The New York Times reports today that doctors have been using tactics lifted from labor unions in order to combat the rising cost of medical malpractice insurance.

Unfortunately, they misdiagnosed the problem.

According to the Times,

“There hasn’t been a single state that’s enacted major tort reform without physician job action,” said Dr. Manuel A. Casiano, who has been practicing in Frederick for more than 15 years. Unattributed Headline, “Doctors Try Labor Tactics in Bid to Cut Insurance Cost” (December 27, 2004) The New York Times.

There’s a lot of talk these days about the need for tort reform. Doctors and people who rely upon them hear about lawsuits — not a few have experienced them first-hand — and when the insurance companies tell them that the rising costs of these suits are the reasons for the rising malpractice rates, they naturally believe it.

There’s just one problem. It isn’t true. And doctors are as fallible and just as likely to believe false things as are other more “ordinary” human beings.

Dr. R. V. Pierce (see sidebar) was a world-famous doctor in the late 1800s and early 1900s. His Common Sense Medical Adviser went through at least 11 editions and sold over two million copies. On page 279 of the 1886 edition — unfortunately I’ve lost the cover page, so I don’t know exactly which edition, numerically, this is — Pierce wrote:

Sleeping Alone. Certain effluvia are thrown off from our persons, and when two individuals sleep together each inhales from the other more or less of these emanations…. Numerous cases have occurred in which healthy, robust children have gradually declined and died within a few months, from the evil effects of sleeping with old people. Again, those in feeble health have been greatly benefited, and even restored, by sleeping with others who were young and healthy. Ray Vaughn Pierce, M.D., Common Sense Medical Adviser 276 (1886).

You don’t have to reach back to Hippocrates, who believed that gases (flatus) rushing around the “spongy” or “solid” structures within the body and, when it obtained admission to some body part, like the liver, “tender, juicy, full of blood, and dense,” caused “pains…suppurations and chronic tumors” to find other instances of doctors and medical investigators getting it wrong. No, you merely have to look at contemporary treatments for pain, or cancer, or any number of other intractable diseases and the experiments performed on human subjects by the companies producing Vioxx or Crestor.

The reason doctors make mistakes is pretty much the same as the reasons ordinary people make mistakes. First, there’s just the ordinary fact that people aren’t perfect. But, second, there’s the problem that we seldom have all the information we need to make rational decisions. And such is the case when it comes to medical malpractice insurance premiums and the false belief that tort reform is needed to “fix” this “problem.”

Implementing caps does little for rising insurance rates. The model for the Bush-backed bill is based on the California Medical Injury Compensation Reform Act passed in 1976. Instead of lowering insurance premiums, doctor’s insurance rates increased 190 percent over the next 12 years.

Since 1998, according to the Foundation for Taxpayers and Consumer Rights, premiums in California rose 37 percent while premiums across the country grew only 5.7 percent. Sabrina Karim, “No need to cap medical malpractice awards” (March 29, 2003) Foundation for Taxpayer & Consumer Rights.

When thinking about the impact of medical malpractice awards, you might think that the best way to start would be to collect some information. Unfortunately, most of the “news” stories — primarily propaganda put out by Republican “think tanks” and insurance companies — are little more than recitations of anecdotal “evidence” based on falsehoods. A prime example of this is the McDonald’s Coffee lawsuit, about which I’ve written before.

These false stories and other distractions are meant to keep us from looking at what really counts. What we really want to know about is the relationship between the costs of health care and medical malpractice premiums. Instead, we hear about how “millions” are being paid for “frivolous” lawsuits and doctors are quitting the profession in droves because of the costs.

It’s often said that hundreds, if not thousands, of doctors are quitting medicine and fewer new doctors are replacing them, because the risks are so high and the rewards so low. In Clovis, California, for example, the median pay for a general practitioner — not a high-paid specialty — is “only” about $145,000 per year. The average per capita income in the Fresno-Clovis area is a staggering $18,727 per year. (Nationally, in 1998, the median income for physicians after expenses was $160,000.)

