Medical Malpractice Insurance and the Emperor's Clothes

Report March 24, 2005 Read time:

In the thirty years that have passed since California adopted its paradigmatic malpractice reform legislation, the Medical Injury Compensation Reform Act of 1975 (MICRA), the health care system has changed dramatically. Annual spending on health care in the United States has risen from $300 billion to $1.6 trillion. Medical technology has boomed, including new pharmaceuticals, diagnostic imaging techniques and other novel tests for disease, and lifesaving treatments such as coronary artery revascularization. Government dollars finance fifty percent of health care today, up from roughly thirty-five percent in 1975, and the few prototype HMOs that existed then have given rise to a powerful managed care industry.

Yet the fashion in tort reform remains unchanged. Essentially all the pro-reform stakeholders in the ongoing medical malpractice crisis continue to tout MICRA's caps on non-economic damages and limitations on lawyers' contingent fees as the ultimate in style, comfort, and durability. The anti-reform stakeholders counter that the price of MICRA-style reform is not worth paying, and challenge the connection between legal claims and malpractice premiums, but ignore fundamental incompatibilities between conventional tort litigation and health care.

Only the academy—meaning law professors, public health professors, economists, and health services researchers—seems able to gaze at MICRA and see how shopworn it has become. Central to the academic perspective is an observation that is simultaneously obvious and startling: solving the current malpractice crisis and avoiding future ones will require restructuring medical liability insurance. Why is this obvious? Because a malpractice crisis is defined as a period when liability insurance becomes scarce and expensive. Why is it startling? Because the battle lines in medical malpractice reform were drawn between doctors and lawyers decades ago and have not budged.

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