Lawsuits Filed

Asbury Park Press (New Jersey)

TRENTON – Dr. Michael Brand, a Belleville neurologist, is angry. And not just about the rising cost of medical malpractice insurance – which in February drove scores of New Jersey doctors to protest at the Statehouse and temporarily close their practices to non-emergency patients in hopes of convincing lawmakers to enact a solution.

Brand – along with a growing number of longtime doctors across the state – is mad at two groups he expected to be on his side: the Medical Society of New Jersey and MIIX Insurance Co., a doctor-founded company that once insured one of every three Garden State doctors.

Leadership at the Medical Society and MIIX overlap significantly, creating a conflict of interest for board members who put their interests before those of doctors, Brand and others say. That led to bad financial decisions that practically bankrupted the 30-year-old insurance company, eliminating liability coverage for thousands of doctors nationwide and exacerbating the ongoing

malpractice crisis, they say.

“The MSNJ board has a responsibility to its members. It doesn’t have a responsibility to MIIX,” said Brand, who is part of a class-action lawsuit against the two entities. “Their position should be what’s best for the doctors. We just can’t say the Medical Society is acting in the best interest of

physicians.”

A lawyer representing the Medical Society denied there was anything sinister about the overlapping of board members, pointing out that MIIX was created by New Jersey doctors and it sought to work with the Medical Society to continue meeting doctors’ needs.

Brought into being during a similar crisis in 1977 with $23 million that doctors invested, the company went public in 1999 only to see its stock fall from more than $18 a share to less than $1. When it stopped writing policies last summer, it was the nation’s seventh-largest malpractice liability provider, with more than 10,000 insurance policies in 24 states.

MIIX executives then created a new company, MIIX Advantage, with $28 million collected from doctors seeking coverage and has since September written almost 3,000 policies for New Jersey physicians, MIIX spokeswoman Emmalee Morrison said.

At the same time, physicians were being squeezed between shrinking reimbursement rates from health insurance companies and government agencies and the growing premium costs as several large malpractice insurance providers left the market in 2001, abandonning more than 40,000 doctors.

Backed by President Bush, most doctors have placed the blame on “jackpot” malpractice awards and demanded reforms, especially limits on the non-economic, or “pain and suffering,” portion of malpractice lawsuit payouts. Economic damages, payment for medical expenses, lost wages and other direct costs, would still be unlimited.

“The big losers are the citizens of New Jersey and the physicians of New Jersey who have been confronted with this malpractice crisis,” said Neil Prupis, the attorney for the class action filed against the Medical Society and MIIX. For years, MIIX used the Medical Society, which represents some 8,000 of the state’s 22,000 doctors, to help sell policies, he said. The company now stands

to benefit as the Medical Society lobbys for capping awards to limit insurance payouts and stabilize rates.

Filed in February in U.S. District Court in Trenton under the name of Pennsylvania Dr. Stuart Glasser, one of MIIX’s largest stockholders, the class action suit claims MIIX officers violated federal securities laws. The class is seeking to recoup damages, claiming MIIX lied about its business status and financial plans, including the reorganization, which cut them out of the new

company.

A separate lawsuit filed in state Superior Court in Mercer County by a former Medical Society deputy executive director, Neil Weisfeld, claims the Medical Society’s agenda was “hijacked” by leaders who also served on MIIX boards and sought to benefit themselves, or the insurance company, not the physician community.

The complaint says a Medical Society task force on the insurance issue first declared there was no crisis, but changed its position after MIIX announced large losses in March 2002, claiming caps on damages were the solution.

Weisfeld said he was fired for revealing the conflict of interest among leadership of the two groups. His whistle-blower suit asks for his job back, past and future missed pay, and other damages. The Medical Society has since changed its governance rules to reduce overlap with MIIX leaders.

MIIX’s 2002 report shows the company will pay the Medical Society more than $866,000 this year in rent at their shared Lawrenceville headquarters. The Medical Society returned $440,000 for shared office expenses last year, and MIIX gave the society a $630,000 charitable grant in 2001.

