Are hospitals learning from the lawyers?

The September 2012 issue of the AARP Bulletin has a story about a woman who sued an elder-law attorney for legal malpractice. Bear with me. It’s an interesting tale.

In 2004, a man consulted an elder-law attorney to set up a trust that would distribute his assets fairly. He had a daughter from his previous marriage and his wife had five children from her previous marriage. The story is a bit complicated, but his plan was that should he die first, the wife would inherit everything. Then when she died, his biologic daughter was to receive all of whatever was left of the money.

But the lawyer made an error and the trust actually was written in such a way that all six children (his daughter and his wife’s five) would get equal shares of the estate instead of his daughter getting it all.

Sure enough, the man died first and the mistake was discovered. The wife had not yet died but the man’s daughter sued the attorney for legal malpractice. He admitted the error but defended himself by saying the daughter had not yet suffered any damages so he owed her nothing. He also said the amount of money that might be left in the trust was impossible to calculate.

Based on the life expectancy of the wife and the amount of money in the trust, it was estimated that the daughter should have been entitled to over $500,000 when the wife finally dies.

The court ruled that the lawyer’s reasoning had some merit, but because of the serious nature of the error, it awarded the daughter $472,000 in damages.

Fine and dandy, right?

Not so fast. You see, lawyers don’t have to carry malpractice insurance.

Here’s how the story ends: “[The lawyer] decided to declare bankruptcy, which released him from his obligation to pay [the daughter].”

The story doesn’t mention whether the daughter had to pay her lawyer or any other fees.

When I finished reading the article, I was infuriated. I thought back to the origins of the medical malpractice crisis. When I was a resident in the early 1970s, general surgeons were paying less than $500 per year for malpractice insurance. When commercial insurers withdrew from the market, many state medical societies hastily established physician-owned mutual insurance companies. Shortly thereafter, premium rates shot up and here we are.

I’ve often wondered what would have happened had the medical societies simply thrown up their collective hands and said, “What are we to do? No one will insure our doctors.” Would state governments have stepped in? Would that have been a good thing or a bad thing? What about the federal government? Would we still have the ongoing crisis?

If you want to have some fun, play “What’s My Premium?” on the New York physician-owned malpractice company’s website. You can query any specialty in any county in the state. For example, a neurosurgeon in Nassau County (suburban New York City) is currently paying $315,000 per year for malpractice coverage. OB/GYN in the Bronx? $183,247.00.

In July, the New York Times reported that some hospitals in New York are dropping their malpractice insurance because they can’t afford it any longer, and they may not have enough money set aside to pay judgments against them.

The hospitals use the fact that they have little money to pay out as negotiating leverage. The hospitals tell plaintiffs to either take what little is offered as a settlement or risk getting nothing if the hospital goes bankrupt and closes.

Maybe the hospitals are learning from the lawyers. What about us physicians? Will we ever learn?

“Skeptical Scalpel” is a surgeon blogs at his self-titled site, Skeptical Scalpel.

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  • doc99

    You forget one small detail – in order to have hospital privileges, a doctor has to carry a certain amount of malpractice insurance. It’s therefore curious that hospitals are not allowing their physicians to similarly drop coverage. Obviously, Malpractice Insurance is only for the little people.

    • http://twitter.com/Skepticscalpel Skeptical Scalpel

      I am aware of that problem. As usual, the docs are the ones at a significant disadvantage.

  • bill10526

    The widow goes to a life insurance company and says she wants $1 million for her loss as Fred was a wonderful husband and meant so much to her. The life insurance company looks at the face amount of the policy on Fred and pays that $10 thousand. There is an actuarial equivalence between present value of future benefits and present value of future premiums at time of issue for life insurance but not so for malpractice insurance, where juries believe insurance companies are unlimited money machines.

    There are two major problems with malpractice litigation. Juries have no idea what they are doing and grant adverse outcome awards boosted by emotional factors. And there is no direct actuarial connection between premiums from the person to be awarded and the amount requested by the plaintiffs’ lawyer.

    People should be obliged to carry adverse outcome insurance that they pay for in advance through actarial premiums.. Such Insurance would have scheduled payments. Malpractice beyond chance adverse outcome would be a criminal matter, perhaps just additional training or suspension of license. there are too many cases where a good man is accused of making a child retarded through his negligence when the retardation resulted from the iffy proposition of reproduction. In fact I have never seen a case of true malpractice. That might be a bias in the cases I follow, but I don’t think so. It is hard for me to imagine any doctor wanting to harm his/her patient. WHY?

  • http://twitter.com/ConsanoCMO Dr Scott Finkelstein

    Malpractice award caps have been helpful in many states to contain and (even reduce) physician malpractice insurance rates. Perhaps these caps should be expanded to all states. Regardless, you raise a very interesting idea and with the declining payments from Medicare/Medicaid, decrease in private practice physicians (and resultant increase in hospital employed physicians), the idea of physicians no longer being required to carry malpractice insurance is not that far-fetched. Hypothetically, a physician without insurance could be sued, have a financial judgement levied against them, declare bankruptcy (thus nullifying the financial claim), close their private practice, and then join a hospital owned physician group.

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