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Medical malpractice insurers are reporting improved loss ratios as a result of nearly steady frequency and moderating severity of claims. That means after years of skyrocketing rates, buyers can expect stable prices--even a slight reduction in some regions--and sufficient capacity for the coming year, insurers and brokers say.
However, the medical malpractice insurance crisis looks to be far from over.
Dr. Richard E. Anderson, chief executive officer of Napa, Calif., insurer The Doctors Co., likened medical malpractice insurance rates to record flooding in New Orleans following Hurricane Katrina. "It's like saying the problem was over when the flood waters stabilized. Rates are stable--at very high levels," he said.
In Pennsylvania, "rates have found a new plateau," said Richard P. Kidwell, associate counsel and director of patient safety and risk management at the University of Pittsburgh Medical Center. "The big insurer here, PMSLIC, didn't raise rates this year for the first time in four to five years, and I hope that's the start of a trend. The problem is that for the past four to five years, we've seen a 200% cumulative increase. Rates have leveled off at such a high rate, it's troubling for doctors," he said.
PMSLIC is a subsidiary of Norcal Mutual Insurance Co. of San Francisco.
Insurers now are profitable, so "we're in a hiatus," said Larry Smarr, president of Physician Insurers Assn. of America in Rockville, Md. But as long as paid claims continue to rise, "there will be no end in sight to rising premiums," he said. "The prime driver (of rising premiums) has always been claims costs," which he said have been increasing by about 6% a year.
According to Aon Risk Consultants' "Hospital Professional Liability and Physician Liability Benchmark Analysis," while claims frequency is holding steady, claims severity continues to increase even though it is at a lesser rate.
"It's not that (hospitals and doctors) can't find someone to provide coverage if they want it, but have we done the best we can?" asked Frank Dodero, senior vp at Aon Healthcare in Chicago. "I think there's work to be done in tort reform, improving quality and improving risk profiles."
Paul Greve, senior vp and senior consultant at the Willis Healthcare Practice in Nashville, Tenn., said, "Starting last year and continuing this year, many individual physicians and groups are beginning to see slight single-digit decreases in premiums."
However, Mr. Greve said it's too soon to tell whether the small decrease will draw doctors back to the profession they left because their malpractice premiums grew unaffordable and they feared being sued.
A 2004 American Medical Assn. survey found nearly all of the 27% of its member physicians who stopped providing certain services during the previous 12 months cited medical liability pressures as affecting their decision.
"We reduced rates in Dayton (Ohio) by 15% last year, and this year we're going to hold the line," said Bart Nyhan, president and CEO of NCG Enterprises in Auburn, Calif., which manages two doctor-owned malpractice insurers, Emergency Physicians Insurance Co. and Ohio Tristate Medical Insurance Co. "I think in states where there is meaningful tort reform, you will see doctors moving back in," Dr. Nyhan said.
Ohio is among states that have passed "major tort reform," The Doctors Co.'s Dr. Anderson said.
However, emergency room physicians are among specialties that insurers "aren't clamoring to write," and ER doctors' rates "are up dramatically over five years," Mr. Nyhan said. Unlike some hospitals and medical groups, ER doctors have implemented "very little if any patient safety work," leading EPIC to form the Auburn-based nonprofit Emergency Medicine Patient Safety Foundation to address this concern, he said.
Other specialties that have curtailed their services include radiologists, obstetricians and neurosurgeons. Primary care physicians, whose income is lower than specialists, continue to be squeezed by high rates and lower reimbursements, insurers say.
Premiums in states lacking reforms or with lesser or newer reforms are "high multiples" of premiums in states where more comprehensive reforms have been enacted, Dr. Anderson said.
About 25 states have passed various levels of reform. California and Texas are among states viewed as having comprehensive, solid reforms. According to the Texas Medical Assn., since reforms were anchored in a constitutional amendment, all major insurers have cut their rates, most by double digits; new players have entered the market; and the state has gained 3,000 new doctors since 2003.
