Liability Crisis: Physicians Face Mounting Liability Insurance Crisis

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Cover Story -- May 2002  

By Walt Borges  

These days, the arrival of the renewal notice for a medical liability policy is a Texas physician's nightmare.

For physicians practicing in the lawsuit zones in South and Southeast Texas or in high-risk specialties like obstetrics-gynecology or neurosurgery, the good news may be that their policies are being renewed at all, unlike those of some of their colleagues. But the good news is almost always tempered by the bad: The premium is going up by 25 to 70 percent.

Often the physician who is dropped or sees staggering increases in premiums has never been sued.

One Texas physician facing such a problem is Bradley Nordyke, MD, of Brownsville, who practices in an outpatient clinic that takes walk-in patients.

"I've never been sued in the seven years I've been here," says Dr. Nordyke. "I had a $3,000 premium, but I was dropped by my carrier two years ago. I found another insurance company, but I paid $12,000 for the policy. And now they are saying, 'We're dropping you,' even though I haven't been sued. If I can't find insurance, I close, I retire, or I go somewhere else. Who's going to take care of the patients then?"

Rising premiums and nonrenewals are the latest manifestation of a crisis in medical liability insurance. The problems with medical liability insurance and medical malpractice laws were recognized by the Texas Legislature, which enacted reforms in 1995 designed to eliminate unwarranted lawsuits and, in theory, lower medical liability insurance rates. But problems began to re-emerge in Texas in 1997, when insurer payouts due to verdicts, settlements, and legal defense costs exceeded premiums.

Now there are warning signs of another crisis. The Texas State Board of Medical Examiners (TSBME) and insurers say claims filings, the first step in a medical malpractice suit, are rising, even if actual lawsuits filed are not. Patient protection is an issue with jurors who have read or heard of the 1999 Institute of Medicine (IOM) study that claims "medical errors" kill 98,000 patients a year. And physicians wonder if medical liability insurers are justified in increasing premiums and dropping doctors in high-risk specialties.

Texas Medical Association leaders, physician members, and staff "clearly understand that we are in another crisis phase in the cycle of professional liability insurance," said David Duffner, MD, chair of TMA's Council on Legislation's Subcommittee on Professional Liability. "TMA leaders and staff saw the crisis coming nearly two years ago. We have been aggressively assisting physicians in the Valley to fight back in local and appellate judicial races, and we wrote amicus briefs on key appeals. We went to the speaker and the lieutenant governor and successfully urged an interim investigation of the problem to prepare for the next session."

Dr. Duffner says the overriding concern is that physicians will be driven away from high-risk treatments and high-risk locations, stranding the most critically ill and injured patients without adequate care within hundreds of miles.

"Because of the liability insurance situation, doctors are reducing services, eliminating high-risk services, and leaving high-risk areas altogether," he said. "The effect is that it limits patient access to doctors, and the public will suffer."

Dr. Duffner says the causes of the crisis are complex, arising from the "compounding of negative effects" of litigation practices, insurer competition, and other factors. Among the potential causes being studied by TMA are the ineffective application of the legislative reforms by judges, an extended medical liability insurance cycle, adverse publicity about medical errors that leads to harsh jury verdicts, and growing damage awards in medical liability suits and settlements.           

A Growing Fear

When rheumatology resident J. Edward Hernandez, MD, was considering his future after completing his training at Baylor College of Medicine in Houston, he looked toward his hometown of Corpus Christi and accepted a job in a private practice on the theory that life on the coast was more laid back than in the urban areas that were recruiting him. It didn't hurt that his wife's father was an established family practitioner in Mathis, 30 miles from the coastal city.

But his dreams of a laid-back lifestyle faded once he learned about the medical liability situation in Corpus Christi.

"From my understanding, the problem is that plaintiffs are blanket-naming physicians and staff instead of trying to single out who is responsible," Dr. Hernandez said. "And the doctors are not necessarily being sued for malpractice, but for being part of a bad outcome."

Dr. Hernandez says the risk of being sued is only one source of his uneasiness. The other is his perception that many physicians, including most of the fellows and residents with whom he trains, will not consider locating to high-risk areas like Corpus Christi, the Rio Grande Valley, and Wichita Falls, where litigation risks and the hassles of obtaining and keeping medical liability insurance are substantial.

"No one I know from Baylor is thinking of going to Corpus Christi," he said. "It worries me. I'm thinking, 'What's going to be available in five or 10 years if I need a particular subspecialist? Will there be one available in Corpus?'"

