The growing prevalence of malpractice lawsuits and high jury awards has long been the focus of experts studying the nation’s malpractice crisis, but many are now assigning an equal amount of blame to insurers’ pricing and accounting practices, the Wall Street Journal reported in a front page article investigating the history of the crisis. According to statistics from Jury Verdict Research, jury awards for medical malpractice cases have jumped 175% since 1994 to a median of $1 million in 2000. Insurers blame an industry-wide loss of nearly $3 billion in 2001 on such high jury awards and an ailing tort-reform system, but providers, including the American College of Obstetricians and Gynecologists, whose membership has been hit particularly hard by the current crisis, are pointing to a price war in the 1990s that led many insurers to sell coverage to physicians at rates that proved to be inadequate to cover claims.

Price War Made Malpractice Unprofitable

According to the Journal, malpractice coverage was a small, localized specialty for insurers until the 1970s, when Minnesota-based St. Paul Companies began extending its malpractice liability coverage across state lines; by 1985, the company held 20% of the national malpractice market. Its apparent financial success, which was based largely on a standard industry accounting practice that boosted annual revenue reports, spurred other local insurers to venture into the national market. The increased competition led to a price-slashing war that lowered premiums in many states and prompted companies to sell policies that failed to adequately cover malpractice claims. As malpractice lawsuit payouts continued to rise in the late 1990s and investment returns began to shrink in a failing economy, insurers started losing money, paying out $1.36 on claims and expenses for every dollar they collected on premiums in 2000. Many major carriers, such as St. Paul and the New Jersey-based MIIX Group, have exited the malpractice market or refocused on local markets. Competition has decreased, and in states that do not have tort reform, including Nevada and Pennsylvania, prices have skyrocketed. Physicians facing premium increases as high as 400%, particularly OB/GYNs, are being forced to stop accepting new patients, move, or retire early.