
• Many doctors have small insurance policies. Almost 1/3 of Texas physicians with paid malpractice claims had $200,000 in coverage or less.
• Doctors almost never use personal assets to resolve malpractice claims. The claim that ‘every physician is one lawsuit away from financial ruin’ is a myth.
These findings (and many others) are fully set out in two articles that are forthcoming in peer-reviewed publications.
It takes some patience and thought to understand these results, so bear with me as I explain them. To keep the presentation simple and short, I’ll tie everything into one set of graphs.
My colleagues and I began by comparing the payments patients received to the amount of professional liability coverage doctors’ carried. Suppose a patient received $500,000 and a doctor had $1 million in insurance. The Payment-To-Limit Ratio (or PTL ratio for short) would be 0.5. If the patient received $1 million, the PTL ratio would be 1. If the patient received $1.5 million, the PTL ratio would be 1.5.
The figures below plot the actual PTL ratios. The figure on the left is for all types of malpractice claims. The one on the right is for claims involving newborn infants. These are the so-called “bad baby” cases that are thought to be exceptionally expensive and to expose doctors to enormous personal risks. The height of each bar shows the percentage of the claims with particular ratios. In the “All Claims” figure, about 16% of the claims had PTL ratios between .95 and 1. In the “Perinatal Claims” figure, the PTL ratio fell in this range about 32% of the time. Although the graphs don’t show this, in both types of cases, the vast majority of the claims in the spikes were PTL=1, meaning that the patient recovered the policy limits in full.
FIGURE 1: Distributions of Payment-to-Limit Ratios
All Claims (n = 9,389) Perinatal Claims (n = 1,037)
Notice that, in both figures, although there are sizeable spikes at PTL=1, there are very few cases with payments above the policy limits. Payments above the policy limits, which appear to the right of the spikes, were present in about 2% of the cases.
In combination, the spike at PTL=1 and the dearth of cases with larger ratios show that, as a practical matter, payments are capped at the limits of doctors’ insurance polices. Patients with strong claims, severe injuries, and sizeable damages have a good chance of recovering their doctors’ policy limits, but they have little or no chance of receiving more. This truth is especially prominent in “bad baby” cases, where the policy limits were paid 32% of time but payments above the limits occurred in only 2.4% of the cases. An infant injured by malpractice may need a lifetime of care, but an OB/GYN’s contribution to the cost of that care will equal at most the amount of insurance he or she carries. The parents or society at large will have to bear the remaining cost or the infant will have to do without.
Why can’t injured babies and other deserving patients get full compensation? The most likely reason, I believe, is that no more money is to be had. Not all doctors are rich, and those who are rich—who live in mansions, drive fancy cars, and send their kids to expensive private schools—are protected by state laws, trusts, limited partnerships, and other devices that insulate their assets. One can’t squeeze blood from a stone—or a turnip, as we Texans often say. The rarity of out-of-pocket payments by physicians bears this out. Doctors used personal assets to help resolve malpractice claims in only about one-half of one percent of the cases. We talked with plaintiffs’ attorneys who said they don’t even investigate doctors’ personal assets because they know they can’t reach them.
Because insurance is the sole source of payments for most injured patients, it is important to know how much liability coverage doctors carry. The conventional wisdom is that most physicians have $1 million in coverage. Medicare takes this mantra so seriously that it bases payments to physicians partly on premiums tied to policies of this size. In fact, most Texas physicians carried much less insurance. In our dataset, the median nominal policy limit was $500,000. 32% of the closed claim reports indicated that the doctor carried $200,000 (nominal) or less in coverage. Surprisingly, doctors who treated newborns carried less insurance than others, even though “bad baby” cases are thought to present the most serious financial risks.
We also found that, over time, the real amount of insurance available to cover patients’ losses shrank by about 30% in inflation-adjusted dollars. When stumping for tort reform, doctors told the world they faced rising malpractice exposure because jury verdicts were skyrocketing. Yet, they didn’t buy larger liability policies. Evidently, they didn’t think they needed them. And they were right. Doctors’ personal assets remained well protected even though they carried less real insurance coverage.
In reality, then, damages caps have existed for decades. They may always have been in place. The caps stem from asset protection laws, the limits on doctors’ insurance policies, and the economics of contingent fee litigation, which make it impracticable for plaintiffs’ attorneys to go after doctors’ personal wealth. These caps are hard. They apply to all elements of plaintiffs’ recoveries, including their economic losses, and they are rarely exceeded.
If people in our society focused on things that mattered, the debate over damages caps would end immediately. We already have them. Replacing it would be a debate over the amount of liability insurance doctors ought to carry and the possibility of creating other means of defraying injured patients’ losses. Many states, including Texas, have neither financial responsibility laws nor patient protection funds. In these states, doctors can carry as little insurance as they want. As seen, they often buy policies that are small. Although doctors complain mightily about malpractice insurance premiums, patients, their families, their first-party health insurers, and society at large absorb much or most of the burden of malpractice. An important question, rarely discussed, is whether health care providers and their liability insurers shoulder as large a fraction of the costs of medical malpractice as they should.