In Jim Lynch’s article, “How Will Health Reform Challenge Medical Malpractice?” (Actuarial Review July/August 2014), we are told that an increase in the number of people with insurance is expected to result in an increase in medical malpractice claims. In other words, more doctor visits and a higher hospital census mean more exposures, which in turn mean more claims. You have probably heard this prediction before, and it sounds reasonable. However, this prediction of increased claims due to the Affordable Care Act (ACA) may be incorrect. Medical malpractice claims are not caused by higher census and outpatient visits—they are caused by bad medical outcomes.
When we talk about medical malpractice claims, we are talking about (a) obstetrics claims and (b) all the other claims. The jumbo claims are usually the obstetrics claims—the “bad baby claims” involving a neurologically impaired infant. Let’s therefore talk about babies and pregnancies.
Some years ago, when my wife and her friends were sharing pregnancy stories, I remember one in particular. A friend of my wife had gone to the obstetrician for an initial visit, and everything went just fine. She really liked the doctor. At the end of the visit, the doctor said, “You do need to make a decision. You can decide to stop smoking for the duration of your pregnancy. In that case, you should make your next appointment at the front desk. Or you can decide to continue smoking. In that case, you will need to find another doctor.” She stopped smoking.
Now consider a population of two pregnant women in the old days, before the ACA. One has insurance and the other doesn’t. The woman with insurance sees the doctor 12 times during her pregnancy. She is given the stop-smoking ultimatum, she takes pre-natal vitamins, her blood pressure and glucose levels are monitored, and so on. At the end of her pregnancy, she spends two days in the hospital. The other woman who has no insurance shows up at the emergency room when her contractions are three minutes apart and spends two days in the hospital. The total exposure is 12 outpatient visits and four hospital days. (Note that the hospital is required by law to treat the woman without insurance who shows up in the emergency room.)
Now consider a population of two pregnant women after the ACA. Both now have insurance, both go to an obstetrician and are given the stop-smoking ultimatum, and so on. The total exposure is now 24 outpatient visits and four hospital days. These considerations would make for a good exam question:
You are the pricing actuary for a medical malpractice insurer and are asked to provide a single price for malpractice insurance for two hospitals and their affiliated obstetricians. This insurance will cover obstetrics-related malpractice claims for newborn babies and their mothers. The first hospital has a patient population similar to the pre-ACA scenario described above (six outpatient visits and two hospital days per mother). The second hospital has a patient population similar to the post-ACA scenario described above (12 outpatient visits and two hospital days per mother)….
I’m not going to finish this hypothetical question because I think the readers will agree that the first hospital—with the lower “exposure” level—is going to have a higher level of bad medical outcomes than the second hospital—with the higher “exposure” level.
There’s a second article in the July/August 2014 AR, “More on the Actuarial Implications of the Affordable Care Act” by Rob Lieberthal, which is also pertinent to this discussion. Lieberthal reminds us that with a new program such as the ACA, there may be multiple scenarios that could be reasonable.
The scenario that is often mentioned—the ACA will lead to more patient visits which in turn will lead to more medical malpractice claims—has some merit. However, I think my alternate scenario—the ACA will lead to better medical care which in turn will lead to a reduction in bad medical outcomes which in turn will lead to fewer medical malpractice claims—needs to be considered as well.
John Pierce, FCAS, is president of John Pierce Consulting Actuary in Park Ridge, Illinois.
