In the wake of a 42.8-percent rate hike this year, the state’s largest medical
malpractice insurer wants to raise premiums by another 19 percent, adding an
average of $7,000 to the cost of each of its 1,500-plus policies.
If approved by the state Department of Business Regulation, the proposed hike would make NORCAL Mutual Insurance Co.’s premiums 2.4 times higher than what they were, overall, in 2000. The actual cost of each policy varies by medical specialty and other factors, and some doctors have seen bigger hikes in that time period.
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NORCAL’s rates have a particularly big impact on Rhode Island because since its entry into the market in 1994, it has seized a sizable market share: 64 percent of direct premiums written in 2003. But the California-based insurer is not alone in its skyrocketing premiums.
On Thursday, the DBR is scheduled to hear a 15.5-percent rate hike request from ProSelect Insurance Co., the state’s second-largest malpractice carrier, with a 20-percent market share. And on Oct. 6, the Medical Protective Co., which has notified the DBR that it will probably not renew any Rhode Island policies, has a pre-hearing conference for consideration of an 80-percent rate increase, just in case it does stay.
The Medical Malpractice Joint Underwriting Association of Rhode Island created by the state to cover the residual market, has also raised its rates, by 18 percent, as approved by the DBR in January.
Rhode Island is not alone in this trend, and, in fact, it’s nowhere near the crisis in some states, especially Florida. According to the Medical Liability Monitor, an independent trade publication, internists in the Miami area paid as much as $65,697 in 2003; general surgeons, up to $226,542, and obstetricians, $249,196.
By contrast, NORCAL’s Rhode Island rates for those categories in 2004 are $11,812 for internists (no surgery), and $92,134 for general surgeons and ob/gyns.
But combined with Rhode Island health insurers’ low reimbursement rates – not to mention Medicaid’s low payments – the high costs are pushing many local doctors to the edge.
A recent survey by the Rhode Island Medical Society found that 12.3 percent were closing their practices, 26.5 percent were retiring early; 16.9 percent planned on leaving the state; 24.4 percent planned to reduce their patient load, and 32 percent were reducing the services they offered.
The society, which has a for-profit subsidiary that serves as NORCAL’s local broker (but also works with ProSelect and the underwriting association), has made controlling malpractice insurance costs a priority. And like NORCAL itself, and many doctors nationwide, the society has zeroed in on one major cost driver: the rising cost of litigation.
An article in the May/June issue of Rhode Island Medical News, the society’s newsletter, said malpractice insurers’ total paid losses had more than tripled since 2000, “with 2003 being the most expensive year in history” in the field. The size of settlements and jury awards has risen dramatically, the article noted, and defense costs “are also skyrocketing” – two recent cases cost $150,000 each just for the legal defense.
One of the biggest reasons, the society says, is that Rhode Island law provides for 12 percent in pre-judgment annual interest to be paid with a jury award, going back to when the injury occurred. That’s a “huge cost driver,” executive director Newell Warde said in an interview, because it encourages plaintiffs to wait until just before the statute of limitations runs out to even file a lawsuit, and then drag the proceedings out for years. (The flip side, and the reason the interest was imposed, is that insurers were notorious years ago for dragging out cases themselves.)
Warde said lowering the interest rate would help, especially if it’s tied to an economic indicator (say, prime plus 3 percent). “I mean, where can you get a 12-percent return on your money?”
The society also advocates narrowing the statute of limitations on malpractice, and requiring a prompter disclosure of the gist of a plaintiff’s claims, so the insurer can reserve an adequate amount for the case. And cases do drag out for many years; in 2002, NORCAL still had active claims dating to the first policies it wrote in 1994.
Consumer advocates and lawyers, for their part, have an entirely different prescription for reducing malpractice insurance costs. A recent Public Citizen report, for example, pointed out that 4.8 percent of Rhode Island’s doctors (155) were responsible for 52.7 percent of malpractice payouts between 1990 and 2002, and 1.6 percent (52) who all had paid at least three claims each accounted for 25.9 percent of payouts. Rather than tort reform, the group argued, Rhode Island needs to crack down on bad doctors.
The Rhode Island Medical Society calls that a “myth.” A society fact sheet counters that “the most highly trained and skilled doctors are the ones who get sued most often for the largest amounts, because they are able and willing to take on the most difficult and risky cases.”
Bruce W. McIntyre, legal counsel to the state Board of Medical Licensure & Discipline, which is criticized in the Public Citizen report, said the cases he sees – and every malpractice jury award, settlement and case dismissal goes to the board – suggest there are some bad apples.
“I’d say up to 95 percent of doctors practicing in Rhode Island are doing so to very, very high standards,” McIntyre said.
The vast majority of malpractice cases do get dismissed, usually voluntarily by the plaintiffs, McIntyre said. And most of the settlements that are made, McIntyre added, are “on the low end of what a malpractice settlement is thought to be, meaning $200,000 or $300,000.” Settlements in the $1-million range come up only “occasionally,” he said, and those are “almost always coupled with gross malpractice and damages that are severe, such as death, or permanent paralysis.”
McIntyre said he also hasn’t seen a dramatic spike in the size of awards and settlements in his 12 years with the board, but he has seen a substantial increase that mirrors the general rise in medical costs.
So why are malpractice premiums rising so steeply?
“I don’t believe enough attention has been paid to regulating the insurance industry and taking a hard look at where the money is really going,” McIntyre said. “Insurance companies have made bad investments, when those things happen, they’ve got to find the money somewhere, and they’re passing that on to the physicians. But to say that’s the whole problem minimizes the other issues too. There is a legitimate place for tort reform.”
NORCAL’s latest rate filing shows that, for the last five years, loss ratios have varied dramatically, and not necessarily in connection with big or small rate hikes. In 1999, NORCAL had nearly $18 million in losses while collecting only $9.3 million, a 193-percent loss ratio, and in 2000, it had a 152-percent loss ratio. But in 2001 and 2002, it collected more than it spent. Then in 2003, the ratio was 124 percent.
Many of NORCAL’s critics say the company is just having difficulties adjusting its rates after entering the Rhode Island market with unsustainably low prices in the ’90s. But Bob Anderson, director of the Rhode Island Medical Society Insurance Brokerage, said that’s “simply not true.”
“Until this year, NORCAL has never enjoyed a rate advantage” over its competitors, Anderson said. Its pricing was never “predatory,” he said, and though its rates are now lower than some companies, the MMJUA, for example, is “much lower.”
“There is so much information on both sides, that it’s hard to get a balanced
look at the issue,” Anderson said. “But it is a major, major issue.”
