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SKYROCKETING
MEDICAL MALPRACTICE INSURANCE RATES ARE A SICKNESS IN NEED OF A
CURE.
By William Poe
At OB/GYN Associates in Richmond Heights, one physician decided
to retire rather than absorb a one-year $50,000 increase in his
medical malpractice insurance premium. Another 42 St. Louis obstetricians
and an estimated 200 more throughout Missouri have moved to other
states to avoid Missouri’s punishing medical malpractice insurance
environment, contends Richard Gulick, M.D., president of OB/GYN
Associates and a practicing obstetrician.
Richard Gulick, M.D.president, OB/GYN Associates |
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“They are going to Kansas, Colorado, even California, and other
states,” Gulick laments. “And a lot of OBs are no longer practicing
the OB part (delivering babies), and we’re losing neurosurgeons
right and left, too.”
Gulick, like a lot of physicians, blames the size of malpractice
jury awards and the lack of tort reform in Missouri for rising insurance
rates.
Julie Lotspeich, financial risk manager for the Daniel & Henry Company
insurance agency, cites the recent recession for the malpractice
malaise.
“My personal opinion is that the insurance hikes are largely driven
by the economy and insurance companies not making the profits on
their investment portfolios,” Lotspeich says. “The insurers are
now switching to the underwriting side for additional revenue.”
Jim Beckmann, senior vice president with Marsh Inc., the world’s
largest insurance broker, sees it this way: “Pricing for medical
malpractice insurance began turning upward in the year 2000. Then,
Sept. 11, while not medical-malpractice related, exacerbated the
trend. Declining investment returns for insurance companies, poor
underwriting results of the insurance industry, a shrinking roster
of companies providing medical malpractice policies, and the financial
difficulties of a couple of insurers created the perfect storm.”
"I BELIEVE THAT RATES
WILL LEVEL FOR ORGANIZATIONS WITH GOOD LOSS EXPERIENCE,
WHILE THOSE WITH POOR LOSS EXPERIENCE WILL CONTINUE
TO SEE RATE INCREASES AND RETENTION INCREASES."
Jim Beckmann
senior vice president,
Marsh Inc.
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At the center of the storm are physicians and hospitals, which collectively
are seeing their premiums for malpractice insurance skyrocket. Lotspeich
says that small-group medical practices, especially in the areas
of ob-gyn and neurosurgery, “are seeing a minimum of 200 percent
(increases) in the last year or two; some have been as high as 500
percent.” Beckmann, who represents multi-hospital healthcare systems,
says “rates continue to rise anywhere from 25 to 50 percent per
year, and institutions are being forced to take on greater risk
in the form of self-insurance. Self insuring is not usually an option
for the group medical practice.”
Gulick says every physician in his practice saw annual insurance
premiums increase from $30,000 to $80,000 in January after premium
levels had remained unchanged for each of the previous five years.
Some other medical practices and solo practitioners, especially
those with poor claims records, have not been able to renew malpractice
insurance at any cost, especially since St. Paul Fire & Marine Insurance
Co., which reportedly insured 10 percent of doctors nationwide,
last year pulled out of the malpractice arena entirely.
“There are very limited carriers now for medical malpractice insurance,
and their appetite is very narrow,” Lotspeich says. “When St. Paul
got out of the business, that left us with quite a few policies
to replace. We have done a pretty good job finding homes for everyone
but not at a price clients have liked. The pricing is through the
roof.”
Looking down the road, Beckmann says, “I believe that rates will
level for organizations with good loss experience, while those with
poor loss experience will continue to see rate increases and retention
increases.”
The latter prospect has prompted doctor walkouts or the threats
of walkouts in New Jersey, Florida, West Virginia and at least 10
other states where physicians have rallied against malpractice insurance
rates. Predictably, some doctors and consumer groups have lambasted
insurance companies for what they contend is price gouging. But
insurers have their own familiar complaint: spiraling jury verdicts,
particularly for non-economic, or “pain and suffering” damages.
In Missouri, a medical malpractice tort reform bill was passed this
spring by the Missouri Legislature but was vetoed by Gov. Bob Holden.
According to Jury Verdict Research, a trade publication,
the median jury award for malpractice reached $1 million in 2000,
up by 43 percent from 1999 and twice as much as in 1995. Those and
other payouts have hit insurers hard.
According to A.M. Best, an insurance rating agency, malpractice
insurers paid out $1.41 for every dollar collected in premiums in
2002. That compared to a payout rate of $1.06 per dollar received
for the remainder of the property and casualty industry. Only about
a dozen malpractice underwriters remain, Lotspeich says.
The number of underwriters is even smaller in Missouri where a cap
on non-economic jury damage awards was struck down by an appeals
court and where case law is especially onerous on physicians, Gulick
says. (Illinois has a cap in place.) In the case of obstetricians,
Gulick says Missouri allows lawsuits to be brought against the delivery
room physician for up to 23 years after delivery. In California,
by contrast, the statute of limitation is seven years, he adds.
“No doubt we need some kind of tort reform,” Gulick says.
“Restrictions on jury awards is a start,” Lotspeich adds. “But we
also need a better stock market and economic conditions. Otherwise,
we are going to be losing all of our doctors.”
William V. Poe is principal of Poe Communications, a St. Louis
advertising and marketing communications firm.
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