Proposition 12 Has Passed, But Full Benefit May Be Years Away
Cover Story -- December 2003
By Walt Borges
Now that the Texas Legislature has approved sweeping tort reforms and the voters have confirmed caps on noneconomic damages in medical liability lawsuits, Texas physicians will get a chance to see if patience is in fact a virtue and one they can afford.
Texas Medical Association physician leaders are counseling doctors across the state that the full impact of the reforms enacted in 2003 may be several years in reducing payouts in medical liability lawsuits and, subsequently, reducing premiums to ease the economic stress for physicians.
Doctors who carry medical liability insurance from the Texas Medical Liability Trust (TMLT) will be the first to get relief, thanks to TMLT's promise to enact a 12-percent rollback of rates for policies renewing on or after Jan. 1. TMLT officials are quick to point out that their promise was a commitment of faith that the reforms eventually would reduce payouts in medical liability cases, and one they stuck with even when the cap on noneconomic damages was loosened to allow larger awards than the single $250,000 that was proposed initially.
Two other major medical liability companies write policies in Texas, The Doctors Company and GE Medical Protective. The Doctors Company says it is canceling a planned premium increase, but Connecticut's GE Medical Protective says it is waiting to see how effective the reforms are.
"Doctors need to understand that it will take some time to see the impact of the reforms," says Spencer Berthelsen, MD, chair of TMA's Council on Legislation. "We need to remember that there are many cases in the judicial pipeline that have no caps, and it may take two to four years to complete the current suits. It will take time to see the jury awards decrease."
Robert Sloane, MD, chair of TMA's Committee on Professional Liability, agrees. "It may be a decade from now before we can clearly see the full impact from an underwriting perspective," Dr. Sloane said.
Of major concern for Texas physicians often beset with double- and even triple-digit rate increases in the past several years is how quickly liability insurers will adjust their rates, easing the financial stress of operating a medical practice and providing Texans with continued access to doctors and medical treatment. Rate rollbacks, or slower rates of increase, will ultimately stimulate reinvestment in medical facilities and practices and lead to expansion of the medical community in Texas, some TMA leaders suggest. (See "Giving Back to the Community.")
TMLT announced in September that it would fulfill its promise to State Rep. Joe Nixon (R-Houston), the sponsor of the tort reform bill, to roll back premiums by 12 percent.
TMLT insured more than 10,800 physicians in 2003 and collected an estimated $190 million in premiums.
Yet TMLT President Tom Cotten says no one can produce an accurate reading of prospective savings under the bill's reforms and the caps on noneconomic damages that were approved by voters in Proposition 12. Instead, TMLT is making a leap of faith to provide its insured doctors with relief.
TMLT's rollback is coming off the 2003 rates and will not be offset by anticipated increased 2004 rates, TMLT officials assured TMA leaders at the TMA 2003 Summit.
Mr. Cotten noted that the Texas Department of Insurance (TDI) predicted a 12-percent premium rollback could be implemented by medical liability insurers due to the savings from the reforms, but that estimate was based on the legislature passing a rigid $250,000 cap that covered all physicians, hospitals, and other medical professionals found liable for an injury. But lawmakers enacted a different cap.
Under the reforms of House Bill 4, physician liability is capped at $250,000, but hospitals and other medical facilities can be assessed damages of $250,000 each, up to $500,000, explains TMA General Counsel Donald P. Wilcox, JD. The combined noneconomic liability cap is therefore $750,000.
TDI estimates prospective savings at 8.5 percent to 11.5 percent under the higher caps, Mr. Cotten says.
Part of the problem is that many lawsuits were filed in late summer, before the 2003 reforms took effect, he says. TMLT averages about 800 claims in a four-month period, but this year, the rush to the courthouse yielded 1,700 actions.
Mike Cavanaugh, vice president of marketing for GE Medical Protective, which insured 7,124 doctors in Texas in 2003 and collected $117 million in premiums, says whether the company lowers its premiums will depend on the reforms' impact.
"We definitely view the Texas reforms as a step in the right direction, but it's uncertain and unknown what the impact of the reforms will be. It will probably take a couple of years to see the results come in. In years two to five after the reforms, we'll know what is happening and how effective the reforms are. Right now, we can't say we're planning any rollback."
In fact, Medical Protective may even raise its rates next year to reflect the current situation.
"I don't think we're at a point that we have finalized our rates for next year," Mr. Cavanaugh said. "My expectation is that they will rise, but not as rapidly as in the past.
