Center for Studying Health System Change

Providing Insights that Contribute to Better Health Policy


Insurance Coverage & Costs Access to Care Quality & Care Delivery Health Care Markets Employers/Consumers Health Plans Hospitals Physicians Issue Briefs Data Bulletins Research Briefs Policy Analyses Community Reports Journal Articles Other Publications Surveys Site Visits Design and Methods Data Files

Medical Malpractice Liability Crisis Meets Markets: Stress in Unexpected Places

Issue Brief No. 68
September 2003
Robert A. Berenson, Sylvia Kuo, Jessica H. May

hile the causes of rapidly rising medical malpractice insurance premiums remain contentious and unsettled, the consequences are rippling through communities, threatening to diminish patients’ access to care and increase health care costs, with an uncertain impact on quality, according to findings from the Center for Studying Health System Change’s (HSC) 2002-03 site visits to 12 nationally representative communities. The severity of malpractice insurance problems varied across communities, with some physicians changing how and where they care for patients. For example, rather than treat patients in their offices, more physicians are referring patients to emergency departments. And many physicians, especially those practicing in high-risk specialties, are unwilling to provide emergency department on-call coverage because of malpractice liability concerns.

Malpractice Concerns Vary Across Local Markets

s state and federal policy makers debate why medical malpractice insurance premiums have skyrocketed in some parts of the country, an important consideration is how the cost and availability of professional liability insurance can alter physician treatment decisions and affect patient care.

It is commonly accepted that some physicians try to avoid malpractice claims by practicing defensive medicine, or physician behavior guided to reducing liability risk rather than what physicians consider to be in the best interests of patients. Commonly recognized forms of defensive medicine include ordering excessive tests and services and giving up certain high-risk practices, such as delivering babies. Less well appreciated is that liability concerns can prompt other changes in physician behavior as well.

HSC researchers have identified a range of other emerging physician responses to malpractice insurance concerns across the country, including referring more patients to emergency departments, safety net hospitals and academic health centers; refusing to provide on-call emergency department coverage; and declining elective referrals from safety net providers.

Across the 12 CTS communities (see Data Source), malpractice insurance concerns were important in understanding market dynamics in some communities and of little or no concern in others. While physicians and hospitals in 11 of the 12 markets raised concerns about the cost and availability of malpractice insurance, the intensity of provider concern varied substantially. In some markets, rising malpractice insurance premiums were viewed as a modest cost pressure for physicians and hospitals; at the other extreme, skyrocketing premiums and even unavailability of insurance were altering physicians’ treatment decisions.

Fallout from the liability crisis was most severe in Miami, where many physicians have responded to the high cost of premiums by dropping malpractice coverage, or "going bare." Many Miami obstetricians have practiced without liability coverage since the 1980s’ malpractice insurance crisis, but now many other specialists, especially neurosurgeons, and even some primary care physicians have dropped coverage. Under Florida law, physicians without malpractice coverage must merely post a sign in their offices informing patients they have assets to cover at least $250,000 of any malpractice award. Since the state’s bankruptcy laws protect homes and personal assets held in a spouse’s name, many physicians view bankruptcy as the most practical response to a large judgment.

The malpractice insurance climate was volatile in northern New Jersey and Cleveland—where some physicians, especially obstetricians, reportedly faced premium increases of 100 percent or more. Some physicians in these markets had dropped the obstetrical portion of their practices, while others had stopped performing high-risk procedures.

In Boston, Little Rock, Phoenix, Seattle, Orange County and Greenville, where recent annual premium increases were reported to range from 20 percent to 30 percent, there were occasional examples of providers making business and practice decisions in response to malpractice pressures. Conditions were relatively stable, however, in Lansing and Syracuse. Some providers reported substantial premium increases and others reported premium stability, but malpractice insurance concerns did not affect provider practice decisions or patient access to care to any significant extent. Professional liability problems were not mentioned in Indianapolis; of note, Indiana passed far-reaching, provider-friendly tort reform in the 1970s that significantly limited payments to malpractice victims.1

While in some cases the findings were consistent between HSC site visits and the American Medical Association’s classification of malpractice "crisis" states—the AMA, for example, considers Florida, New Jersey and Ohio to be crisis states—there were inconsistencies as well. The AMA characterizes California as "currently okay," and the state, which limits noneconomic damages in malpractice suits to $250,000, often is held up as a model for reform. However, HSC findings indicate malpractice insurance pressures in Orange County are similar to those in many of the other communities studied.

