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The doctors' big squeeze: huge increases in medical malpractice insurance rates are driving doctors out of business. What's the answer?

It was by almost any measure an unsettling scene. At least 60 specialists at the University Medical center in Las Vegas walked off their jobs this past summer. The reason? The rising cost of medical malpractice insurance.

The mass exodus forced the 24-hour trauma enter, which treats up to 11,000 people a year--victims of car accidents, major falls, and gunshot and stab wounds--to close its doors immediately.

"I can't imagine a sadder day," Dr. John Fildes, UMC medical director, told reporters. Local patients whose conditions could be diagnosed as "severe" would be airlifted to emergency clinics in California and Arizona, Fildes said, adding, "It's very likely that some lives will be lost."

For area residents, the sudden closing of the city's busiest critical care facility was big news.

But for Nevada lawmakers, who would meet in special session only days after the physicians ended their 10-day walkout, it was only one more controversy in a serious public health crisis made complex by its many parts.

"It wasn't as though we didn't appreciate what the doctors were trying to say," says Assembly Majority Leader Barbara Buckley. "But at least they had insurance. We were trying to figure out what to do about the far larger number of physicians in Nevada who were facing the prospect of working without any insurance at all."


On Aug. 7, three days after Nevada Governor Kenny Guinn called the special session, lawmakers passed a medical malpractice bill that set a cap of $350,000 on noneconomic damages.

Two exceptions--after an initial six--survived the process. One involved cases where there is "gross malpractice." The other where there is "clear and convincing" evidence that an award should exceed the $350,000 cap.

The compromise legislation, which passed both Nevada chambers unanimously, "was the best possible result that could be expected in a session that was called to deal with only civil justice reform," says Nevada Speaker Richard Perkins.

"But I am dissatisfied that we did not have an opportunity to address insurance reform at the same time," he adds. "I think they go hand-in-hand. Until those reforms are addressed, probably in the next regular session, we really will not have completed our work."

For decades, of course, physicians have complained about the rising costs of doing business. They have most often pointed to the expense of having to carry insurance in case they are sued for doing something wrong.

But not until 2000, when insurance premiums begin to rise suddenly after a decade of extremely moderate growth, did the complaints become a deafening roar.

"Medical malpractice issues are probably the most important issues facing our industry today," says Dr. Donald Palmisano, president-elect of the American Medical Association (AMA).

"It is an issue because it is something that is driving physicians across the country out of business and stopping younger physicians, whom we need so much, from coming into the market," he says.


Both the cost and availability of medical malpractice insurance suddenly became a vital issue in various states when the St. Paul companies, citing losses in the hundreds of millions, announced in December 2001 that it would no longer offer medical malpractice coverage.

St. Paul covered as many as 42,000 physicians and another 73,000 health care workers. But more troubling, St. Paul's market was uneven. In some states, its coverage was in the single digits. In other states, up to 40 percent of working physicians had their medical malpractice insurance through St. Paul.

Nationally, St. Paul represented less than 10 percent of the medical malpractice market. The largest carrier was and remains Medical Liability Mutual Insurance.

Ironically, the sudden exit of St. Paul came just as the nation's other insurers were beginning to raise their premiums to record highs. In 2001 alone, those premiums jumped by more than 15 percent nationally.

Those increases took on a particular geographic profile, with increases in some parts of the country of between 40 percent and 200 percent.

Obstetricians in Fort Lauderdale, for example, now pay more than $200,000 a year for medical malpractice insurance. The Thomas Jefferson Hospital in Philadelphia, which operates several local hospitals, saw its medical malpractice coverage double in 2002 to more than $32 million.

"Essentially we have seen our costs escalating at three times the rate of inflation during the past several years," says Lawrence Smarr, president of Physicians Insurers Association of America a self-insurance group for doctors.


"When you add in the impact of carriers like St. Paul's who have left the market, you end up with a large number of doctors who either can't afford insurance or can't get it if they can," Smarr adds.