The Medical Society is MIIX’s third largest stockholder, with more than 821,000 shares.

Vincent Maressa, the Medical Society’s executive director, was chairman of MIIX’s underwriting board, and at least three members of the Medical Society’s new executive committee also serve on MIIX boards.

“The Medical Society should be concerned about affordability of medical insurance for doctors. They represent doctors,” attorney Ronald Schmidt, whose firm represents Weisfeld, said. “MIIX is concerned about making profits for its shareholders.”

Medical Society attorney Robert Conroy said both actions are without merit and predicted they will be thrown out of court. Conroy said Weisfeld was fired for good reason, and the class action case involves a disgruntled shareholder who, like many, lost money in the stock market. A ruling scheduled for Wednesday 2 will determine the size of the class, which Prupis said could number

thousands.

The complaints, Conroy says, make somewhat contradictory points. While Weisfeld’s claim says MIIX benefited from the arrangement, Glasser’s suit focuses on how, it says, doctors suffered from the insurance company’s demise while leaders at MIIX and the Medical Society were insulated by fat salaries and generous benefits. Both claims suggest MIIX’S financial woes followed its decision in the early 1990s to write policies out of state, a bungled public offering in 1999 and continued bad business and investment decisions.

MIIX did not respond directly to questions about the lawsuits, instead issuing a statement that turned the blame on trial lawyers. MIIX Chairman and CEO Patricia Costante wrote it was self-serving for attorneys to oppose doctors’ call for caps, since their legal fees are based on the size of the lawsuit awards.

Attorneys have joined with consumer advocacy groups nationwide to fight liability limits, saying such limits would harm children, elderly, female and disabled patients most, since they are less likely to be reimbursed for lost wages – a significant component of economic awards.

“Unstable conditions in the legal system nationwide have precipitated a crisis in the professional liability insurance market and, therefore, in the practice of medicine,” Costante wrote, chastising Association of Trial Lawyers of America – New Jersey President Bruce Stern for a recent editorial about MIIX and Medical Society connections.

Conroy also defended the overlap between leadership of the two entities, which is to be expected since MIIX was created by Garden State doctors and sought to work with the Medical Society to continue meeting their needs. Crossover between medical societies and physician-run insurance companies is not uncommon in other states, he added, and large shareholders deserve to have their voices heard.

“These two litigants want everybody to suspend economic theory and believe there is some unholy alliance” between the two groups, Conroy said. For MIIX “to take credit for a nationwide medical malpractice crisis is ridiculous. And what’s happening in New Jersey is reflective of the national situation.”

But Carmen Balber, a consumer advocate with the nonprofit Foundation for Taxpayer and Consumer Rights who has examined the connection between state medical societies and insurance companies in New Jersey and California, said such overlap isn’t necessary. There are plenty of doctors qualified to sit on insurance boards, she said.

“If they serve on both, the question is, which interest is going to come first?” Balber said. “Just because it happens all the time doesn’t make it OK.”

Questions about the alliance and MIIX’s business moves are not just limited to the lawsuits. Two former MIIX employees – both of whom had years on the job but were forced out in the early 1990s during a change of leadership – said the company’s actions certainly contributed to the current market problems.

“The impact of them going belly-up is that it created less of a market in New Jersey and it tended to increase premiums,” said Howard Weiss, once MIIX’s senior vice president and who now runs a company advising patients in malpractice cases. “Anytime you have less capacity in the market, you have higher prices.”

Weiss also questioned MIIX’s spending, which became lavish as the company grew, he and others said. “I certainly thought it was improper. Premium dollars are supposed to be for losses.”

Paul Waldron, MIIX’s former vice president and chief financial officer, agreed.

“I don’t know that you can point to one single factor” that caused the problem, Waldron said. “But they wrote bad business, spent money at an excessive rate, made bad buyout decisions. All of these were factors that contributed to it.”