Back to Top

Fallout on Patient Care

ven in markets with high-profile malpractice insurance concerns, there was little evidence that patients’ access to care has been seriously compromised. However, as some physicians stop performing high-risk procedures, close portions of their practices and refer more patients to other care settings, it is clear that continuity of care and patient choices have been limited to some extent in most of the markets and to a significant extent in Miami, northern New Jersey and Cleveland.

For example, in at least six of the 12 sites, many obstetrician-gynecologists had stopped delivering babies to lower their malpractice premiums. Some ob-gyn practices have concentrated deliveries among relatively few physicians in their groups to reduce overall liability insurance premium costs. In Little Rock, many family physicians have stopped delivering babies. There were also examples in Phoenix, Cleveland, Seattle and Miami of hospitals dropping maternity services altogether or limiting high-risk deliveries.

Physicians in many communities, including Orange County, were referring patients more frequently to safety net hospitals and academic health centers. Low-income patients were more likely to be referred because of incorrect physician perceptions that such patients are particularly litigious.2 Patients with serious or complicated medical problems—viewed as more likely to experience adverse outcomes—also were more likely to be referred. Referring some of these patients, including those needing trauma care, neurosurgery and high-risk obstetrical services, could result in higher-quality care in some cases.

Also, in some communities, physicians were referring increasing numbers of patients after hours, or even during office hours, to hospital emergency departments, where patients can receive a complete workup in one visit, and the emergency department physicians and hospitals assume risk for a bad outcome. This type of defensive medicine could generate additional health spending by physicians unfamiliar with the patient and does contribute to crowding in emergency departments.

Back to Top

Provider Relationships Change

hysicians’ willingness to provide on-call emergency department coverage—a hospital’s responsibility under the federal Emergency Medical Treatment and Labor Act, known as EMTALA—also has been affected by malpractice litigation concerns. Combined with the reality that many emergency department patients are uninsured, liability concerns have contributed either to certain specialist physicians either declining to provide on-call emergency department coverage or demanding payment from hospitals for taking calls or caring for uninsured patients in Phoenix, Orange County, northern New Jersey, Miami and Seattle.

The converse is also true, with many specialists declining to accept elective referrals from emergency departments and safety net clinics and health centers, especially for uninsured patients. In some cases, physicians fear that low-income patients, with inadequate or no insurance, may not follow through on treatment, increasing the likelihood of a bad outcome and a malpractice claim.

Other than occasional anecdotes about physicians deciding to retire or relocate to other states, there has been no exodus of physicians in the 12 sites, and there are few signs of specialty shortages because of the malpractice liability environment. However, in Miami and other sites, the unstable malpractice climate was viewed as hampering physician recruitment. Rather than retiring or relocating elsewhere, some physicians have responded to malpractice concerns by giving up independent practice and seeking employment at a hospital or other institution. Indeed, a few federally qualified health centers which can offer physicians protection from malpractice claims under federal law, reported success in recruiting physicians from private practice.

While the practice of physicians dropping liability coverage was confined primarily to Miami, physicians going bare can affect interactions among health plans, hospitals and other physicians. Although most hospital and health plan credentialing requirements traditionally have specified levels of individual and aggregate liability insurance physicians must carry, some health plans and hospitals have essentially abandoned these requirements for certain specialties because so many specialists have dropped coverage. Going bare has ramifications for how liability is handled: it subjects other provider defendants to greater liability exposure under the legal doctrine of joint and several liability, which means all defendants are individually liable for the total award, regardless of their actual proportionate contribution to the negligence in question. Physicians without malpractice coverage also threaten the ability of negligently injured patients to collect judgments awarded at trial.

