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The basic definition of medical malpractice is an act or omission by a health care provider which deviates from accepted standards of practice in the medical community and causes injury to the patient. The word "malpractice" has a connotation of greater culpability than negligence. In the United States and other countries, a specific medical malpractice law has developed. In English law, the issue of liability is a subset of professional negligence where, under the Bolam Test, a doctor will be liable unless shown to have acted in accordance with a reasonable body of medical opinion. In Australia, this test has been replaced but the principles are comparable.
Insurance companies set a contract with each medical practice for a calendar year. According to the contract, doctors pay a set “rate” for the entire year. In exchange for paying the set rate for each year, the insurance company will provide a legal defense and indemnification for losses to the doctor or the practice if they are sued.
According to the Insurance Information Institute, early in the 1970s, many insurance companies left the business due to the “rising claims and inadequate rates.” Responding to the lack of insurers, many doctor-owned malpractice insurance companies were established to provide affordable coverage. These companies had not experienced deficits and were initially able to charge low rates. As time passed, these doctor-owned insurance companies constantly lost money on patient claims and were forced to increase the rates. Today, nearly fifty percent of medical malpractice insurance companies are doctor-owned and operated. Insurance rates have continued to increase faster than the rate of inflation, though less rapidly in states that have passed tort reforms; according to the United States Department of Health and Human Services, "malpractice reforms in the 1980s led to a 34% decline in malpractice premiums in those states that enacted reforms compared with states that did not enact reforms.". The Center for Justice and Democracy released a study arguing that insurance companies have enjoyed increasing profits while medical malpractice claims and payouts remained constant. However, as tort reform advocates noted, the study reached that conclusion by deliberately omitting data from a health insurer, St. Paul, that left the business after a multi-billion dollar loss; when that data is included, the study results in the opposite conclusion: "In failing to take account for the market exit of some of the industry's largest players, mismatching premiums and losses, hand-picking dates to skew results, and painting a deceptive picture of the insurance industry's profitability, CJD's research is at best shoddy and at worst intentionally misleading." An October 2005 study by the Health Coalition on Liability and Access found that the CJD study was "critically flawed" and that, once those flaws were fixed, there is "no evidence that medical malpractice insurance is overpriced."
Economists have recently studied several questions central to the medical malpractice debate. While it has been claimed that excessive jury awards are responsible for increases in malpractice insurance rates, verdicts constitute only 4% of the medical malpractice payouts, with insurance company settlements comprising 96% of the payouts. These statistics acknowledge insurance companies rarely go to trial in cases where large penalties may be incurred. However, in clear cases of spurious malpractice claims, companies refuse to settle and instead doctors' suffer penalties of lost work and emotional distress. The same researchers found that the increases in payouts have been consistent with increases in the costs of health care. However, the 2003 GAO reports finds that "Multiple factors have contributed to the recent increases in medical malpractice premium rates in the seven states we analyzed. First, since 1998 insurers' losses on medical malpractice claims have increased rapidly in some states. For example, in MS, the amount insurers paid annually on medical malpractice claims or paid losses, increased by approximately 142 percent from 1998 to 2001 after adjusting for inflation. We found that the increased losses appeared to be the greatest contributor to increased premium rates."
There are various bills that have been proposed in the U.S. Congress that would cap non-economic damages in medical malpractice cases at $250,000, and some proposals have included provisions permitting states to pass legislation that would override such a cap. The Congressional Budget Office estimates that the bill will reduce medical malpractice insurance rates in states that do not have caps by 25-30%.
Some within the medical profession, insurance industries, and numerous lawyers and economists argue that the current American medical malpractice litigation system increases the cost of health care and threatens access to health care for all Americans. Supporters of tort reform contend that studies show that very few medical liability lawsuits stem from what they call true malpractice that very few cases of actual malpractice end up in suits, and that malpractice verdicts are just as likely to punish innocent doctors as wrongdoers. They argue that the cost of defensive medicine, in which physicians order tests or treatments or hospitalizations for medico-legal rather than clinical reasons, is as large as $50 billion per year, money that could be better used to improve health care elsewhere. The American Medical Association argues that excessive malpractice liability deters many doctors from practicing, and that the problem is especially acute for obstetricians and neurosurgeons.
In response, some consumer groups, patient rights organizations and lawyers who handle medical malpractice claims argue that the quality of health care in the United States of America is among the best in the world, and they contend that this results in part from the ability of citizens to obtain an effective judicial remedy when they are victimized by medical malpractice, and that any extra cost imposed is justified by what they consider the extra benefit. Defenders of the current system claim that there is virtually no frivolous medical malpractice litigation, because the high cost of pursuing medical malpractice claims, and the alleged reluctance of physicians to testify against their colleagues, forces plaintiffs' lawyers to spend large sums of money to litigate even minor malpractice claims. Bob Herbert, an opponent of tort reform and a columnist for the New York Times, writes: "the problem when it comes to malpractice is not the amount of money the insurance companies are making (they're doing fine) or the rates the doctors have to pay, but rather the terrible physical and emotional damage that is done to so many unsuspecting patients who fall into the hands of careless or incompetent medical personnel....What is needed is a nationwide crackdown on malpractice, not a campaign to roll back the rights of patients who are injured." Herbert's claim that the "insurance companies are doing fine" is directly contradicted, however, by the fact that in 2003 insurance companies had a combined ratio of 137.5, paying out $1.375 in medical malpractice defense costs, judgments, and settlements for every dollar collected in premiums. Herbert's analysis was otherwise heavily criticized by supporters of tort reform as inaccurate in many other respects.
There are many other disputes relating to the question of medical malpractice reform; see tort reform and non-economic damages caps.
Common Good has proposed creating specialized medical courts to improve the American system; opponents of tort reform object to the idea.