Not surprisingly, the rate jumps led to national cutbacks in medical services. In the small town of Hopwood, Pa., three local obstetricians, who together delivered up to 450 babies each year, announced in August that they would no longer treat pregnant women or deliver babies because of a 260 percent increase in their malpractice premiums.

Up to 20 percent of the association's member hospitals and other health care organizations said they had been forced to reduce their services, according to a survey of more than 5,000 health care institutions conducted by the American Hospital Association this summer,

Carmela Coyle, the AMA senior vice president for policy, predicted that things were likely to get much worse. Speaking to the New York Times, Coyle remarked: "We're likely to see more closures of services."

Closings are more likely to affect hospitals in the nation's largest cities where juries have traditionally been more likely to give large awards to plaintiffs in medical malpractice cases.

The effects of the rising insurance rates also can be felt in rural America.

"We have a large number of people here who are on public assistance," says West Virginia Senator John Unger II. "Per capita income is among the lowest in the nation. So when an insurance company suddenly raises its rates, this is one section of the country where a physician cannot simply pass along his costs to his patients."

The combination of low interest rates and an uncertain stock market have combined to create the kind of instability for the nation's insurers that they have not experienced since the mid-1980s, the last time physicians witnessed a sudden increase in malpractice premiums.


Insurers insist that their greatest burden is the hefty awards that juries are increasingly giving to plaintiffs. Higher jury awards contributed to a 33 percent jump in claims paid by insurers from 2000 to 2001 alone.

"We actually don't really lose that many cases when we come to trial," says Smarr of the Physicians Insurers Association. "In fact, 70 percent of the claims filed against a doctor either wind up in no payment at all, or the cases are dismissed entirely."

The trouble is the size of the awards, says Smarr, which have been growing "by about 7 percent for the last 10 years. And that's about 3 percent more than the rate of inflation."

Indeed, according to a study compiled by the Clark County District Court in southern Nevada this year, jury awards there have jumped from a total of $225,000 in all cases in 1996 to more than $21 million last year.

At the same time the number of medical malpractice suits filed in Clark County jumped from less than 33 in 1990 to 178 in 2001.

"The jury awards are what we would categorize as runaway," says Heather Ryndak, a spokeswoman for the National Association of Independent Insurers. "That is the reason why insurers have been forced to charge higher premiums and make insurance in general less available--it has become just too expensive in many cases to offer medical malpractice coverage."


Advocates of tort reform, often organized and spearheaded by various physician associations, contend that the only way out of the rising premium crisis is for the states to put a cap on the amount of money that juries can award plaintiffs. Then, they say, premiums will fall to their previous levels.

"Caps are the only answer for us," says Palmisano of the AMA. "We would never be in favor of any state legislation that does not include a cap on noneconomic damages, because that, for us, would not be meaningful reform."

Lawyers, obviously, see the question differently.

"Limits on medical malpractice insurance penalize patients most severely injured by medical malpractice," says Carlton Carl, director of media relations for the Association of American Trial Lawyers.

"There is abundant proof that penalizing patients injured by medical malpractice has not lowered, and will not lower, the excessive premiums insurance companies charge doctors to improve patient care," he says.

"They do, however, benefit the bottom line for insurers."

Lawmakers who have already wrestled with the question of what to do about the size of jury awards say the solution is not necessarily as simple as tort reform advocates contend.

"Imposing a cap only addresses a part of the question," says Representative George Flaggs Jr. of Mississippi, where the Legislature was called into special session in late August to address the rising cost of malpractice coverage.

"Besides, I admit that I am frankly uncomfortable with the idea of interfering with the jury process," he says. "After all, we allow juries to decide whether or not someone is a murderer and whether or not that person should be sentenced to death. So why should we, as lawmakers, intervene in the judicial process by trying to stop jurors from deciding whether or not a person in a medical malpractice case has been seriously injured?"

