The state attorney general’s office has signed off on a 19-percent rate hike
request by Rhode Island’s top medical malpractice carrier, NORCAL Mutual Insurance
Co., agreeing that at least that much is needed to cover the company’s expected
losses.
The increase, which would be effective Jan. 1, must still be approved by Director of Business Regulation Marilyn Shannon McConaghy. A public hearing was held last Tuesday, but a stipulation by NORCAL and Assistant Attorney General Genevieve M. Martin precluded a full-fledged discussion of the request. A decision is expected this week.
The rate hike would come on the heels of a 42.8-percent hike this year, a 20-percent hike in 2003, and a 9-percent hike in 2002. And for the riskiest medical specialties – neurosurgery and obstetrics/gynecology – it would push NORCAL’s premiums to $106,201. A nonsurgical family practitioner would pay $14,351.
A modernized health plan: Supporting cost management and the employee experience.
The Surest health plan came from a group of innovators wondering: What if health care…
Learn More
NORCAL does offer some discounts for participation in risk-management programs and, for large groups, for low claims experience, but the average discount is just 7.3 percent, down from 19.1 percent in 2001, according to Robert A. Anderson, director of the Rhode Island Medical Society Insurance Brokerage.
The society didn’t dispute NORCAL’s justification for raising its rates, but RIMS President Fredric V. Christian did speak out at the hearing, saying the hikes, “which compound and compound again,” are “unsustainable and are destroying the infrastructure that Rhode Islanders depend upon for their health care.”
Liability expenses are making it hard to recruit new doctors, Christian said, and they’re making existing practitioners cut back. A RIMS survey last winter found 41 percent of doctors had discontinued certain services or were considering doing so.
“When an obstetrician stops delivering babies and concentrates only on gynecological services, her premium goes down substantially,” he said (from $106,201 to $40,902 for next year). “When a general surgeon stops performing bariatric surgery, her premium goes down. When a radiologist stops reading mammographies, his premium goes down. All of these things have happened again and again in Rhode Island.”
“The fact of the matter is that we already have a very fragile system here in Rhode Island,” Christian said. “We have significant shortages in general surgery, neurosurgery, radiology, anesthesiology, gastroenterology, urology, endocrinology, dentistry, mental health, and other areas.” Liability expenses also drive up costs, he said, and the threat of lawsuits leads to “defensive medicine,” which he said costs “billions” each year.
NORCAL, a California-based company that last year had 1,538 Rhode Island policies on its books, says what’s driving its premiums up so fast is excessive litigation – more lawsuits but especially bigger demands, often for the full $1 million of coverage the typical doctor’s policy provides.
The vast majority of NORCAL’s lawsuits don’t result in a payout. Figures provided by Todd Manglass, claims manager for Rhode Island, show from 1994 to 2002, 73 percent of claims were closed without payment (though legal expenses alone, he said, can add up to $30,000 to $50,000 in each case). Only 153 payouts were made in those nine years – only five in 2002, 10 in 2001 – most in settlements, not for jury awards.
NORCAL wouldn’t say how much its average settlement payout is, but general counsel Philip R. Hinderberger did provide National Practitioner Data Bank statistics showing in 2001, the average payout for all malpractice insurers in Rhode Island was $406,411, the fourth-highest in the nation, and 47 percent higher than the U.S. average.
NORCAL’s Rhode Island loss ratio in 2003 was 124 percent, compared with 52 percent nationwide (its biggest market is California, a particularly low-cost state for medical malpractice due to a series of “tort reform” measures).
“Lawyers in Rhode Island are a lot more aggressive than in other states – that’s the problem,” Hinderberger said. Rhode Island also has several systemic problems that boost costs, he said, including a 12-percent prejudgment interest rate that can double jury awards in the typical case, and slow and lax state court procedures that allow plaintiffs to drag cases out for years.
And R. Kelly Sheridan, a lawyer for NORCAL in Rhode Island, said another major cost driver is the state Supreme Court’s ruling in Asermely v. Allstate making insurers liable for awards even beyond policy caps if they refused an offer to settle for an amount under the cap (that only happens if the company goes against its policyholder’s wishes and acts unreasonably or in bad faith). The Rhode Island Trial Lawyers Association, which argues that most of what NORCAL and other insurers say is untrue, had filed a motion to intervene in this year’s rate proceedings, but withdrew it after it became clear that it was acting too late. In the end, the association didn’t even testify at the hearing.
So it fell to Martin, from the attorney general’s office, to be the lone critic of NORCAL’s request. In a long, meticulously documented brief, she strongly criticized some of the company’s actuarial methods, and she took particular exception to NORCAL’s contention that the Asermely issue alone added 4 percent to costs. (NORCAL acknowledges that it’s never actually paid a claim under the Asermely rules, though Manglass contends that Asermely and the 12-percent interest rate are both used for leverage by plaintiffs’ lawyers to get higher settlements.)
In the final analysis, Martin found NORCAL’s figures justified a 24.5-percent rate hike. The company had contended that 49.5 percent would cover cost increases, but it hadn’t sought that amount. All it sought was a 17.5-percent hike in physicians’ premiums, and a 43.6-percent hike in its “entity” charge (a surcharge for medical practices or clinics as a whole) that would produce, altogether, a 19-percent hike.
