10-11-05 - LIABILITY UPDATE - "Without malpractice reforms, docs will keep fleeing," more

3...Pennsylvania Law Weekly
Pennsylvania Medical Malpractice Measures Cut Med Mal Costs 5% to 8%: Study
9/19/05

((I wasn't susprised that this particular "take" on the current situation appeared in a trade publication for lawyers....I am, however, a bit surprised at the shoddy analysis....Note that the headline touts a reduction in Med Mal COSTS - then try to find anything which says that in the article....I know I couldn't find it...))

A study commissioned by the Pennsylvania Insurance Department estimates that the MCARE Act and other reform measures have yielded a 5 to 8 percent reduction in medical malpractice costs in the state. ((Can anyone point to the "reductions?" Are they in premiums? Nope, they're either up or holding, following several years of double-digit increases, in the case of PMSLIC. Are they in payouts? Nope, they were up last year, too. Are they in the number of doctors sued, which would suggest lower defense costs? Nope, that's up 50%.....so where are these phantom "savings?"))

But in July Pennsylvania Insurance Commissioner M. Diane Koken opted to hold off a planned step-up in the primary malpractice insurance limit that would have required doctors to obtain $750,000 in primary coverage on the private insurance market.

Koken concluded that multiple marketplace factors showed a lack of sufficient capacity for such additional coverage.

The Medical Care Availability and Reduction of Error Act contemplates a 50 percent step-up in the basic malpractice insurance limit in 2006 from $500,000 to $750,000, subject to a study of market capacity. The MCARE Fund component would then drop from $500,000 to $250,000.

Koken based her decision to delay the step-up on an impact study performed by the accounting firm PricewaterhouseCoopers Philadelphia office.

That study, dated June 30, considered the impact of the MCARE Act, as well as such medical malpractice reform measures as the 180-day rule, the continuing course of treatment doctrine, venue reform, certificate of merit requirements, and the joint and several liability overhaul (which is facing a constitutional challenge).

The study emphasized that "the full impact of these measures will not be seen for several years," and that claims experience after these measures went into effect "is too immature to reach definitive conclusions regarding claims severity."

Still, the study said, noting statistics from the Administrative Office of Pennsylvania Courts released earlier this year, there appears to be a reduced frequency in claims after the MCARE Act and these other measures were enacted in 2002 and 2003. ((Fewer CASES, perhaps, but more doctors sued....are the people who oppose further reforms - and the majority of the press - missing this distinction ON PURPOSE?))

Venue reform, the certificate of meritrule and a reduction in mandatory medical malpractice coverage from $1.2 million to $1 million accounted for the bulk of the estimated savings.

"Although it is tooearly to project a savings on the indemnity component of the loss cost, we believe a degree of savings on defense costs can reasonably be expected," the study said. ((Not when the number of doctors sued has gone up from 2,100 in fiscal year 2003 -04 to 3,016 in fiscal year 2004-05, a 50% increase....))

Harrisburg politicians were pleased with the suggestion in the study that the MCARE Act and other related measures are working. ((Only politicians who've opposed reforms in the past due to their ties to the trial bar....the ones who continue to support additional reforms, like caps on awards, know the truth and aren't buying this drivel....))

"If you look at this study, even though it is preliminary, you can see evidence that naysayers are really incorrect, that medical malpractice premiums are really going down," said state Sen. Michael J. Stack, D-Philadelphia, the Democratic chairman of the Senate Banking and Insurance Committee. ((I think that every physician in Sen. Stack's district should write to him and tell him just how much their premiums have "gone down" this year....oh, WAIT, premiums HAVEN'T gone down, nor did this study make that claim....so please write to him and tell him how much your premiums have GONE UP....remind him how much they've gone up in recent years, too, starting in about 2000....send him copies of your bills, while you're at it....))

He said that when the General Assembly convenes in the fall, medical malpractice reform will still be on the agenda because it is such a hot button issue right now. But Stack has endorsed a "wait-and-see" approach to further malpractice reform, instead preferring that the Legislature focus on implementing existing reforms.

Sen. Stewart J. Greenleaf, R-Montgomery, the Senate Judiciary Committee chairman, agreed that implementation of existing reforms is vital but didn't back Stack's wait-and-see approach. ((Just a reminder - Sen. Greenleaf is the Senator who wouldn't let the caps bill out of the judiciary committee so the Senate, the vast majority of which supported the bill, could vote on it after House passage. He and Rep. Dennis O'Brien, who mirrored Greenleaf's actions in the House, are the ones we have to "thank" for making certain that Pennsylvania's voters don't have an opportunity to vote on a caps amendment, like the voters in Texas did two years ago, and like the voters in Washington state have an opportunity to do this fall. I think we all need to remember that, so we can "thank" them at the ballot box next year when they're up for releection....))