Representative Anthony DeLuca of Pennsylvania is similarly skeptical about the argument for caps on pain and suffering. "I understand the reason why some people want them," he says, "but what about the family of the person who has been injured? What if a father is disabled because of malpractice? How much will that cost the family? How do you put a final price tag on something like that?"

There are currently 17 states with noneconomic damage caps: Alaska, California, Colorado, Hawaii, Idaho, Kansas, Maryland, Massachusetts, Michigan, Missouri, Montana, Nevada, North Dakota, South Dakota, Utah, West Virginia and Wisconsin. Five states have enacted legislation allowing for total damage caps: Colorado, Indiana, Louisiana, New Mexico and Virginia. Caps rarely have the immediate effect of reducing premiums, but they can stabilize markets.

Four states--Mississippi, Nevada, Pennsylvania and West Virginia--have directly confronted their own mounting medical malpractice crises in the past 12 months. In those same states, there has been the exit--or threatened exit--of a number of physicians who lost their insurance when St. Paul's left the market.

In three of these states, lawmakers were called into special session specifically to address the crises.

West Virginia in late 2001 passed HB 601, which established a limited state-run insurance plan managed by the state Board of Risk and Insurance Management. It is designed to provide insurance for physicians who cannot otherwise obtain malpractice coverage.

The Pennsylvania legislature passed HB 1802, which addresses the availability issue in the spring of 2002.

A Catastrophic Loss Fund in Pennsylvania, a state-run patient compensation account financed by physician surcharges, was operating with a large deficit and was eliminated by lawmakers.

In its place, the Medical Care Availability and Reduction of Error Fund will be administered by the Department of Insurance and will provide basic medical malpractice insurance.

Under the new law, says Representative DeLuca, physicians will be required to carry at least $1 million in coverage.

But while the Pennsylvania legislation is a big step forward, says DeLuca, "It is still only a step. There are many other issues that we will have to address sometime in the future. And one of them almost surely will be tort reform."

Mississippi lawmakers struggled through a special session in September, finally passing a law designed to curb high medical malpractice premiums. The new law, which goes into effect in January, limits pain and suffering awards to $500,000 until 2011, when the cap raises to $750,000. That number increases to $1 million in 2017. The law also limits where lawsuits can be filed and changes joint and several liability (how multiple defendants are held financially responsible).

In these two states and also Nevada, lawmakers worry that they have tackled only portions of the medical malpractice issue: Whether to impose caps in one place, how to make insurance more available somewhere else?

Inevitably, lawmakers say the medical malpractice problems their states face will not be fully solved until every aspect of the equation--from actual physician malpractice to runaway insurance rates and what some call "overly generous" jury awards--can be addressed.

"This is a multifaceted problem, and you are not going to solve it if you deal with only one part of it," says DeLuca.

"There is no doubt in my mind that we are going to have to come back and look at the larger question of tort reform before it's all over."

Senator Unger of West Virginia agrees: "There is a lot more work for us to do. We have to strengthen our medical board so physicians can monitor physicians. There should be more of a move toward risk-management, educating the physicians on ways to avoid being sued.

"You have to look at something like this in terms of the larger picture," Unger says. "Anything less than that will probably mean you will be addressing the same issue in another fashion later."

As the medical malpractice crisis spreads to other states, lawmakers increasingly will be confronted with a battery of claims and counterclaims from some of the nation's most high-powered interest groups earnestly arguing that their way is the only way.

"You have to stay focused on the common good," insists Nevada Speaker Perkins, who listened calmly to the impassioned warnings of doctors who told him their profession was near ruin and to lawyers who warned that any attempt at tort reform could seriously erode civil litigation in general--both weighty claims.

"At the end of the day we simply decided that we were not there to do the bidding of either the doctors or the trial lawyers," Perkins says.

"We were there to represent our constituents, and what they needed was both a strong health care system AND good doctors."


When California passed its early version of medical malpractice reform in 1975, few imagined it would emerge as model legislation for more than a dozen states.