You can see why no one would want to be a doctor. Why go to medical school and “only” earn $160,000 after paying exorbitant medical malpractice insurance fees when you could become an attorney and average $88,000 per year (1998 figures nationwide) up to $103,000 per year (currently in California, according to Payscale.com)? And, incidentally, attorneys have to carry malpractice insurance, also, and their rates are rising, as well.

Some doctors, in fact, may actually be relocating and/or leaving the profession because medical malpractice is reducing their yearly income by increasing amounts. And although you have to wonder how smart someone has to be to quit his job because he’s only making 10 times the median income for his area instead of 12 times the median, the pertinent question would still remain: Is the cause of the theoretically-astronmical rise in medical malpractice premiums due to the increasing costs of lawsuits?

It might be worth considering why insurance companies exist in the first place. You might think they exist to protect the medical profession, by insuring doctors against inevitable mistakes that will negatively influence the lives of their patients — or the lives of their families if they patients should die because of the mistakes. But like all businesses, while they do provide this type of service, they exist primarily to make money.

And, boy, do they make money! OHIC, an Ohio malpractice insurer, noted that they made a profit of $3.1 million as of September 2004. That compared with only about $2.7 million in September 2003. In fairness, they show a loss in 2002, but it’s unclear why this occurred — liabilities in both 2003 and 2004 are higher.

Pronational, the 14th largest medical malpractice insurer in the United States, has “only” something more than $200 million in surplus funds. The Profesionals Group, an upstream holding company for PICOM and Physicians Protective Trust Fund (which together had formed Pronational) is publicly traded and brags that “[a]n investment of $100 in 1985 in Professionals Group (PICOM) was worth $8,278 at the end of 2000.”

Where did the money come from that could support investor profits like this? If malpractice lawsuits are really eating up so much profit that doctors are being driven out of business by high premiums, then just how does $100 turn into over $8000 in only fifteen years? After all, as the report linked above states,

This is an annual growth rate of 32 percent, or more than twice the growth rate of the S&P 500 over the same period. — “History of Insurance Companies of the Professionals Group” (2000) Professionals Group, Inc.

Multiply that out, folks. If $100 earned $8,278, then $1000 earned ten times that, or $80,278. An investment of $10,000 earned almost a million dollars! In 15 years!

Some people will argue that this investment wasn’t paid out by the company directly. If you buy stock and the stock increases in value, when you sell the stock it doesn’t cost the company that issued the stock anything. The buyer of the stock pays the higher price. And this is true. But why does the stock price go up so much? Why does the new buyer willingly pay so much more for the same stock?

The reason is the perceived value of the company, which is based upon the net profits that the company makes. Companies that do not make significant profits don’t see their stock prices increase. The worse a company does, the worse its stock does; the better a company does, the better its stock does. It’s as simple as that.

Clearly, to drive these kinds of stock price increases, insurance companies cannot be suffering. Insurance companies are making killer profits right now, especially when compared with a few years ago. (This is at least partly, by the way, because the number of successful lawsuits has fallen, according to OHIC.)

The fact of the matter is that we have misdiagnosed the problem with rising medical malpractice insurance premiums. Malpractice lawsuits are not causing this increase in premiums. And caps on awards will not help — again, look at California, which already has caps and high premiums.

You want real reformation that will solve the malpractice “crisis”?

If, as it appears, malpractice insurance companies are becoming increasingly greedy bastards to satisfy investor appetites, then perhaps what we need are regulations controlling the levels to which their greed can rise. Perhaps non-profit insurance companies are the solution. At the very least, stop trying caps on recovery for people whose lives have been ruined, whose medical bills and suffering are increasing. Those caps don’t work. If we want to cap something, we should consider capping profits from those who, if they can just stop paying out awards on other people’s pain and suffering, will see an increase in profits, while doctors will continue paying increased premiums.

Another solution is keying premiums to profits; instead of capping an insurance company’s profits, you tie the amount of premiums they can charge to their profit levels.

But none of this will work as long as doctors and the general public buy the lies and misdiagnose the real source of the problem.