When their malpractice insurance rates tripled two years ago, leading doctors in Clark County, Nevada--obstetricians, gynecologists and emergency room physicians--were so angry they walked out on their jobs. Worrying about physicians paying inflated insurance premiums may not have been the highest priority of Nevada legislators, but the threat of pregnant women in Las Vegas driving 50 miles or more to have their babies delivered was. So in the summer of 2002, Governor Kenny Guinn called a special session of the legislature, and it unanimously passed a bill capping non-economic damages--commonly known as pain and suffering--for most malpractice claims. Legislators were assured by both doctors and the insurance companies that the $350,000 cap was the best way to bring stability to the medical malpractice market.

They were wrong. Rates kept climbing. "The ink wasn't dry" on the first bill, says Nevada Assembly Majority Leader Barbara Buckley, "before some physicians began an initiative process." Their petition would tighten the pain-and-suffering cap and also impose severe limits on attorney contingency fees--a version of California's 1975 medical malpractice law that many physicians and most insurance companies consider the holy grail. This time around, though, Nevada lawmakers are wary. Since its damage caps failed to lower costs, the legislature is considering stricter regulation of insurance companies.

Whether the physicians push their initiative through or the legislature beefs up the powers of the state insurance commissioner, the problem of soaring malpractice insurance rates is likely to keep recurring. This winter, doctors walked out in New Jersey, Florida and West Virginia. Other strikes have either taken place, or been seriously threatened, in Pennsylvania, Texas and a handful of other states.

Organized walkouts are a relatively new phenomenon, but crises over medical malpractice rates are not. Premiums have been spiking with regularity once every decade or so for the past 50 years, despite state efforts to tamp down the crisis. Congress is taking a crack at it this year. President Bush has called for limiting damage claims. The U.S. House passed the president's plan last month, but a much tamer bill than the one Bush is proposing fell well short in the U.S. Senate in 2002. That means the states are likely to be stuck grappling with the complicated issue. "Legislators feel like they're the rope in the tug of war," says Cheye Calvo, who tracks the issue for the National Conference of State Legislatures. "They're forced to do something, but there isn't one simple solution."


There are several components to the medical malpractice problem. Obviously, one of the main ones is that insurance company losses have shot up over the past couple of years. Clearly, jury verdicts and legal settlements are key contributors to that red ink. But, claim losses aside, insurers are having no more luck with their portfolios than your average unhappy 401(k) investor.

Business practices also account for some of the losses. When they are in a high-profit mode, insurance companies tend to lower premiums in order to maintain and attract market share. When profits disappear, the companies present doctors with bills for several years' worth of increased costs. Or, the companies get out of the malpractice business altogether. In some states, physicians have had to struggle to find coverage of any kind. That's a major part of the problem in Nevada, where one company--St. Paul--held more than 40 percent of the market and left the state. In Florida, there were more than 60 companies offering medical malpractice coverage two years ago; now there are only a dozen.

As always, the medical malpractice debate pits insurance companies and their physician clients against trial lawyers and, to a lesser extent, advocates for consumers and patients. The arguments about damage caps, insurance investment income and medical errors are familiar to legislative veterans who heard all of them during previous crises.

"This problem is almost unsolvable," says Nicholas Micozzie, chairman of the Pennsylvania House Insurance Committee. "When you sit down with the lobbyists, there's like a wall between each of them in protecting their interests." As difficult as it is sorting through the claims and anecdotes of these fiercely competitive lobbies, the real question for legislators may be whether there is a solution to this problem that none of the interest groups is talking about.


Edward Dauer, a University of Denver law professor who headed a Colorado state commission on medical malpractice in 1986, sees a possible solution in an approach known as enterprise liability. Responsibility for ordinary medical errors would be taken away from individual doctors and placed on institutions such as hospitals and health plans. Many medical mistakes, after all, are ultimately traceable to equipment and communication failures. The death of Jesica Santillan, the 17-year-old who died recently after receiving heart and lung transplants that didn't match her blood type, was blamed on a misunderstanding between her physician and a North Carolina organ bank.

Dauer believes that forcing institutions to bear responsibility will give them plenty of incentive for studying and rectifying system errors with a rigor that is currently missing. In effect, enterprise liability distinguishes between avoidable errors, which presumably could be reduced through changes in systems of care, and outright negligence.

In a Texas Law Review article published last year, two Harvard medical professors argued that, although enterprise liability would not be politically feasible, a modified version in which the same insurer would write policies both for a hospital and its affiliated doctors might work. That single insurer could mount a joint defense against claims brought against both the institution and individual physicians.

As to the issue of mistakes, a widely cited 1999 Institute of Medicine study posited that between 44,000 and 98,000 people die each year as a result of preventable medical errors. While such information could be helpful in resolving medical mistakes, there's little hope that a close tracking of errors will become a part of the medical system. Admitting mistakes is discouraged by the present liability system, which would make such information fodder for lawsuits.

State policies governing medical errors have been a back-burner issue for about a decade, brought to the fore of late by the IOM study and by high-profile cases such as the death of Jesica Santillan. Moreover, a recent New England Journal of Medicine survey showed that about a third of the physicians who were questioned had experienced medical errors in the care they or their family members received.

The National Academy for State Health Policy has launched a project to help define types of errors and come up with model legislation for reporting them. At present, only 20 states currently require any reporting. There's been resistance to such legislation from health care providers who are extremely wary of reporting errors unless they know the information can be kept confidential.

