September/October 2004

What’s Up Doc?

If Bugs Bunny walked into your physician’s office and asked, “Hey, what’s up, Doc?” the likely answer would be “malpractice insurance.”

by Karen Haywood Queen

Doctors say the country is facing a malpractice insurance crisis and rates need to be reined in. Consumer advocates argue that the problem isn’t as bad as doctors claim. Meantime, lawmakers struggle to fix a situation that both sides at least agree is broken.

Physicians say their costs are going up, but income isn’t. They are feeling squeezed by rising malpractice (they prefer the term professional liability) insurance rates on one side and flat reimbursement limits from health insurance companies on the other. Even though doctors win most malpractice claims, awards for victims are going up and insurance rates are rising as a result.

“My landlord doesn’t care that my malpractice insurance is going up,” says Dr. Mitchell Miller, a family practice physician in Virginia Beach and president of the Medical Society of Virginia. “Frankly, neither does my nurse. How do most businesses answer that? They raise their fees for goods offered. Most physicians can’t do that. The other way is to see a higher volume of patients and most are seeing the most patients they can. Any physician who wants to provide good quality care can’t be forced to rush through. You have to listen to people when they come in with a complaint.”

Feeling the pinch, many physicians debate whether to switch to or start out in more lucrative specialties, or open so-called boutique practices offering lower-risk procedures that people pay for out-of-pocket, such as plastic surgery. Other doctors consider whether to discontinue riskier kinds of care, such as delivering babies.

“Physicians are not choosing specialties they might otherwise have considered because of some of these factors, such as malpractice insurance,” Miller says.

From 1989 to 2001, average payments on malpractice claims increased from about $125,000 to $325,000, according to the Physicians Insurance Association of America.

As malpractice rates rise to help pay these claims, some doctors across the state and the country are leaving medicine, retiring early or perhaps moving to states with lower malpractice rates. Some doctors can’t even afford to retire because they must buy what’s called a malpractice insurance “tail” to cover any claims that might be filed against them during retirement.

Miller, who has never had a malpractice claim in his 22 years of practice, has seen his rates rise 400 percent in two years.

Doctors who can’t find conventional insurance can enter the high-risk market, but may face premiums that are more than their annual income. Miller says he knows of one doctor whose malpractice premiums in that market would be $250,000—more than he can earn in his practice.

Obstetricians have been hit hard, too. Emily Roberson, an ob-gyn in Williamsburg, says her premiums have risen 30 percent in the last two years.

“Out of what I get paid to see a patient and deliver her baby, probably one fourth of that goes to pay the liability insurance,” Roberson says. “After I pay the rest of the office overhead, pay my employees, provide their health care and turn the lights on—that’s what I take home at the end of the day to pay my bills. We chose last year to take a 10 percent pay cut. But my bills at home didn’t go down 10 percent.”

“The vast majority of physicians participate in some sort of contractual agreement for managed care organizations and we agree to see patients for agreed reimbursements. Those reimbursements have not increased in the last few years. Yet our overhead has gone up dramatically. The difference in cost between what they pay me and the cost of service, I have to write off. The health insurance companies are saying, ÔYour rates are too high—we’re not going to raise your rates.’ Of course, they have raised the rates for health insurance for our employees. Our health insurance premiums are up 15 percent in the last two years.”

Some ob-gyns have stopped delivering babies and offer only routine office visits. They end up with more money and daytime hours. The potential savings are significant—only 10 percent of the professional liability insurance goes to cover office visits, Roberson says.

“The four of us enjoy practicing obstetrics,” Roberson says of her partners. “But it’s something we have to look at regularly.”

The rise in malpractice insurance rates is not as bad as doctors make it appear, says Arthur Levin, director of the Center for Medical Consumers. Often, he says, rates remain flat for several years, then take a big jump. Reducing medical negligence would reduce malpractice rates, the center says.

“Yes, the rates are going up, but no more than health care costs are going up,” Levin says. “If you’re going to claim that malpractice premiums are out of control, so are health care costs. It’s better to look at rates over some five- or ten-year period of time. You may have some years where premiums go up 30 percent, but maybe you have a period where they didn’t go up at all.”

What could this crisis mean for you? Virginia is not one of the 19 states deemed in crisis by the American Medical Association. But it is one of 25 the AMA says is showing problem signs.

In Kilmarnock, on the Northern Neck, the community’s only two obstetricians were told that their malpractice insurance would not be renewed this year. For them, stopping deliveries wasn’t a choice—they had to, because they couldn’t get insurance. That meant the local hospital had to close its obstetrics unit, Miller says. The next closest hospitals are an hour away.

“Fortunately, our practice has been able to absorb some of those patients,” Roberson says. “The principal risk is that she might deliver before she reaches the hospital here. And if she has a complication, she’s an hour away.”

Rising malpractice rates and loss of services can lead to injuries and death when patients don’t have access to immediate care.

“A patient eight months into her pregnancy testified (in a Virginia Senate Courts of Justice hearing) that she developed pain and bleeding and had an emergency c-section within 15 minutes of arriving at the hospital in Kilmarnock,” Miller says. “She had an abruption (separation) of her placenta, which is a life-threatening situation. If she had had to go an hour to a hospital, it could have killed her and the child. If we cut short what a jury can award so this young woman can have access to an obstetrician, I’m going to pick that option. My good friends in the plaintiff’s bar will say. ÔThat’s not good enough.’ I say we can’t afford it. If as a society we want to have access to the good care and services a doctor can provide, we have to limit it, plain and simple.”