Dr. Hernandez points out that if practices in the underserved South Texas area cannot attract and keep young physicians, patient access to physicians will decrease in the region.

Dr. Nordyke witnessed the same problem further south. While the litigation and insurance problems have prompted some specialists to leave the area and others to drop high-risk treatments, it is hard to recruit doctors to serve the border areas, he says. That leaves many physicians struggling to find coverage and help for their practices.

"It's a rare doctor who will go it alone in practice these days," said Dr. Nordyke. "I'm trying to recruit someone to work with me. I've been through interviews with 15 doctors."

In 2001, TMA surveyed physicians in the Valley. Of 168 doctors who responded to the mail survey, 76 percent said they were having difficulty recruiting doctors because of the rising number of malpractice lawsuits in the region. Fifty-five percent said they were thinking about leaving the Valley or retiring.

Half of the respondents had seen increases in premiums of more than 50 percent in the previous two years, and one-third had to switch insurance carriers because their insurer had stopped writing liability insurance in the Valley. Seventy percent of the doctors said they were the subject of medical liability claims. Sixty-five percent said they were subsequently sued.

The problems have grown so severe that South Texas and border physicians scheduled a "Day of Awareness" for April 8, which would allow them to march to the county courthouses to petition for reform and protest current liability practices. In some areas, patients were referred to local emergency rooms, and other physicians from around the state made sure coverage was provided.

Although the Day of Awareness occurred almost a year before the Texas Legislature meets, TMA Vice President for Public Policy Kim Ross sees several benefits resulting from the protest.

"First, it shows every public official -- state, federal, and local -- that the problems are real, that they will have to respond, and that we are serious about it," Mr. Ross said. "Second, it has drawn the local employers and chambers closer to their medical community, because they understand you cannot have economic growth and prosperity without a healthy medical community. Third, it draws state and national attention just before the legislative interim studies kick into gear."

Dr. Duffner points to three factors that, once examined by the interim committees, will give the legislature the diagnosis and treatment strategy for the medical liability crisis.

The first is an evaluation of Texas tort law, judicial enforcement, and the lawyer discipline process to ensure that each is working as designed and to formulate ideas for reform. A second area of study will determine whether patient safety measures and physician discipline are effective. The third is whether underwriting and reserve practices of insurers, some of whom entered the Texas market a few years ago, may have contributed to rising premiums and decreasing availability of insurance, and whether enhanced regulation by the Texas Department of Insurance could have headed off the crisis.

Litigation -- A Familiar Concern

The rising costs of litigation and the increase in damages awarded by juries and judges are familiar concerns; it was litigation issues that spurred the 1995 Texas reforms.

"The major driving force that is creating this crisis is the increasing severity of the claims. This is caused by jury verdicts so enormous that they in turn drive up settlement value and the cost to defend the claims," said Howard Marcus, MD, a member of TMA's Committee on Professional Liability and chair of the TMLT Board of Directors. "As far as TMLT is concerned, underwriting processes and competition have little impact on the rates."

Dr. Marcus noted that TMLT's average indemnity paid on claims rose from $153,000 in 1998 to $211,000 in 2001.

In 2000, one of four Texas physicians had a claim filed against them, a frequency that compares unfavorably with the rest of the country, where less than 15 percent of doctors face claims each year. The filed claim, while not a lawsuit, forces insurers to begin developing cases by hiring lawyers, locating expert witnesses, and arranging mediation.

More than 80 percent of the Texas claims are closed with no payment made by the insurer to the patient, but the rising costs of preparing a defense is a key cost of the system.

TMA's 2001 liability study, which included three of the state's largest medical liability insurers, found that the indemnity paid per claim rose slightly over the 1990s when calculated in constant 1991 dollars to offset the effects of inflation. Spread out as an average indemnity per policyholder, there was a slight decrease to about $5,000 per policyholder paid in 2000.

But at the same time, the average expense of defending a claim rose from $40,000 in 1991 to $55,000 in 2000, using the constant dollars.

"Defending a claim is costly, even when you don't get to court, because you have to defend your actions and your reputation," Dr. Duffner said. "Hiring a lawyer to fight a claim is money spent, even if the claim or suit is later dismissed."

One of the great frustrations of a "broken" medical liability system, says Dr. Duffner, is that only 30 to 40 percent of each premium dollar goes to patients who had legitimate claims. The rest goes to plaintiff's lawyers, defense lawyers, and other litigation expenses.

