A proposal before the state Department of Business Regulation would raise medical malpractice insurance rates for three Rhode Island hospitals by 25 percent, and a fourth hospital’s by 19.8 percent, just by changing how they’re rated for their loss experience.
The change could affect additional institutions as well if the state’s two remaining large malpractice insurers, NORCAL and ProSelect, continue to refuse to renew hospitals’ policies, as occurred with NORCAL and Memorial Hospital of Rhode Island this summer.
The non-renewals are pushing hospitals back onto the rolls of the Medical Malpractice Joint Underwriting Association of Rhode Island, the state’s malpractice insurer of last resort. The MMJUA had lost all its hospital business during the “soft” market of the mid- to late-1990s, when others were offering better rates. Now, however, hospitals are increasingly having to choose between the MMJUA or becoming self-insured – as the Lifespan network is.
Women & Infants’ Hospital, St. Joseph’s Hospital, Roger Williams Hospital, and most recently, Memorial have gone with the MMJUA, and are paying rates ranging from about $280,000 to $1 million just for institutional coverage (doctors, nurses, etc. are covered separately).
But because the MMJUA had stopped covering hospitals for some time, those rates are more than 9 years old, from 1995. The company’s experience rating plan – the means by which rates are adjusted to reflect each customer’s loss history – has been unchanged since 1989.
To begin catching up, the MMJUA asked the state in September to allow it to adopt ProSelect’s experience rating plan, effective last Oct. 1. It did not ask to raise its rates, though lawyer David P. Whitman told DBR officials at a hearing last month that the insurer would likely seek a rate hike in the spring, to be effective next Oct. 1.
The experience rating change alone, however, would have a bigger impact than any malpractice rate hike approved by the DBR this year.
The current plan is “balanced,” meaning each year, the MMJUA calculates the total premium it will collect from all participating hospitals if they pay the base rate, and then it adjusts each hospital’s share to reflect their risk quality relative to one another.
This year, that resulted in one hospital paying an extra 22 percent over its base rate, while two others got discounts of 26.4 percent and 16.7 percent. Memorial, the newcomer (identified on MMJUA documents only as Hospital D), is paying the base rate for its first year.
The new plan rates each hospital individually, and bases the “experience modification” to the rate on the ratio of five years’ worth of losses to five years’ worth of premiums, with a $250,000 limit on any given loss, so a single $1-million verdict couldn’t skew the figures.
Kathy Cutler, secretary of the MMJUA, said the change “should actually help the hospitals,” because when they’re quoting them a premium, they’ll know right away exactly what they’ll pay – rather than going through an experience adjustment afterward.
But an actuary hired by Assistant Attorney General Genevieve M. Martin, who acts as a consumer advocate in insurance matters, estimated the change would result in an average 73-percent hike in premiums, with each hospital paying 44 percent to 93 percent more. That, Martin said, would be “an extraordinary and inappropriate increase.”
The MMJUA had estimated the hikes to be lower, but the calculations were found to contain errors. And though the insurer agreed not to make anyone pay more than 25 percent more in the first year than they would have under the old rating plan, Martin pressed for more.
The attorney general argued in a filing with the DBR that the MMJUA was making a thinly veiled attempt to raise its rates without submitting to the scrutiny required for actual rate increases. But Martin also offered a compromise that would keep the hike to an average of 38.1 percent, by basing rates on a 100-percent loss ratio, rather than the proposed 70 percent.
Under that plan, three of the four hospitals would be still hit with an experience surcharge: 82.7 percent for the largest, 16.8 percent for another, and 19.8 percent for Memorial. The hospital that now gets a 26.4-percent discount would get only a 3.2-percent break. And no one’s premiums would go up by more than 25 percent in the first year, as the MMJUA had offered.
The insurer agreed to the compromise, eliminating the need for a full hearing before the DBR. A decision on the matter is expected within days.
