Insurance Chronicle
The issue of medical malpractice liability insurance premiums heated up in Washington last week as hearings on the issue were held in both houses of Congress and various special interest groups jockeyed to make their case to lawmakers.
Despite the enormous amount of attention paid by federal lawmakers, it looks like a lack of consensus may send the problem back to the states, as many Democrats have suggested, including Rep. Barney Frank, D.-Mass.
At a rare field hearing of the House Energy and Commerce Subcommittee on Oversight and Investigations held in Pennsylvania, Subcommittee chair James C. Greenwood, R-Penn., noted that the panel had come, “to the front lines of a crisis.”
Pennsylvania has been among the hardest hit states by the malpractice crunch. While noting that the word “crisis” is often thrown around in Washington, Greenwood told the panel that he had brought them to his district to show them exactly what its effects were. He described a nearby trauma center that was forced to close for nearly two weeks during the end of December and the beginning of January for want of affordable malpractice insurance.
“I am deeply saddened and angered that this crisis is having permanent and long-term effects; weakening hospitals, debilitating medical schools, reducing the number of doctors who practice, and destabilizing health care institutions,” he said, “all to the detriment of the people desperately in need of skilled medical treatment.”
As a solution, Greenwood has introduced legislation in the House, HR 5, that would enact several reforms of the tort system, including a cap on non-economic damages similar to the one advocated by President Bush in his state of the Union address.
“Insurers cannot properly, reasonably and competitively offer insurance to medical providers because of an unpredictable tort system prone to ‘jackpot’ awards,” he said. “No one here will argue that patients injured by the negligence of a medical provider do not deserve compensation – but we have lost all sense of proportion in the area of non-economic, intangible damages.”
A day after Greenwood’s hearing, the Senate held a rare meeting of its own; a joint hearing of the Senate Judiciary Committee and the Committee on Health, Education, Labor and Pensions. During the hearing, Judiciary Committee ranking minority member Patrick Leahy, D-Vt., echoed the sentiment that the situation had indeed reached crisis level, and was especially worthy of that distinction.
“Our health care system is in crisis,” he said. “We have heard that statement so often that it has begun to lose the force of its truth, but that truth is one we must confront and the crisis is one we must abate.”
Leahy also announced at the hearing that he had introduced a bill that would take a different approach to the problem by eliminating part of the anti-trust exemptions enjoyed by the industry under the McCarran-Ferguson Act.
“Only those anti-competitive practices that most certainly will affect premiums are addressed,” he said. “I am hard pressed to imagine that anyone could object to a prohibition on insurance carriers’ fixing prices or dividing territories. After all, the rest of our nation’s industries manage to either abide by these laws or pay the consequences.”
Leahy also made comments that indicated that Frank’s earlier assessment that any solution would need to be state- based is also the prevailing notion of Senate Democrats. “To be sure, different states have different experiences with medical malpractice insurance, and insurance remains a largely state regulated industry,” he said. “Each state should endeavor to develop its own solution to rising medical malpractice insurance rates because each state has its own unique problems.”
Republicans at the Senate hearing, however, while not openly advocating a cap on non-economic damages, made it clear that they felt the solution to the problem lies in reforming the tort system.
“We should not be distracted by those who seek to deflect attention from their alliances with the lawyer industry by deflecting blame where it does not belong. We should not be distracted by red herring solutions that do nothing to address the underlying problem,” said HELP Committee Chairman Judd Gregg, R-N.H.
Sen. Orin Hatch, R.-Utah, echoed his colleague’s assertions.
“There is nothing to suggest that states have been remiss in regulating the insurance industry,” he said, “and there are no data to suggest that collusion is the cause of rising malpractice insurance rates.”
Supporters of each side also made sure their voices were heard in Washington, either through testimony presented at the hearings or at press conferences preceding them.
Critics of Greenwood’s bill argued that caps will not provide a meaningful solution to the problem and will only serve to aid insurers by limiting the restitution available to the injured. In addition, they claim that the California reform laws known as MICRA, from which the idea of capping non-economic damages as a solution sprang, have not been what has kept California’s malpractice market affordable, but instead point to the 1988 voter initiative known as Proposition 103.
“With limits on the rights of victims of medical negligence, insurance companies spend less money on patients and more money on insurance company lawyers, but insurers do not lower rates for doctors,” said Doug Heller, senior consumer advocate for the Foundation for Taxpayer and Consumer Rights. “Lawmakers looking to California as a model for malpractice insurance reform must understand that regulation worked and liability caps did not.”
However, in testimony at the Senate hearing Lawrence Smarr, president of the Physician Insurers Association of America, a group representing provider owned mutual malpractice insurers, countered claims that Prop. 103 was the driving force behind California’s healthy malpractice market. The rate freezes mandated by the proposition, he said, actually prohibited some physician-owned mutuals from lowering premiums, and the state eventually agreed that the 20% rollback in rates could be considered dividends by the mutuals, whose dividends exceeded that percentage anyway. As a result, he said, “no monies were returned to policyholders as a result of Prop. 103.”
The role of physician-owned mutuals was also noted by Hatch, who referred to a statement from the NAIC pointing out that the non-profit status of the entities makes it highly unlikely that they are unnecessarily inflating premiums.
These mutuals could also prove to be a monkeywrench in Leahy’s plans. According to Smarr, PIAA member companies alone provide coverage to 60% of doctors in the U.S. As Leahy’s bill specifically states that it will only affect the anti-trust exemptions of commercial insurers, it appears that the majority of carriers would be unaffected by the legislation.