Despite the apparent prevalence of errors and adverse effects, some legislators prefer to view them separately from malpractice insurance, considering them a distraction from the problem of excess litigation. Although he acknowledges that the reporting and studying of medical errors needs to be beefed up, West Virginia state Senator Evan Jenkins, who is executive director of the state medical association, says that "those who want to deflect attention from the need for liability reforms suggest that this is a just a matter of bad doctors or bad insurance companies."

Dauer sees things linked more directly. "If we can figure out what the law ought to look like in terms of ways to reduce medical errors, we may find some improvement in the liability costs physicians bear," he says.


Due to confidentiality concerns, it's hard to guess how many institutions make a serious study of mistakes on their premises. At least some, such as the U.S. Department of Veterans Affairs and Harvard University's teaching hospitals, do mine in-house outcome reports to find ways of preventing further errors. There's a difference, after all, between bad outcomes and bad medicine. "A lot of institutions are organized so that their risk management department--which historically has been run by the legal counsel-- doesn't necessarily talk to the quality-improvement side of the house or the patient-safety folks," says Luke Sato, chief medical officer of the Risk Management Foundation of the Harvard Medical Institutions.

Harvard hospitals set up the foundation to provide coverage in response to a crisis in the mid-1970s over the unavailability of medical malpractice insurance. Sato's team stores information about valid error claims in databases that help identify and improve risk areas within the institutions. "Health care professionals, particularly physicians in academic settings, are receptive to data," Sato says. "You have to have data to convince them to do or change anything."

So far, the approach is working. During the 1990s, the hospitals were able to reduce the number of claims in the most litigious areas-- diagnosis and medication-related claims, surgery and obstetrics--as well as the dollar losses in each of those areas. As a result, Harvard's premium rates--$40,000 a year for obstetricians--are well below the national average of $57,000 in that field.

There is further evidence that changing medical practices can lower premiums. Following a big jump in anesthesiology-related malpractice lawsuits during the 1970s, hospitals and the American Society of Anesthesiologists agreed on new standards that have become accepted practice, including continual monitoring of patient vital signs. Such measures have led to a substantial decline in malpractice claims within the specialty.


Some legislators are starting to look at borrowing the "no-fault" concept from automobile insurance law. If they suffered problems as a result of medical treatment, patients would receive compensation, either from buying no-fault insurance or from a pool of dollars physicians statewide would provide. The insurance would pay set amounts, eliminating the multi-million-dollar payouts but insuring that any patient hurt by faulty treatment would recover some money. Depending on how a no-fault law is written, patients could still sue for pain and suffering but would have to convince a jury that gross negligence was involved.

In Wyoming, state Senator Charles Scott introduced legislation this year to create a commission that would study how to identify and prevent future medical errors and would dole out money to anyone hurt by such errors on a fixed schedule, modeled roughly on the workers' compensation model. His bill would abolish the need for medical malpractice insurance and replace it with a state fund, underwritten by premiums from doctors. The fund would dispense money to patients hurt by negligence on a no-fault basis. The bill died on a tie vote.

The Wyoming House had already killed a California-style bill to impose caps, so both traditional and innovative approaches have failed. That leads Scott to predict that the state has a 50-50 chance of a "fast crisis," meaning high-profile physician walkouts, retirements or departures. The alternative is a "slow crisis" in which, over time, the state is unable to recruit and retain enough physicians to fulfill the health needs of its citizens. For his entire quarter-century in the Wyoming legislature, Scott says, he's been "listening to the lawyers blocking the insurance companies and the doctors and the insurance companies blocking the lawyers, and what I've concluded is that they're all right."


Early medical malpractice "crises" were generally triggered, ironically, by advances in medicine. The further doctors moved from leeches and humors, the more patients seemed to expect of them--and the more positive results they had against which to judge bad outcomes. Medical malpractice complaints were rarely heard until the second half of the 20th century, when sulfa drugs, transfusions and other advances made surgery safer. By 1960, there was still an average of just over one malpractice complaint lodged for every 100 doctors-- compared with 15 complaints per 100 physicians today. Processing all those claims takes money and has helped boost the cost of insurance from $60 million a year in 1960 to more than $7 billion a year by the 1990s.

In the 1970s, California tried to settle its malpractice crisis by passing a liability law, known by its acronym, MICRA. MICRA set a $250,000 cap on non-economic damages, limited attorney contingency fees, spread out large damage payments and allowed for introduction of evidence of collateral damage benefits already received by patients from their own insurers. MICRA has been imitated by several states and is the model for the physicians' initiative in Nevada and for President Bush's plan. Its proponents, such as the Physicians Insurers Association of America, point out that medical malpractice rates in California have gone up 167 percent since the law's passage, while premiums in the rest of the country have increased by more than 500 percent.

Its opponents, such as the trial lawyers, note that insurance premiums for doctors continued to escalate in California for years after the law's passage. They only began to slow following the passage in 1988 of Proposition 103, a ballot initiative that placed strict new controls on the insurance industry itself.

Whatever helped lower premium costs, the fact remains that the relative number of doctors in California, measured against population, has been dropping, and surveys of doctors there find that many of them are unhappy and moving elsewhere. Many factors are at work, including expenses such as the state's notoriously high rents, but California is still suffering from physician unrest, despite MICRA.