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Medical liability costs and defensive medicine account for a significant portion of total U.S. healthcare costs—as much as 10 percent. In addition, the average annual increase of medical malpractice costs, 11.1 percent, outpaces inflation as well as the cost increases of other types of torts.
In response to rising medical liability risk, many physicians have formed Risk Retention Groups (RRGs), which are physician-owned medical malpractice insurance providers. RRGs now underwrite about half of all medical malpractice insurance.
Because of the challenges associated with providing medical malpractice insurance, many insurers have exited this market, which further contributes to the rising cost of insurance for healthcare providers. While premium increases have moderated in recent years, research suggests that improvements in this insurance sector and in the overall costs associated with medical liability require significant reforms in the delivery of medical care.
Key Public Policy and Industry Issues
Federal policymakers have intensely focused on healthcare reform, including improvements that will contain medical liability costs. States have also taken action to address the challenges of malpractice and insurance. Key initiatives and proposals include:
  • Healthcare Reform and Demonstration Projects—While Congress works on crafting healthcare reform legislation that may impact malpractice costs, President Obama has directed the Department of Health and Human Services to move forward with medical malpractice demonstration projects, designed to test the effectiveness of various proposals aimed at reducing medical malpractice lawsuits and the practice of defensive medicine.
  • Malpractice-Specific Courts—Both Houses of Congress as well as several states have introduced, but not yet enacted, legislation to create courts dedicated to medical malpractice cases. As part of this new system, various principles and damage schedules would be established to limit payments on noneconomic damages.
  • Tort Reform—Many federal legislators are calling for tort reform to accompany healthcare reform. Several states have already taken steps to reform tort law and contain medical malpractice costs. California’s highly successful Medical Injury Compensation Reform Act (MICRA) has served as a model for other states.
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