Mr. Ross says research of the latest medical liability trends suggests that the frequency of lawsuits against physicians seems to be holding steady. But jury awards for malpractice verdicts are up, and so are the costs of defending claims that could become suits, he says. 

Although there is no comprehensive reporting of Texas medical malpractice verdicts, Jury Verdict Research, of Horsham, Pa., collects national figures. In March, the company released its study of medical malpractice verdicts rendered in 2000. It found that the median jury award in medical liability cases had increased to $1 million from the 1999 median of $700,000. Patients won only 38 percent of the cases, but that was the highest rate of success in the previous five years.

The same study found that the median settlement had slumped to $500,000 in 2000 from $592,074 the previous year, a surprising trend given the simultaneous rise in the median jury award.

TMA's liability study found that indemnity, the amount paid by an insurer to cover a claim, increased on a per-claim basis since 1997, even though more claims were being closed without any indemnity paid. Claims closed without payment went from 70 percent in 1990 to 86 percent in 2000, even though legislation was enacted to reduce such unwarranted lawsuits.

Patient Safety  

What's driving the increases in claims and awards is a subject of much debate. One of the explanations that garners agreement from many physicians, lawyers, and insurers is that public attitudes changed in the late 1990s, spurred by news reports about the IOM report.

"After the IOM study, juries were subjected to powerful arguments based on medical errors," said Tom Cotten, president of the Texas Medical Liability Trust (TMLT). "That's the only thing we can see that caused the up-tick in losses."

The influence of news reports over jurors pervades all areas of the state, Mr. Cotten says. In areas such as East Texas, "where physicians have won 100 percent of the time, they're beginning to lose," Mr. Cotten said.

"In this liability environment, plaintiffs don't have to prove malpractice, they just have to show a bad outcome," Mr. Cotten said. "What we seem to see is that juries look at an injury and want to make people whole."

But analysts say other factors are in play. Conning & Co., an insurance research firm, suggested in a 2001 study of medical liability insurance that the growing public suspicion of managed care has changed juror expectations of adequate care and medical responsibility. It is not just that patients and jurors are savvy to physician complaints about the impact of managed care organizations on medical judgment. Professional liability insurance analysts suggest that managed care and its pressures on physicians to see more patients in less time may be contributing to the medical error rate.

In Texas, the concerns about patient safety are reflected in recent news articles that take the TSBME to task for lenient discipline of physicians who have sexually molested patients. Business leaders and plaintiff's lawyers have used that failure to question the effectiveness of TSBME's oversight of physicians.

Trial lawyers say perceptions of a crisis are manufactured from anecdotes and that statistics show that no more medical liability lawsuits are being filed than in previous years. Texas has sustained more tort reform than most states and has in place screening mechanisms and bond requirements for medical liability cases, reforms that are advocated by many reformers. Most importantly, the trial lawyers say, is that physicians, hospitals, and other medical liability defendants continue to win the majority of lawsuits that go to trial. Insurers' refusal to settle cases or insistence on extended litigation on valid claims against doctors and hospitals is driving up litigation expenses for insurers and leading to high rates for physicians, the lawyers say.

Some lawyers also point out that the perception among insurers that the 1995 Texas reforms were conservative and defense-oriented was also a major factor inviting new insurers to enter the Texas market, leading temporarily to lower rates.

The Insurers' Tale  

The medical liability insurance environment is anything but cheery in Texas. "It's a bad thing, really," says Carol Brierly Golin, the editor of Medical Liability Monitor , an industry newsletter. "Physicians may not want to hear this, but it has been a buyer's market for years."

Increases in premiums that physicians are seeing are caused by three factors, Ms. Golin says. First, actuaries who predict the losses that must be met by premium dollars didn't pick up on an upturn in the amount of damages being paid out. The upturn occurred nationally three years ago, but Texas saw the increased awards beginning in 1997, TMA staff members say.

At the same time predictions were going awry, many insurers were expanding their lines of insurance and seeking business in new locations. Ms. Golin says the unfamiliar territory and products led some companies to make poor business decisions that were costly to the companies and ultimately to their policyholders.

A third factor was the competition among insurers in the medical liability market.

"They were writing policies under their bottom line," Ms. Golin said. "The premiums wouldn't cover losses, but the companies were making up the difference in the investment market."