"We are still a significant supporter of patient safety and clinical risk management," he added. "If you can prevent a bad outcome, you will prevent a bad case from reaching the courts."
The Doctors Company, which insures 1,500 Texas physicians, says it is considering a premium rate reduction. Richard E. Anderson, MD, the company's chair and chief executive officer, told AMNews in September that it would consider at least a 12-percent rate reductionfor physicians who have policies that pay up to $1 million for a single adverse incident and $3 million for multiple medical liability awards against a doctor.
But Dr. Anderson said in late October that the insurer will respond to a "positive" reform in Texas by canceling a planned 19-percent rate increase, withdrawing a rate increase filing, and freezing all rates for Texas physicians until the end of this year. In early 2004, the company will assess what is happening in Texas with an eye toward providing further relief if and when it is feasible.
In Texas, many physicians insure only for $200,000 for a single incident and $600,000 for multiple awards, a standard that many hospitals require before a physician can admit a patient.
As TMLT's Mr. Cotten points out, the cap on noneconomic damages becomes less relevant for physicians carrying the minimum levels.
"How much savings can there be with a $250,000 cap on a $200,000 policy?" he asked.
Return of the Prodigal Insurers?
Dr. Berthelsen says the possible return of some carriers who left the state bears watching in the wake of the reforms. "Competition drives rates down, and with Texas now a more favorable state for medical liability insurers, we are hoping that new companies will come to Texas," he said.
But despite persistent rumors that some carriers are planning to come back, that did not appear to be happening as of late October.
"We heard that a couple of carriers are coming back in," said Mr. Cotten. "Commercial insurers might be able to return quickly, but medical liability insurers these days are specialized insurers, and specialized companies may be slow to come in."
He also says that the liability insurer of last resort for physicians, the state-sponsored Joint Underwriting Association (JUA), still offers rates that are low when compared with the standard insurance market. New insurers won't find a large set of Texas physicians who are willing to look to the insurers for high premium coverage, he says.
"Low prices and substandard coverage could be the norm" for companies entering or reentering the Texas market, Mr. Cotten warned.
One wild card in the liability insurance hand is the federal tort reform legislation affecting doctors, which seems to be stalled in Congress.
The U.S. House of Representatives has passed a $250,000 cap on noneconomic damages that is supported by the American Medical Association and President George W. Bush. But the effort to pass a similar cap in the Senate has thus far failed.
President Bush pushed for medical liability reform in a national radio address in September, but his comments seemed focused on frivolous litigation and making sure that trial lawyers don't receive disproportionate amounts of damages at the expense of their clients.
While the news media follow congressional efforts, Drs. Berthelsen and Sloane say TMA doesn't want any federal reform to affect Texas laws that are more favorable to doctors. So far it doesn't, Dr. Berthelsen says.
The national strategies to enact caps are unlikely to pass the Senate, Dr. Sloane says, because the vote is deadlocked. But limiting the caps to medical liability lawsuits against physicians might sway some votes. Or the loss of obstetricians who balk at paying high liability premiums could make the issue of caps one of paramount importance to women, exerting more pressure on federal legislators to back the caps, Dr. Sloane says.
Mr. Cavanaugh, of Medical Protective, said there is substantial interest in federal legislation because it "could set a model for what states can adopt as reforms. . . . But the real challenge is in the state courts where most medical malpractice action is taking place."
In Texas, Dr. Sloane expects trial attorneys and their clients to try to persuade the legislature to increase the caps on noneconomic damages.
"We have the great defense of being able to say to legislators that we understand that this was painful to do, but because it was just put in place, it needs to be given a chance to work," Dr. Sloane said.
Charles Bailey, JD, a board member of the Texas Alliance for Patient Access (TAPA), the umbrella group of medical, insurance, and business organizations of which TMA is a founding member, says TAPA's legal and claims committee already has met several times since Proposition 12 passed in September to consider what's next for the alliance.
"Even though the constitutional amendment takes the caps on noneconomic damages out of legal challenges, we expect legal challenges to the [other] reforms of House Bill 4," said Mr. Bailey, the general counsel of the Texas Hospital Association. He predicted that trial lawyers may attack reforms that strengthened the Good Samaritan law, which protects physicians who render emergency aid, and challenge reforms that allow payments of damage awards to be made periodically, rather than in a single lump sum.