Indiana also has a reform of many years' standing, said Daniel Landrigan, executive vp at The Medical Protective Co. in Fort Wayne. The state caps all damages at $1.25 million.
But longevity is no guarantee a state's reform will withstand challenges. In September, Louisiana's 30-year-old $500,000 cap on overall damages was struck down as unconstitutional. More recent reforms, including those in Illinois, continue to be challenged.
"The essence of what will determine the future environment is whether the state malpractice reforms are upheld," said Willis' Mr. Greve.
Brenda Osborne, senior underwriting officer and vp at AIG Healthcare in Boston, agreed. "Reform has a benefit, but not many states have strong tort reform; some have yet to be tested. So from an underwriting perspective, you can't necessarily rely on reform to limit your losses. We don't necessarily change our rates until we have confidence that there will be a reduction in losses."
"Economic damages continue at a high rate and that's not going away," Ms. Osborne said. "Medical advances have doubled life expectancy, and plaintiff attorneys are using life care planners and forensic economists to determine value. Every year that is increasing the economic value of the claims. Generally, most tort reform does not deal with economic damages."
However, she said, "on the hospital side you're always going to see more stability (in the market) because there's a lot more infrastructure in terms of risk management." Hospitals have built that infrastructure partly out of a need to better manage their risk in response to spiking prices beginning in 2000.
James D. Hinton, vp-risk and insurance for Nashville, Tenn.-based HCA Inc., said that as the multihospital organization began taking retentions higher than $5 million to obtain more favorable pricing for its excess coverage, the company also "poured a lot of dollars" into patient safety and risk management programs. Those efforts are "paying off," Mr. Hinton said in noting that "claim counts are down and severity is about flat" for HCA's captive insurer.
HCA now has a $15 million retention, and pricing was flat in its last renewal. In its upcoming January 2007 renewal, "we're hoping for a small decrease, but brokers are telling us (prices) will be flat," he said.
Aon's Mr. Dodero said huge damages awards are still being made, demonstrating that further safety improvements are necessary.
Despite improved risk management, "hospitals can't control jury verdicts within certain venues," AIG's Ms. Osborne said.
In venues with and without non-economic damage caps, juries are awarding "enormous sums" for inflated medical costs, disabled children's lost wages and renovating homes for rehabilitation purposes, Dr. Anderson said.
In March 2005, a Dallas jury awarded more than $606.1 million to the daughter of a cancer patient killed by an overdose of chemotherapy drugs in 2003--a case filed just before Texas' tort reform legislation went into effect. The award was reduced to $2 million in part because of a high-low pretrial agreement.
More recently, a Tampa, Fla., jury awarded $216 million--$100 million of the total being punitive damages--in October to the family of a man who was left brain damaged when the stroke he had suffered was misdiagnosed. The case was filed before Florida imposed caps on some awards.
Such huge awards set the bar for settlements and verdicts, which have risen steadily since 1985. The large awards make it "harder for defendants to risk their day in court," said Dr. Anderson.
In addition, insurers' cost of handling court cases has risen significantly since 2000, said the PIAA's Mr. Smarr (See chart, page 21).
However, not everyone reads the market this way, including John P. Gismondi, founder of Gismondi & Associates in Pittsburgh, a plaintiff attorney and chairman of the medical malpractice section of the Pennsylvania Trial Lawyers' Assn.
"The statistics nationally bear out the fact that over a 25-year period, there hasn't been any great spike in jury awards or payments on claims...when adjusted for inflation," said Mr. Gismondi, who cited a Harvard School of Public Health study this year that found that most claims lacking merit were resolved without payment.
Mr. Gismondi argued that "the real cause of increased insurance rates is the insurance cycle and insurance mismanagement."
In a positive development for policyholders, Mr. Greve said that, according to defense firms, jurors favorable to defendants report that they have been affected by media reports about large damage awards.
The rub is that, "if the market is relatively stable in the next couple of years, the push for reform will be blunted," said UPMC's Mr. Kidwell.