Are we as a society contributing to the problem by expecting perfection in every medical situation?

“People feel they’re entitled to a perfect baby,” Roberson says. “That’s a huge issue.”

Says Miller, “We have a society where the mentality is, ÔIf the outcome is not good, gosh, the doctors have insurance, let’s go ahead and cash in on it.’ If reasonable limits were placed on that, there would be less incentive for attorneys to take cases that were not fully based on merit. Some people would call those frivolous.”

Of the malpractice cases filed nationwide in 2002, 67.7 percent were dropped or dismissed; 27.4 percent were settled before trial; 4 percent went to trial and were settled in favor of the doctors; and 0.9 percent went to trial and were settled in favor of the patients, according to the Physicians Insurers Association of America.

To Miller, that means that a large percentage of suits are without merit, yet the costs of defending even these suits drive doctors’ malpractice rates up. An insurance company might drop a physician who won a case because even with a victory there are still costs to prepare the defense.

Levin uses those statistics to show that the system works. “The image that’s created is that the system is out of control and just hands money to people at trial,” he says. “That’s not the case. We also know a lot of people have legitimate cases that they never bring as lawsuits. There are people who should be getting money who aren’t even going into the system. You could argue that it’s a wash.”

What’s the prescription for relief?

Some doctors, waiting for reform and not ready to change careers or specialties, have taken matters into their own hands. One doctor in Fairfax began charging a $5 office user fee to help recoup rising costs.

Lawmakers in Virginia, Maryland and Washington are among states that considered a $250,000 cap on malpractice awards for pain and suffering (also called non-economic damages) but the measures did not pass this year. Congress also has considered similar legislation.

“We have been told by actuaries that by capping non-economic damages at $250,000, we would see a 15—20 percent reduction in malpractice premiums,” Miller says. “It does trouble me that anywhere from one-third to one-half of the awards are taken by the attorneys. If one were paid by the hour, that far and away exceeds anything reasonable at an hourly rate.”

As is often the case, California is the poster child for reforms. California capped pain and suffering liability at $250,000 in 1975. Since then, medical liability premiums have risen 167 percent in California compared to 505 percent over the rest of the country, the AMA says.

But the New York-based Center for Medical Consumers notes premiums are still going up in California. Furthermore, Levin asks consumers to consider the fact that even though New York has high malpractice premiums and is one of the 19 problem states, New York also has a far greater number of high-risk doctors per capita than does California.

“How is that possible if high malpractice premiums chase doctors out of the state?” Levin asks. “In California, with their low premiums, we would expect physicians’ charges to be lower than in New York. Instead, when you have lower rates, doctors pocket the difference. If you’re going to claim that malpractice premiums are out of control, so are health care costs. Medical care inflation has been double digit for many years now.”

Levin, Miller and others agree that the system is broken.

“No one in their right mind who isn’t a trial lawyer could argue that the malpractice system is working well for everybody,” Levin says. “That said, we haven’t been able to agree on a system that would work better and that’s what the debate should be about. It shouldn’t be about penalizing someone who has an injury.”

Says Miller, “It’s simply not affordable and not sustainable. We’re trying to apply some sort of science instead of just purely emotion. What we need to have is affordable insurance so that physicians can continue to work and offer the services they are trained to offer and patients can have full access to service they deserve. If in fact there are people who are injured by medical negligence, they should be fairly compensated and physicians should be able to afford the coverage to establish that compensation.”

Virginia lawmakers created a group to study the problem this summer. The study group includes lawmakers, the Medical Society of Virginia, the Virginia Trial Lawyers Association, The Bureau of Insurance and hospitals.

Lawmakers also passed legislation designed to help doctors who might be having trouble finding insurance in the conventional market. The legislation provides that, starting in 2006, the state’s Division of Risk Management will sell medical malpractice insurance to any doctor up to the state limit for total awards for malpractice claims. That cap is $1.7 million this year and will increase $50,000 a year until July 1, 2008 when the increase will be $75,000 a year, ending at $2 million.

Part of the problem is the way the insurance industry is structured, Levin and the doctors say.

Roberson explains, “The bulk of the increase has been in the last two or three years during the time of the stock crisis. The insurance companies don’t just hold the money on your behalf—they invest it. They’re out to gain some money from that premium. And most of them have heavily invested in the stock market. They’ve lost money because the stock market tanked, and they’re taking it out on us.”

“It’s basically a cash machine,” Levin says. “When times are good in the investment world, insurance companies will lowball their premium in order to attract business because what they really want to do is invest the money. When they were making 17 percent returns, they weren’t as interested in their loss experience. When the markets start doing poorly, insurance companies start looking at their loss experience.”

Restructuring the court system would help, Miller says. Often, jurors can’t fully understand the complex issues involved in a malpractice case.

“Typically the level of training required to understand the medical science is clearly overwhelming to juries,” Miller says. “We ought to examine the potential of a medical court system.”

Such a system would involve using doctors, perhaps from universities, as well as other knowledgeable parties to review medical malpractice cases and render decisions, he says. First, these doctors could decide whether a case has sufficient merit to go to trial; then such a medical court could decide the case.

In New York, patients can’t even bring a lawsuit without an expert medical affidavit saying there are grounds for such a suit. That’s another idea Miller would like to see considered in Virginia, too.

“I have reviewed many of these cases,” Miller says. “The majority of the time what I have seen is bad outcomes but very good care applied. Let’s listen to all these good ideas and decide which ones will work.”