Physicians may be reluctant to refer to or receive referrals from physicians with little or no liability coverage because of increased exposure under joint and several liability. For the same reason, some specialists may be less likely to provide nonobstetrical services to pregnant patients.

Back to Top

The Role of Liability Insurance Market Dynamics

uring the last malpractice insurance crisis, in the 1980s, providers responded to sharply rising liability premiums by considering them to be a cost of doing business and passing the cost on to public and private payers.3 Since then, the spread of managed care in commercial markets and modified Medicare payment approaches have produced noncharge-based payment methods—fee schedules for physicians and per diem and case rates for hospitals. Providers are aware that these payment approaches have constrained their ability to cope with the inflationary cost pressures resulting from this round of malpractice premium increases, making it difficult for them to pass on the increases as a cost of business.

In many markets that have experienced substantial premium increases, one or more important professional liability insurers have withdrawn in recent years. Withdrawals are a problem for physicians because they can subject displaced policyholders to stricter underwriting and screening requirements under new carriers. More fundamental, significant reduction in the number of available carriers may lead to decreased competition and inflationary pressures on premiums. Miami, Cleveland, Seattle and northern New Jersey have all lost major liability insurance carriers.

Because of the limited number of suits any individual physician is likely to experience, liability insurance for physicians traditionally has relied on community rating, where physicians performing certain procedures are assigned to a particular risk class, and they all pay the same premium. Thus, obstetricians and neurosurgeons would be in a higher-priced tier than, for example, family physicians, because their claims exposure is larger.

In the markets with the greatest liability insurance problems, a crude form of experience rating is emerging. Individual physicians may now face higher premiums or even coverage rejection if they experience a single malpractice judgment or settlement. In some cases, medical groups are assessed different premiums by insurers based on the presence or absence of individual physicians in the group with one or more suits on their record.

In contrast to physicians, hospitals traditionally have been experience rated for malpractice coverage, although there are exceptions. In recent years, many hospitals have decided to self-insure, rather than be experience rated by a commercial insurer. When hospitals self-insure, they more directly reap the rewards or suffer from their own claims experience.

Some hospitals also viewed self-insurance as a way to provide affordable coverage to employed physicians who otherwise would face large premium increases from private, professional liability insurers. For example, the Controlled Reciprocal Insurance Co. in Boston has long insured Harvard hospitals and their employed physicians. While community-based physicians in Boston are experiencing significant premium increases, the forces driving up private market liability insurance premiums have not affected Harvard-employed physicians.

The increase in the number of hospitals that are self-insuring and providing lower-cost liability insurance for employed physicians could have a positive effect on health care delivery. Providing a common source of liability insurance for physicians and hospitals is consistent with patient safety activities focusing on system approaches to error prevention while avoiding individual blame4 (see next section).

Back to Top

Does the Malpractice Environment Affect Patient Safety Activities?

The two main purposes of the tort system are to compensate negligently injured persons and to deter unsafe practices that lead to injury. Although attention has focused on how effectively the malpractice system accomplishes the former goal, its effect on patient safety has received comparatively little attention.

The Institute of Medicine’s To Err Is Human5 recommended creating a so-called blame-free environment in which all errors would be reported openly to hospital authorities, addressed through safety improvement programs and reported externally to promote systematic analysis across institutions. Physicians responsible for patient safety activities in hospitals in the 12 sites believed that the malpractice environment was either a neutral or negative factor for patient safety programs and for creation of a blame-free environment. Specifically, some were concerned that reported data would not be given the same level of protection from legal discovery as information generated as part of hospital peer review activities.