A Need for Data
The Committee on Professional Liability invited State Rep. Jaime Capelo (D-Corpus Christi) to its meeting at the TMA 2003 Summit in September to thank him for his support and to evaluate what happens next. Representative Capelo told the committee that the legislature would welcome early proof that the reforms are working.
That concern is shared by many, including Dr. Sloane and Mr. Cotten. Both say medical liability insurers will be diligent in collecting data on how the reforms impact medical liability cases as the lawsuits wend their way through the state courts. TMA and the insurers also will collect data on physicians who scale back their practices to eliminate risky procedures and on doctors who leave Texas for less litigious states, Dr. Sloane says.
"We want to demonstrate a reversal of the trend, if there is one, but we've found that using licensing data from the Board of Medical Examiners is hard because many retiring doctors keep their licenses," he said.
Mr. Bailey echoed the view that collecting data to support the reforms is important to whatever strategy is chosen for the future. He says TDI's study of closed claims, the basis for many analyses of the legal atmosphere for medical liability insurance, may be supplemented by other data-collection efforts by organized medicine and the liability insurers.
"The legislature is not just interested in the amount of paid-out claims," he said. "It is also interested in understanding the impact on the frequency of claims."
There is still interest among TAPA members in trying to enact several reforms that failed to gain a toe-hold in 2003, Mr. Bailey says, even though legislative sponsors have indicated that additional reforms are unlikely to be given a priority in the 2005 legislative session. Limiting contingency fees -- a change that would reduce the amount of money diverted to plaintiff's lawyers in successful liability cases and impinge on their ability to fund other cases -- and eliminating the "collateral source" rule attract the most interest from TAPA members, he says.
Eliminating that rule would end what some advocates say is double-dipping by plaintiffs who receive medical benefits under their health insurance and then recover damages to cover the same care through a lawsuit. But opponents of the rule point out that health insurers are authorized to recover their payouts from the plaintiffs who win a medical liability award, and usually do.
Dr. Sloane says there are numerous supporters in the medical community of the so-called "English rule," in which the loser of the lawsuit pays the other side's expenses.
"In the first legislative session, a 'loser pay' system was thought to be untenable. But there is support for creating a cause of action for bad faith against plaintiffs and attorneys who pursue cases they know are unfounded."
However, Dr. Sloane says the legislature generally does not like to repeatedly revisit the same contentious issues.
Still, he remains confident that the first step toward restoring the state's medical liability law to economic sanity has been taken. If the reforms work as anticipated, he foresees a time when physicians actually look to increase their coverage instead of being forced to drop it for economic reasons.
"Physicians have tended to lower coverage as premiums rise," Dr. Sloan said. "Maybe we will reach a point where the savings on premiums will allow physicians to consider upping their coverage again."
Giving Back to the Community
Proposition 12's public interest underpinning was about preserving patient access to doctors. No one has done more to demonstrate that fact than the 12 physicians of Fort Worth's Consultants in Cardiology.
In the wake of the amendment's passage, the physicians pondered what to do with the potential savings they would see in the next few years as legal costs stabilize and premiums are, in theory at least, rolled back.
"After Proposition 12 passed, we knew we would be around for a while, and we plan to grow in the future," said John Durand, MD, a cardiologist who chairs the Tarrant County Medical Society Medical Liability Committee and sits on TMA's Committee on Professional Liability.
"We decided to put our money where our mouth is. We decided that we will give to our community as our way of expressing our confidence in what Proposition 12 represents."
And give they did -- $500,000 in seed money for a new $60 million community cardiology center that Harris Methodist Hospital Fort Worth plans to build.
Dr. Durand says the liability insurance crisis in Tarrant County caused investment and development of medical facilities to be put on hold as an unstable economy and liability insurance costs drained hospitals and physician practices of needed surplus revenues.
For Consultants in Cardiology, insurance quotes had risen from $125,000 to $700,000 in the new century, despite a superb patient safety record and a dearth of legal claims. Uncertainty reached a level at which some of the doctors were worried the group would eventually fail because of economic stress.
"After Proposition 12 passed, the attitude changed," Dr. Durand said. "The spirit is different, the physician's step is quicker, and it's as though we all are six inches taller."
Dr. Durand believes that a new confidence will pervade the Texas medical community and eventually lead others to practice similar reinvestment in their communities.
"I think you will see this happening all over Texas," he said.
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Proposition 12: The Fight for Survival
By Manuel Acosta, MD
December 2003 Texas Medicine Contents
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