Insurance reform may be medical malpractice solution

They say the third time is a charm. But it's yet to be proven in Missouri's struggle with medical malpractice insurance.

For the third time in three decades, Missouri physicians are battling an insurance cycle that's said to be pricing some practices out of business.

"This is the third of these cycles we've gone through," said Randy McConnell, spokesperson for the Missouri Department of Insurance, citing "almost identical situations" in 1975 and 1986.

Tort reform was thought to be the legislative solution this year as it was decided in 1986 until Gov. Bob Holden vetoed a reform measure that lowered litigation caps in malpractice suits, among other things. A failed veto override in September signaled a first-round loss for tort reform advocates.

Now the focus appears to be shifting to insurance reform, in light of a Missouri Department of Insurance report and suggestions from the Missouri Association of Trial Attorneys.

Missouri's trial attorneys would have been directly hit had caps for malpractice claims been reduced. The current cap is $557,000 for non-economic damages.

"Our focus is on some of these insurance issues," said Sara Schuett, executive director of the Missouri Association of Trial Attorneys, a 1,300-member group. "Let's try to solve the problem."

The root of the problem, according to McConnell, is a sudden loss of malpractice insurers in the state.

Between August 2001 and May 2002, five Missouri insurers representing 57 percent of the new business insurance market pulled their malpractice insurance. PHICO, Chicago Insurance Co./Interstate, St. Paul, Legion and North American Specialty withdrew from Missouri's medical malpractice market, McConnell said.

So when physicians filed renewals this summer, "You can imagine what happened to price levels," McConnell said. "When you lose more than half of your ability to write policies in the state at once, that does remove competition as an element to keep prices down."

McConnell said extreme competition had prices artificially low, making the premium increases that much more difficult to accept.

Until last year when physicians' malpractice premiums increased 55 percent overall the Department of Insurance's February report showed physicians were paying less aggregate premium for malpractice coverage than in 1990.

But in 2002, insurers' premium earned from all medical care providers grew 62 percent, from $97 million in 2001 to $156.1 million. Doctors' premiums rose to $104.7 million, up 55 percent from $67.6 million in 2001. During that time, losses incurred rose 113 percent, bringing insurers' loss ratio the percentage of premium earned that is paid out or reserved for future payments to 108 percent.

To mitigate the spikes, suggestions for insurance reform include:

Creating a joint underwriting association to provide coverage at fair rates to physicians in critical specialties, such as obstetrics, emergency and trauma medicine, and surgery; and

Requiring public hearings when rates increase or decrease by 15 percent.

The latter idea is modeled after a 1988 California proposition. Schuett suggests Missouri adopt something similar to California's Proposition 103, requiring insurers to hold public hearings when rates increase or decrease by 15 percent. The aim is to minimize drastic swings.

"That is something our association is absolutely interested in," she said.

McConnell said the idea has some pluses, but the Department of Insurance does not have a formal position.

"It becomes more difficult to go forward with a rate increase if you can't go out in public and truly justify it," he said. "It's something that we could certainly see where there'd be certain advantages to it in terms of the consumer."

Fixing the problem will not be easy, McConnell added, but a positive sign is that there are seven new companies obtaining Missouri licenses this year.

"It takes a while for those companies to ramp up, though," McConnell said. "You can change the ground rules all you want to, but unless you have companies willing to sell, then you have difficulties."

Although Farmers Insurance Group announced in September it is withdrawing its medical malpractice coverage, there are currently seven companies taking new business, McConnell said.

"We realize that there will be a long haul here in terms of rebuilding competition in the market so that natural forces are used to drive prices back down," McConnell said.

"Doctors benefited through almost the entire 1990s from aggressive price competition in the market. That is one of the reasons they are having severe difficulties at this point in time."

Also on the plus side is Holden's creation of the Missouri Commission on Patient Safety, a 17-member panel responsible for making recommendations designed to decrease the incidence of medical errors and malpractice litigation in the state.

According to the Missouri Department of Insurance, medical malpractice claims filed and closed with payment experienced a slight upward tick last year.

Overall medical malpractice claims (claims against doctors in parentheses):

2000: 1,911 (949)

2001: 1,469 (663)

2002: 1,496 (703)

Average indemnity paid per claim (average doctor payouts in parentheses):

2000: $203,282 ($222,115)

2001: $167,863 ($196,761)

2002: $208,480 ($226,760)

McConnell is hopeful things will start to change next year, starting with continued discussion of a joint underwriting association. The Department of Insurance asked the legislature in February to allow a joint underwriting association to help those medical services with a high risk of medical litigation and the highest level of premiums.

"They didn't address any of the provisions related to the (joint underwriting association)," McConnell said. "We're hoping once again to bring that forward when the sessions begin in January."