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$636 Million Diverted from Patient Care to Liability Insurance

As reported by PHC4 in its report released today, Pennsylvania hospitals spent $636 million for medical liability coverage in 2004 with many hospitals choosing to self-insure, a route that can lower premiums in the short run. The medical liability insurance costs in that single-year snapshot represent 74 percent of statewide total net income of the Commonwealth’s hospitals.

This news comes shortly after the Associated Press reported Pennsylvania hitting an all-time high for medical liability payouts in 2004.

Some may call $636 million a small amount of change. But it isn’t. And it's only the tip of the iceberg, since the PHC4 report did not include data from independent physicians and nurse midwives. It also does not include liability insurance costs for nursing homes. And, let’s not forget costs associated with defensive medicine and extensive risk management.

Cutting into operating budgets at hospitals statewide, the $636 million spent on liability coverage could be better used in patient care, improved technologies, and other quality initiatives. Consider the following:

• In 2003 retail pharmacies in Pennsylvania reported total retail prescription sales of $7.3 million (Source: www.statehealthfacts.org). Pennsylvania hospitals spent 90 times that on medical liability coverage.
• In 2002, $72.3 million was provided in Pennsylvania through the Ryan White CARE Act of 1990 for medically underserved individuals and families affected by HIV (Source: www.statehealthfacts.org). Pennsylvania hospitals spent nine times that amount for medical liability insurance coverage.
• In 2002, the average annual cost of employment-based health insurance for family coverage in Pennsylvania was $8,217 (Source: www.statehealthfacts.org). The $636 million spent on hospital liability insurance coverage equals health care coverage for about 77,400 families.
• In 2001, more than 541,000 Americans died nationally from cancer. When detected and treated at an early stage, patients have a better than 90 percent chance of survival. In 2001, Medicare placed the cost of a screening test between $125 and $300 (Source: American Cancer Society). The $636 million spent on hospital liability insurance coverage equals between 2,120,000 and 5,088,000 cancer screening tests.
• When such a large amount of money is spent for liability insurance coverage and diverted from patient care, there’s little doubt that priorities are mixed up. Our state needs to find ways to lower the cost of medical liability coverage so that more money can go into helping the sick.
• Lowering costs of liability insurance is a complex matter. And for the past several years, the Pennsylvania Medical Society has said work needs to be done to address patient safety, lawsuit abuse, and insurance reform.
• Because of the efforts of the Pennsylvania Medical Society and other stakeholders, Pennsylvania has become a national leader in patient safety by starting a research-based Patient Safety Authority along with many patient safety initiatives and reporting systems. Without question, these patient safety efforts are making a difference.
• However, as reported by the Associated Press on March 21, 2005, total malpractice payouts jumped to an all-time high in Pennsylvania, to $448 million, a staggering 13.5 percent increase from 2003. This comes as the Pennsylvania Trial Lawyers Association has been declaring a moratorium on additional reforms.
• Unfortunately, as payouts skyrocket, it’s clear that more work needs to be done to lower the cost of our expensive legal system. There’s little doubt that insurers are forced to pass these expenses on to doctors and hospitals, and eventually they trickle down to consumers via higher prices for health care services and more doctors leaving Pennsylvania or stopping practice. In other words, our expensive legal system negatively impacts patient care.
• Pennsylvania needs to find better ways to manage this costly legal system. Serious efforts must be made to address escalating payouts. Three areas that should be investigated further are ways to resolve disputes outside the courtroom, indexing attorney contingency fees, and placing reasonable limits on non-economic damage awards.

For the sake of patient care, the time has come for Pennsylvania to step forward in addressing legal reform.