The blame game; The cause of the malpractice insurance crisis depends on who’s doing the talking

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Modern Physician

As malpractice premiums skyrocket and carriers abandon markets, trial attorneys and insurers are blaming each other for the mess.

Taking their opposing cases to Congress, state regulators and the courts, the antagonists are asking for reforms that presume the other side is to blame.

However, the evidence proffered by each side is inconclusive.

On the one hand, insurers and physician groups argue that the tort system is caught in a cycle of escalating jury awards and needs tighter curbs on payouts and attorneys’ fees.

Yet payers and doctors concede that the number of malpractice filings has not changed much-hovering at around 15,000 cases a year for all physicians, according to the National Practitioner Databank.

The average jury award, however, rose to $1 million in 2000 from $500,000 in 1995, according to Jury Verdict Research in Horsham, Pa.

”When juries are routinely awarding $1 million or more per case, you’ve changed the rules of the game,” says Richard Roberts, M.D., chairman of the American Academy of Family Physicians and board member of PIC Wisconsin, a physician’s mutual insurance company in Madison, Wisconsin.

Attorneys vs. insurers

Still, trial attorneys question Jury Verdict’s methodology. The firm says it sampled 2,951 verdicts in 2002 out of a total of 9,563.

Meanwhile, it reports a smaller rise for malpractice settlements-to $500,000 from $350,000-in the same time period but adds that the sampling is sparse due to confidentiality agreements.

Critics cannot point to statistics that refute Jury Verdict’s findings, but trial attorneys and some consumer groups, such as the Consumer Federation of America, are convinced insurers are to blame for skyrocketing medical malpractice premiums.

”The malpractice carriers have taken advantage of the physicians and have created a crisis situation,” says Abbott Brown, chairman of the medical negligence committee at the Association of Trial Lawyers of America-New Jersey. “They are blaming it on the tort system, but nothing has changed in the tort system because of this.”

Brown and others accuse carriers of low-balling their prices in the 1990s so they could enter new markets and of expecting that their losses would be coverered by gains in the burgeoning stock market.

But when investments soured, the critics say, insurers’ reserves came up short and the carriers had to jack up prices and beat a hasty retreat from many markets.

Richard Neely, a trial attorney in Charleston, W.Va., is taking that argument to court in a suit against the St. Paul Cos., St. Paul, Minn., which was the second-largest malpractice insurer until it lost $980 million in 2001 and exited the market.

Filing on behalf of three Charleston surgeons, Neely accuses St. Paul of ”gross negligence, and/ or willful and wanton conduct, and/or conduct evincing a criminal indifference to the rights of others,” among other things.

In July, a West Virginia circuit judge ordered the lawsuit to proceed. But Andrea Wood, a St. Paul spokesperson, says the company has done nothing wrong, nor was its business strategy the cause of the current turmoil.

”Our take on it was that we could not predict the severity of the claims,” she says.

Rate standards vs. tort reform

Still, insurance commissioners are concerned about insurance pricing.

Holly Bakke, the New Jersey commissioner of banking and insurance, says she has decided to require higher reserves if malpractice carriers reduce rates. Her office reports that the National Association of Insurance Commissioners is considering a national standard in this area.

”If we think a company is under-pricing the product, there will have to be additional money set aside to cover future losses,” Bakke says.

But those who think the tort system is at fault have strong allies, such as U.S. Rep. James Greenwood (R.-Penn.), who has tort reform legislation in Congress that calls for a $250,000 cap on pain and suffering payments.

And HHS Secretary Tommy Thompson told an AMA meeting in July: ”The major cause of increased premiums is the growing size of malpractice judgments and the costs of litigation.”

Jury Verdict Research reports there is no accurate information on pain and suffering payments because settlements do not break them out. But that lack of hard data hasn’t stopped both sides from expressing opposing opinions on how California’s model $250,000 cap on pain and suffering has affected that state.

The Foundation for Taxpayer and Consumer Rights in Santa Monica, Calif., asserts that the average premium per doctor in California in 2000 was only 8.2% below that of the nation, or $7,200.61 vs. $7,843.75.

But Larry Smarr, president of the Physician Insurers Association of America, says the figures are misleading because they include premiums paid by other providers as well as doctors.

Indeed, a recent analysis by Modern Physician, based on information from the National Practitioner Databank, finds California had the lowest median malpractice payouts in 2000: $55,000 per physician. The AMA estimates California’s cap is saving more than $1 billion a year in premiums in that state.

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