Mr. Cotten says he observed some of the new companies entering Texas charging physicians premiums half of what were justified by loss predictions.

TMLT's rates for insurance were not greatly affected by the contraction of the stock market since 2000, he says. Rather, the insurance industry mitigated its premium increases because of over-reserving in the late 1980s.

Over-reserving occurs when predictions of losses lead to rates that bring in more money than is paid out by the insurer. Mr. Cotten said TMLT's over-reserving in the 1980s was corrected in the 1990s as premiums tracked losses closely, and the extra reserves were consumed to meet large awards. But by 1998, payouts exceeded premium income.

TMLT's rates for a policy that covers $1 million per occurrence and $3 million total vary according to specialty and location, but between 1999 and 2002, the jumps in premiums were unprecedented.

In the beleaguered Rio Grande Valley and El Paso, obstetricians and gynecologists saw the premiums rise from $57,697 to $102,584, a 78-percent increase. Neurosurgeons faced a 90-percent increase in the same three years, from $84,606 to $160,337, while general surgeons saw a 117-percent increase to $79,111. Doctors in internal medicine now pay $29,260 in the Valley, 131 percent higher than what they paid in 1999.

Physicians pay less in other regions of the state, but similar TMLT rate increases are common. Neurosurgeons pay about $114,000 in Houston and $115,000 in Dallas for $1million/$3 million coverage from TMLT, but their increases from 1999 to 2002 were 110 percent and 99 percent, respectively.

"Our rates have doubled in the last two and a half years," Mr. Cotten said. "But now the issue isn't just affordability, it's availability."

With three medical liability insurers going out of business and six ceasing or cutting back on insuring Texas physicians, thousands of doctors are looking for new insurance. They are joined by physicians, especially specialists, looking for more affordable alternatives to their current carrier.

With 10,000 insured physicians, TMLT is the state's largest writer of liability policies, but the trust, set up as an insurer of last resort for Texas physicians, cannot pick up the slack. "We can't write everybody," Mr. Cotten says. "We don't have the resources that commercial insurers do."

Dr. Duffner says risk-pooling means the riskiest medical specialties suffer, even though individual specialists may be among the best in their field and may have never been sued.

"The case in point is a surgeon who performs high-risk surgery," Dr. Duffner said. "Even if he has never been sued, because he is willing to do high-risk procedures, he'll pay dearly for his liability insurance. That has a chilling effect on doctors who provide such services."

Searching for Solutions  

The complexity of the medical liability problem makes identifying immediate solutions impossible, but TMA is conducting  comprehensive research to identify likely solutions.

In December 2001, TMA and 10 health care insurers and associations created the Texas Alliance for Patient Access (TAPA). Its purpose is to identify effective reforms employed by other states to address access and reform issues.

One idea that is attractive to organized medicine is a package of reforms based on California's Medical Injury Compensation Reform Act (MICRA), which includes a $250,000 cap on non-economic damages as well as procedural reforms. MICRA-style changes were endorsed by the American Medical Association as part of a federal reform effort in Congress.

But Mr. Ross points out that medical liability is primarily a state problem, whereas federal proposals are designed only to form a floor for the minimum level of reform. Even if TMA can identify solutions that the Texas Legislature will pass and that the public will support, the crisis may linger too long for some physicians. Implementing legislation and strengthening oversight by state agencies take time, notes Mr. Ross.

Ms. Golin says the insurance companies also will be unable to adapt overnight.

"Physicians shouldn't expect things to change until late in 2002 or maybe 2003," Ms. Golin said. "It takes time for insurance companies to get the rates right." 


How To Cope With Lawsuit Stress

Being sued for malpractice is, to put it mildly, a stressful experience. Physicians who find themselves in such a situation need all the help they can get.

That's why TMA's Committee on Physician Health and Rehabilitation is offering a seminar called "Coping with the Stress of Malpractice Litigation." The seminar will be conducted May 10 in Houston and June 18 in Pampa. Similar seminars will be held in other parts of the state.

Physicians who sign up for the seminar will be able to recognize that there is a difference between the patient's and the physician's perception of a malpractice litigation, identify response patterns of grief as they relate to the litigation process, and formulate strategies to maintain professional integrity by providing high-quality care while enduring the stress of malpractice litigation. They also will receive 1 hour continuing medical education credit in ethics.

For more information, contact  Linda Kuhn  at (800) 880-1300, ext. 1342, or (512) 370-1342. 

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