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The crisis over malpractice litigation has always been driven by malpractice insurance premiums, not over abstract concerns about incompetent physicians or greedy patients. Although there are a small number of physician-directed insurers that provide low-cost insurance, they are the exception. Insurance companies exist to make money, not to serve social policy by providing affordable insurance for physicians.

Malpractice insurance companies provide a necessary service. Physicians generally cannot choose to forgo insurance. There are relatively few malpractice carriers in any state. While some state laws prohibit insurers from acting collusively in setting rates and policy conditions, insurance companies are exempt from the federal antitrust laws. There is an ongoing debate over whether insurance companies use this oligopoly power to manipulate the market to optimize their profits at the expense of their physician insureds.

The basic economics of medical malpractice insurance are no different from other insurance products. But insurance is different from most other businesses in that it involves long-term relationships with its clients, and these relationships persist beyond the actual term of the policy. Malpractice insurance is also a highly regulated business, with limited competition in rate setting. Physicians must become sophisticated buyers of insurance. They must understand the principles of insurance and be prepared to resist being manipulated by short-term rate cuts. They must demand that their insurance carrier not subsidize the practices of incompetent physicians. Finally, physicians must accept that settling malpractice claims should be a business decision, not a matter of honor.

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