"I had heard references many times to the California law," says West Virginia Senator John Unger II. "But it was not until I really studied it that I could see why it is so popular. I would very much like to see West Virginia do what California did."

Nevada Speaker Richard Perkins agrees: "We based our legislation on the California model because that seems to have proved most effective. It is not a perfect solution, but it is much better than many of the other proposals out there."

Facing what appeared to be the collapse of the state's huge health care delivery system, California's then-Governor Jerry Brown called for a special session to address insurance premiums that had increased by more than 400 percent over two years.

Then, as now, there was plenty of blame to go around. While physicians warned that they would have to leave California if some measure was not taken to stablize insurance rates, trial lawyers argued that any attempt to limit noneconomic damages would only hurt the patients who had suffered injury because of medical malpractice.

Ultimately, California lawmakers decided to establish a limit on noneconomic damages, with a cap set at $250,000. This includes awards for pain and suffering. Economic damages such as compensation for medical bills, future earnings, lost wages and rehabilitation, are not capped.

The legislation also established contingency fees for attorneys on a sliding scale. This was designed to ensure the bulk of any award would go to the victim. It calls for advance notice of claims, and periodic payments for future damages.

After becoming law, the Medical Injury Compensation Reform Act was challenged in court by patients who said the cap violated their constitutional rights.

The case that went the furthest involved a man named Lawrence Fein, who suffered a heart attack after a Permenente Medical Group doctor and nurse misdiagnosed his chest pains as a simple muscle spasm.

A jury awarded Fein $500,000, thus guaranteeing a challenge to the law. A lower court reduced the award to $250,000 in order to keep it within the California legislative limits.

Fein appealed. The California State Supreme Court affirmed the 1975 legislation in 1985, noting that the imposed caps were not only constitutional, but helped "provide a more stable base on which to calculate insurance rates." They almost entirely eliminated the "unpredictability of the size of noneconomic damage awards resulting from inherent difficulties in valuing such damages, and the great disparity in the price tag which different juries placed on such losses," the court said.

"The legislation has survived the passage of time and the challenge of the courts," observes Donald Palmisano, president-elect of the American Medical Association. "For that reason alone, lawmakers would be well-advised to look at California, primarily because it could prevent them from going off in directions that might be reversed in the courts."

Trial lawyers have complained that California has the shortest time limit in the nation for victims to file a medical malpractice claim and that the $250,000 cap is too restrictive. Noting that some of the more complex medical malpractice cases could cost between $100,000 and $200,000 just to bring to court. Carlton Carl, director of media relations for the Association of American Trial Lawyers, says California's caps make it financially improbable that plaintiffs in such cases would want to seek satisfaction in court "just to prove a point."

States following the California model, Carl adds, ultimately end up only subsidizing insurers "at the expense of the patients most severely injured by malpractice."

Some proponents of the California model say the $250,000 cap could be increased. If adjusted for inflation, California's cap would be worth more than $823,000 today. Six states with damage caps--including Mississippi, enacted this year--make provision in law to adjust the cap to account for inflation.

But what cannot be altered, proponents say, is the effect that the California law has had on insurance rates in the state. "By and large, the California legislation served to stabilize medical malpractice insurance rates, which is no small accomplishment," notes Nevada Majority Leader Barbara Buckley.

"If you can do that, then you have solved the biggest challenge in the medical malpractice debate," she says. "That doesn't mean that you have corrected everything, but you have at least taken a very important step in that direction."

Twenty-seven years later, says Lawrence Smarr, president of the Physicians Insurers Association of America, medical malpractice premiums in California have increased by more than 167 percent. "But for the rest of the nation that figure is more than 500 percent," he says, "which proves that the California law has accomplished something."

Garry Boulard, a frequent contributor to State Legislatures, is a free-lance writer in New Orleans.
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Author:Boulard, Garry
Publication:State Legislatures
Geographic Code:1USA
Date:Dec 1, 2002
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