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THE MEDICAL MALPRACTICE CRISIS OF THE 1970'S: A RETROSPECTIVE

THE MEDICAL MALPRACTICE CRISIS OF THE 1970'S: A RETROSPECTIVE

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A sense of did Vu is triggered by the recent declaration of the American Medical Association regarding a medical malpractice crisis that requires major legal reforms. It seems that we have been there before. Ten years ago, tort law was widely condemned for creating a similar crisis in medical care providers.2 This was due to huge increases in insurance premiums and the exit of some insurance carriers from malpractice underwriting. These events raised concerns about the economic viability of health care and the quality of its services. Investigations were launched by both the federal and state governments as well as private groups.4 There was also reform in insurance practices and legal rules. The momentum for institutional reform and legal reforms had slowed to a halt by the end of 1970. 


The changes and reforms did not solve the underlying issues, but they had the immediate effect of dissolving the crisis atmosphere. The medical profession is now experiencing renewed anxiety due to the escalating severity (size) as well as frequency (number of) malpractice claims. There are several new proposals for legal reform that include not only bills in the state legislatures (of which only a few have been enacted), but also two bills in Congress. 8 With renewed interest in the issue, it is time to take a look back at the 1970's crisis and the insurance and legal changes that resulted. This article will provide a brief overview of the events in the early 197 0. It will also review what we know about the immediate causes. These include an unexpected rise in legal claims, recoveries, insurance practices that contributed to the problem, as well as exogenous economic developments. We review a variety of theories about the causes of legal claims rising, including the role of legal doctrine. 


Liberalization of liability rules was widely blamed for the rise of malpractice claims that led to the crisis. Reform of these rules became the center of political attention. This article offers some skeptical remarks on how much the reforms changed tort law. It also concludes with some comments about the alleged re-emergence. There were many aspects to the malpractice crisis that occurred in the mid-1970s. The immediate crisis for health care providers was twofold. There was an abrupt and significant increase in malpractice insurance premiums and, worse, the risk that liability coverage would be unavailable at any cost as a result of the withdrawal of carriers from the field. 9 The crisis resulted in an unexpected increase in the number of negligent injury claims and the amount that was recovered by carriers. 


0 The rise in underwriting costs was compounded by the investment losses suffered by insurance companies and other investors during a national recession. It is unlikely that the general public would be aware of any crisis. While patients may have had to pay higher hospital and medical bills due to the malpractice insurance costs, the third-party payments system tends not diffuse or obscure the impact of higher costs on the patient. 12 Furthermore, even a significant increase in liability costs in a system that is already experiencing rapid inflation would not be noticeable in a health system already struggling to pay its bills. 



With the help of lobbyists for medical professionals, the people's legislators could see potential disruptions in medical services if the insurance was not available to them or if the costs were too high. There had to be something done or at least it had to be made known to the relevant constituencies. 14 This "something" was a lot of legislative activity, ostensibly aimed at changing the liability rules that underpin the malpractice legal system. It is best to wait until the nature and genesis of the problem are known before deciding how substantive or cosmetic the changes were. 


 

next-to-highest risk rating categories.' 6 The average premium cost for the former category increased by 600% between 1960 and 1972, while the costs for the latter increased by about 900%. These are national averages. Some states saw higher rates of growth. According to one study, 8 hospitals had a similar pattern in their insurance premiums, with an average increase of 750% nationwide between 1965-1973. There was considerable variation between states and hospitals. According to the HEW survey, premiums relative to professional income increased by just 300% between 1962 and 1970. In absolute terms, however, this ratio was still low. Premium costs were 1.8% for "class 2" physicians and 4.2% for "class 4" surgeons. Recent data shows comparable low percentages. 22 These numbers may not be very reliable as they don't show how much of the higher premiums were passed onto patients and their insurance companies. The crisis was not limited to the rise in premium rates. Even more concerning was the threatened or actual withdrawal of major insurers from the malpractice market due to the combination of volatile underwriting risk, investment losses, and uncertain profits


 

These basic events are well-known. There is little to no dispute about the causes of these events. General economic conditions were the cause of the insurer's investment loss. Unexpected increases in the frequency and severity of insured claims led to unexpected underwriting losses. It is difficult to understand why claims and costs suddenly rose and why they were not anticipated. Underwriting losses are often explained by insurance companies. This is because it is difficult to predict future claims exposure. 25 A part of the problem may be due to the low number of insureds in a particular risk category or geographical region. 


This creates a problem of "credibility" with the data used to estimate claims exposure. 26 This credibility problem was exacerbated by the lack of attention companies paid to rate loss and risk evaluations for this minor line. Partly, this steep rise was due to years of neglect by insurers of the changing social and legal environment that affects malpractice claims. This negligence, coupled with the carriers' sudden awakening, prevented a gradual adjustment of premiums. 28 The increases were higher in percentage terms than the recent claims increases. This was because insurers saw the trends into the future, and sought out premiums that would cover losses at higher rates. Many observers weren't convinced that the new premium levels were fair representations of expected claims experience. They were skeptical as to whether current premium levels are comparable. 

 

 

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