Medical malpractice hearing reviews coverage issues

Editor's note: The following excerpts are from joint testimony presented by Kathleen Pinkham, president of Healthcare First, a division of Arthur J. Gallagher Co.-Kansas City; and John Keane, president of The Keane Insurance Group of St. Louis, during an Oct. 30 hearing by the Missouri Department of Insurance.

Doctors see premiums skyrocketing for medical malpractice insurance. They see their choices ranging from dropping high-risk procedures to moving to another state to practice medicine, and even to ceasing practice entirely. Certainly, no one favors any of these choices, which can reduce the quality and availability of health care for Missourians.

Insurers see a legal environment that makes it difficult, and sometimes impossible, to do business in the state of Missouri. We can assure you that no responsible insurer wants to threaten its very business base and its opportunity to provide insurance coverage in Missouri by doing anything other than appropriate and responsible assumption of these risks.

Caught in the middle are two groups: Missouri residents, who want access to doctors while also wanting options for recourse when medical mistakes are made; and Missouri physicians, who seek to practice their profession and provide health care to Missourians without fear.

Why are premiums going up?

Medical malpractice insurers must maintain adequate reserves to cover a loss that an insured may sustain. Managing these reserves includes investing the money responsibly and prudently, not only to maintain reserves, but also to underpin profitability, the fundamental underlying motive for the conduct of business in our nation. Further, we must maintain these reserves for the long term to pay claims that may take three to five years to resolve.

In good economic times, insurers pass the benefits of their investment success to customers in the form of lower premiums. Rates are lower because insurers who manage their investments profitably can afford to charge an insurance premium that does not truly account for the level of risk being assumed.

These same insurers must return to pure underwriting approaches, where premiums produce enough reserves to cover claims. Higher premiums must be charged than could be charged when investment income helped bolster reserves.

Dramatically higher jury awards and settlement costs are the rule, rather than the exception, particularly for pain and suffering. Nationally, according to A.M. Best Company Inc., a leading insurance rating firm, medical malpractice insurers in 2001 paid $139 in claims for every $100 in premiums collected. That loss ratio, as we call it in the industry, is expected to rise again in 2002.

The immediate future does not bode well for those companies that will continue to offer medical malpractice insurance in Missouri.

Economic pressure

These few remaining companies have responded to market conditions by substantially raising the bar when it comes to renewing and selling new policies.

Medical malpractice insurance companies in Missouri are tightening their underwriting standards, effectively eliminating a middle range of physicians who have never had problems before with their claim history. We've seen some companies accept only those physicians who have not had a claim for 10 years.

All of these factors are forcing many physicians into the nonstandard insurance market, where the options are even less appealing. Such coverage is extremely expensive and narrow, and the deductibles are high.

The Missouri legal environment

Another factor to consider: higher judgments are allowed in Missouri due to joint and several liability and the erosion of the state's cap on noneconomic damages.

Joint and several liability allows an injured party to collect damages from multiple sources. Reform of this approach would eliminate the search for "deep pockets" and reduce the number of lawsuits against those minimally liable or otherwise on the edges of a medical situation.

The California example

The California situation, in our view, is one that Missouri should emulate. It is an example of the good things that can happen when an environment is created in which medical malpractice insurance can be made available at the right price and the right service levels.

In l975, the Medical Injury Compensa-tion Reform Act was passed to address a type of medical liability crisis similar to the one Missouri is experiencing today.

In addition to establishing a $250,000 cap on noneconomic damages, MICRA limited contingency fees to 40 percent of the first $50,000 awarded, 33 percent of the next $50,000, 25 percent of the next $500,000 and 15 percent of any amount greater than $600,000.

To its credit, Missouri law already contains two provisions found within MICRA:

1. A collateral source provision, allowing doctors and defense attorneys to inform juries when an injured patient is already receiving compensation from another source, such as an insurer or family member. This avoids the plaintiff recovering compensation twice for the same injury.

2. Periodic payments for future damages, such as lost income, rather than one lump sum. Insurers can then purchase discounted annuities to cover the costs, rather than drawing from reserves.

Recommendations

For the insurance industry, we believe effective management of claims portfolios, combined with what we hope will be an improving economy, will allow for reasonable rates. At the same time, we must see improved underwriting management and a more predictable legal environment to create consistency in adjudication of professional liability claims and expected numbers and size of claims.

For physicians, we submit that improved risk management is an important piece of the solution.

For the state, we recommend the following: A change in joint and several liability provisions of Missouri law. A $250,000 cap for noneconomic damages A standardized application form for medical malpractice insurance. Improved management of companies exiting the Missouri market, including a required renewal of policies until that insurance can be replaced.

Finally, we recommend creating the mechanism for the establishment of a Joint Underwriting Association as an insurer of last resort for Missouri physicians. Such a vehicle reinforces confidence in the market by demonstrating that a mechanism is in place to protect physicians of all kinds and specialties against medical malpractice claims.