A related issue is how hospitals have responded to the July 2001 standard issued by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) that all unanticipated outcomes of care be disclosed to patients. Because of concern about arming patients and their attorneys with information that could lead to a malpractice suit, clinicians and provider-based risk managers typically have been reluctant to disclose errors and adverse outcomes. However, consistent with the findings of a recent national survey on hospital disclosure practices, many hospitals are developing and implementing policies and procedures for communicating unanticipated outcomes to patients, including those involving possible negligence.6

In addition to a need to respond to the new JCAHO standard, a number of hospitals cited a recent journal article and related discussion suggesting that forthright disclosure was a good risk management strategy-that fully informed patients were less likely to file suit even when they had experienced a significant injury than were patients who were kept in the dark about the circumstances regarding their adverse outcome.7

Back to Top

Policy Implications

While there were few signs of severe breakdowns in access and availability of care in the 12 communities, there were clear signs that malpractice insurance pressures are altering physician treatment decisions and affecting patient care in unexpected ways and places.

As the Institute of Medicine (IOM) noted recently, "There is widespread agreement that the current system of tort liability is a poor way to prevent and redress injury resulting from medical error. Most instances of negligence do not give rise to lawsuits, and most legal claims do not relate to negligent care." 8

From caps on damages to special health care courts to the IOM’s call for a system of patient-centered, safety-focused nonjudicial compensation, there is no shortage of ideas about how to address the problem. As policy makers grapple with resolving the latest malpractice crisis, they should consider carefully how potential solutions would influence physician behavior and affect patient care—for better or worse.

Back to Top

Data Source

very two years, HSC researchers visit 12 nationally representative metropolitan communities to track changes in local health care markets. The 12 communities are Boston; Cleveland; Greenville, S.C.; Indianapolis; Lansing, Mich.; Little Rock, Ark.; Miami; northern New Jersey; Orange County, Calif.; Phoenix; Seattle; and Syracuse, N.Y. HSC researchers interview key individuals in each community, including representatives of physician groups, hospitals, health plans and other stakeholders. This Issue Brief is based on analysis of these individuals’ assessments of the malpractice insurance climate. Factors that differentiated the importance of malpractice liability as an issue in the 12 markets included:

  • the degree to which physicians identified malpractice as a major pressure affecting their practices;
  • whether respondents other than providers raised malpractice as an important issue affecting the market overall;
  • the described seriousness of the cost and availability problems of liability insurance;
  • whether providers were altering their practices in response to the threat of lawsuits; and
  • whether access to routine sources of care was affected or threatened.

Back to Top


1. Important elements of the Indiana Medical Malpractice Law include a total cap on damages against all qualified providers of $1,250,000, a limit of damages against any individual provider of $250,000, with excess insurance beyond the limit provided by a Patient Compensation Fund, and a pretrial medical review screening panel; see
2. Studdert, David M., et al., "Negligent Care and Malpractice Claiming Behavior in Utah and Colorado," Medical Care, Vol. 38, No. 3 (March 2000).
3. Danzon, Patricia M., "The Frequency and Severity of Medical Malpractice Claims: New Evidence," Law and Contemporary Problems, Vol. 49 (1986).
5. Institute of Medicine, Fostering Rapid Advances in Health Care: Learning from System Demonstrations, National Academy Press, Washington, D.C. (2002).
4. Studdert, David M., and Troyen A. Brennan, "No-Fault Compensation for Medical Injuries-The Prospect for Error Prevention," Journal of the American Medical Association, Vol. 286, No. 2 (July 11, 2001).
6. Institute of Medicine, To Err Is Human: Building a Safer Health System, National Academy Press, Washington, D.C. (2000).
7. Lamb, Rae M., et al., "Hospital Disclosure Practices: Results of a National Survey," Health Affairs, Vol. 22, No. 2 (March-April, 2003).
8. Wu, Albert W., "Handling Hospital Errors: Is Disclosure the Best Defense?" Annals of Internal Medicine, Vol.131, No.12 (1999).
Back to Top

ISSUE BRIEFS are published by the Center for Studying Health System Change.

President: Paul B. Ginsburg
Editor: The Stein Group

For additional copies or to be added to the mailing list, contact HSC at:
600 Maryland Avenue, SW
Suite 550
Washington, DC 20024-2512
Tel: (202) 484-5261 (for general HSC information)
Fax: (202) 484-9258


Back to Top
Site Last Updated: 9/15/2014             Privacy Policy
The Center for Studying Health System Change Ceased operation on Dec. 31, 2013.