When State Governments Compete for Doctors

Over the last few years, Texas has become an attractive state in which to practice medicine. It has high reimbursement from insurance companies, no state income tax, a low cost of living, and since 2003, a cap on non-economic damages for physicians. An amendment to the Texas state constitution was passed to enact the change in policy. Though other states also have caps on damages, Texas has the most far-reaching physician-protecting policies in the country. The result has been decreases in lawsuits and malpractice insurance premiums, and an increase in the number of doctors practicing in the state.

A report by the Texas Public Policy Foundation (pdf) summarizes the results.

Prior to tort reforms passed in 2003 by the Texas Legislature, frequent lawsuits against physicians and hospitals and escalating jury awards to plaintiffs drove doctors and insurers from the state, leading to physician shortages and higher costs for doctors and patients.

Between 1996 and 2000, one of four Texas doctors was sued. In the 10 years following 1989, the average medical malpractice verdict skyrocketed from $472,982 to $2,048,541. The percentage of such awards attributable to noneconomic damages, which are intangible injuries like pain and suffering, increased from 35.7 percent to 65.6 percent. Between 2000 and 2003, 13 of the state’s 17 medical insurance carriers pulled out of Texas.

Pre-reform, medical malpractice rates were rising 15 percent to 20 percent per year. Texas Medical Liability Trust (TMLT), the state’s largest medical malpractice insurance carrier, has now reduced rates the last six years. For the first five years, rates were reduced across the board for all specialties: 12 percent in 2004; 5 percent in 2005; 5 percent in 2006; 7.5 percent in 2007; and 6.5 percent in 2008. For 2009, all specialties will receive a rate decrease, but the reduction will vary by specialty and territory, with an average decrease of 4.7 percent. According to TMLT, the cumulative premium savings realized by policyholders since January 2004 will exceed $275 million. Since the passage of medical liability reform, TMLT insured physicians will have saved $380 million in decreased premiums, once this latest round of rate cuts and dividends is implemented.

In May 2003, there were 35,723 in-state medical doctors. Today, there are 46,632, a 30.5 percent increase.

From May 2003 to September 2008, the number of medical doctors practicing in the counties of Bexar, Dallas, El Paso, Harris, and Travis increased 25.9 percent, 22.6 percent, 14.6 percent, 24.3 percent, and 28.3 percent, respectively.

As of October 31, 2008, the number of pending applications to practice medicine in Texas was 2,191. Texas ranks 18th (1 = best) in the Pacific Research Institute’s 2008 U.S. Tort Liability Index, which ranks states’ tort laws and tort costs. Texas is ranked 5th in the category of monetary tort loss but 46th in the category of litigation risk. In PRI’s last tort index (2006), Texas received the top overall ranking.

According to the American Medical Association which cites the Texas Medical Board and the Texas Department of Insurance, the number of specialists has dramatically risen since 2003…

…and insurance premiums have significantly decreased.

Speaking from personal experience, as I’ve come upon the final steps of my medical training, I sought out jobs in Texas for its physician-friendly policies. I interviewed with two practices in the state of Texas, both of which told me the reforms have been greatly beneficial. The head of one of the groups said that their insurance premiums had dropped by 75% and lawsuits had dropped by 90% since 2003.

The Texas experience is one example of how differences in policy between states has resulted in differences in outcomes and flows of people across political boundaries. In this case, a state government competed against other state governments, and based on its own endpoints, won.