Manhattan Institute for Policy Research.
search  
 
Subscribe   Subscribe   MI on Facebook Find us on Twitter Find us on Instagram      
 
   
 

Civil Justice Report
No. 10 May 2006


Medical Malpractice Awards, Insurance, and Negligence: Which Are Related?

Regression Appendix

Cointegration

The cointegrating equation is Awards (DLP) - .859 Premiums (DPW) (.10 ) with details as shown in the following table.

Table A1.

The key terms in the error-correction representation (not shown) are .08 Awards (.054) and .4077 Premiums (.112) (standard errors in parentheses). The larger coefficient on the latter relative to the former indicates that it is premiums that adjust to awards. There are also lags of each term in the ECM. Details are available upon request.

Premiums and Awards

Table A2 is the regression represented in Figure Three. It shows that higher medical malpractice awards are associated with higher medical malpractice premiums, just as we would expect from basic economic analysis. A one-dollar increase in awards is associated with an increase in insurance premiums of $2.89. In the long run we expect a one-to-one relationship between awards and premiums, which is exactly what we found in the cointegration analysis. The greater than one-to-one relationship we
found here could be due to unmodeled factors or factors specific to the 1999-2001 period. Using data on individual-level physician malpractice premiums and an estimated measure of individual liability, Helland and Showalter (2006) show that premiums increase one-to-one with awards.

Table A2. Premiums are higher in states with higher awards per doctors

Premiums and Concentration Ratios

Table A3 is the regression represented in Figure Four. It shows, contrary to the price-gouging hypothesis, that states with higher concentration ratios tend to have lower insurance premiums. A ten-percentage-point increase in the concentration ratio is associated with a decrease in insurance premiums of $2,540, or about a 13 percent decrease evaluated at the mean insurance premium. The negative relationship between prices and the concentration ratio is consistent with Demsetz’s (1973 ) argument that
efficient firms lower prices and increase their market shares. Wal-Mart, for example, dominates many markets because of its lower prices. Although the relationship is consistent with Demsetz’s efficiency argument, our goal here is merely to point out that this relationship is prima facie evidence against the price-gouging hypothesis.

Table A3. Higher concentratIon rates lower insurance premiums

Multiple Regression: Premiums, Awards, Concentration Ratios and PCFs

Table A4 demonstrates that we get similar results to those graphed when we include awards per doctor, the 4-firm concentration ratio, and whether a state has a patient compensation fund (PCF) together in a multiple regression.

Four states have mandatory PCFs: Pennsylvania, Indiana, Kansas, and New Mexico. For a fee, these funds provide excess professional liability insurance to those in the medical profession. The fees were added to the rates reported by various insurance companies in the MLM data so that we are comparing what physicians pay in total for $1m/$3m worth of liability insurance in each state. The negative coefficient on the variable indicates that total fees are lower in states with PCFs. One explanation is that
fees in states with PCFs are underpriced. Pennylvania long underpriced insurance, for example, and then had to catch up with surcharges and, more recently, through subsidiziation of rates by taxpayers. In New Mexico there is no current subsidy, but in 200 the Department of Insurance issued a report indicating that the PCF was underfunded, thus suggesting that taxpayers could be called upon to take
up some of the burden in the future.[25] (See Sloan et al. (2005) for more on PCFs.)

Table A4. Premiums are higher in states with higher awards per doctors, multiple regression

Adverse Actions Per Doctor

Table A5 presents the results mentioned in the text, that unlike tort awards adverse actions per doctor do not correlate with political factors such as partisan elections or the percent below the poverty level.

Table A5. Variation in adverse actions per doctor is not associated with percent below poverty level or partisan judicial elections

 

Table A6. Means and standard deviations

 


Center for Legal Policy.

EMAIL THIS | PRINTER FRIENDLY

CJR 10 PDF (color graphs)

CJR 10 PDF (b/w graphs)

· Press Release >>
· PPT Presentation

EXECUTIVE SUMMARY

ABOUT THE AUTHORS

Introduction

Malpractice Premiums and Awards Across Time

Medical Malpractice Awards and Premiums Across the States

Profiteering, Greed, and Gouging?

What's Driving Awards?

An Alternative Method for Determining Malpractice

Conclusion

Regression Appendix

NOTES

REFERENCES


Home | About MI | Scholars | Publications | Books | Links | Contact MI
City Journal | CAU | CCI | CEPE | CLP | CMP | CRD | ECNY
Thank you for visiting us.
To receive a General Information Packet, please email support@manhattan-institute.org
and include your name and address in your e-mail message.
Copyright © 2014 Manhattan Institute for Policy Research, Inc. All rights reserved.
52 Vanderbilt Avenue, New York, N.Y. 10017
phone (212) 599-7000 / fax (212) 599-3494