"There are at least 30 changes in the law that have been made to reform medical malpractice, but I don't rule out other changes; they just have to prove to be meritorious," Greenleaf said.

"Most of these reforms take years to have a full impact," he added. ((Hasn't taken years in Texas, where premiums have just been reduced for the third year in a row....))

Stephen A. Cozen, an insurance attorney and partner with Cozen O'Connor in Philadelphia, was more reserved in his take on the study.

"I think we can say MCARE is working better than what we have experienced in the past, but I can't say MCARE is working," Cozen said. "I think that's premature."

He said there is more to be done in Harrisburg in the area of medical malpractice reform.

"I think if we have some combination of reforms wherebywe have compulsory arbitration of medical malpractice cases, except in some very few carved out areas, with a right to a de novo appeal, and we set up a system of med malcourts throughout the state, we'll go a long way in stabilizing the system, while still giving people all the rights they need," Cozen said.

Samuel R. Marshall, president of the Insurance Federation of Pennsylvania, also said more time is needed to draw any conclusions about medical malpractice reform.

"From an insurance company's perspective, you always look to say does it make the pricing of malpractice risk more predictable and more stable," Marshall said.

Current malpractice reforms may be helping that situation, he said, "but it's too soon to say how much and too soon to say how much more you need to do to make a more significant dent into making medical malpractice coverage more available and more affordable." ((The MCARE Act was passed in 2002, yet two years later, in 2004, payouts were UP 13.5% and the number of doctors sued has exploded....))

Department Findings

In findings made public on July 8, Koken cited several reasons for her decision to hold off on the step-up in the basic malpractice insurance limit. Chief among her findings was the use of risk retention groups and the Joint Underwriters Association by about a third of the top 20 medical malpractice insurers in the state.

In 1999, Koken said in her findings, RRGs and the JUA wrote a combined share of 3 percent of all plans among the top 20, while in 2004, they accounted for 33 percent.

"When alternative markets grow materially, it is clear that the traditional commercial market is either not interested or is unable to write the business, and that must be an element in any evaluation of the capacity," Koken wrote.

Marshall said the carriers now issuing medical malpractice coverage could have handled the increase in the primary limit for existing business, but probably would not have taken on any new business.

"It would have been at a cost," he said.

The PricewaterhouseCoopers study estimated primary insurance costs would have jumped by 19 percent if the limit were increased. Such concerns prompted the Hospital and Healthsystem Association of Pennsylvania to send a letter to Koken in June urging the department to delay the step-up.

Among other concerns, the association cited the prevalence of RRGs and self-insurance as a reason for caution.

"About nine of every ten hospitals now report they are covered under such arrangements, and about 57 percent of the hospitals have had to extend coverage under these arrangements to members of their medical staffs to provide coverage and maintain vital medical services to their communities," the letter stated. "This is the result of a lack of capacity in the commercial insurance market."

Cozen, who supported Koken's decision to delay the step-up, said that RRGs are not necessarily a cause for concern, but they are "something to watch."

"Risk retention groups have been around for a long time," he said. "If they are run efficiently and properly, they can do a good job for their constituents."

Cozen said there is still a question as to what power the insurance commissioner has to regulate RRGs, whose members are not protected by the state guaranty fund. ((There's the rub with RRG's - if they go belly-up, the doctor has NO COVERAGE and no backup plan....))

Also in her findings, Koken cited the increase in excess and surplus lines insurers from 5 percent in 1999 to 11 percent in 2004 as another reason for holding off on the step-up in basic malpractice limits.

"Since E&S insurers typically provide a market for difficult-to-insure risks, changes in the E&S market share may also be indicative of changes in the willingness of the traditional insurance market to insure certain risks," Koken wrote.

The market share of Pennsylvania-only insurers also increased - from roughly 32 percent to 62 percent between 1999 and 2004. The biggest source of this increase came in the RRG and JUA market share, Koken said.

Koken also noted that Pennsylvania has had higher combined ratios in recent years (with the exception of 2004) than the national average and other large and regional states. This "implies a potential lack of desire for non-PA-only companies to increase business here," she explained. ((Why would any company in its right MIND want to increase business here?))

The ratio of adjusted capital to authorized control level risk-based capital for Pennsylvania-only insurers is also lower than the national average, Koken found. This ratio is used as a measure of the sufficiency of a company's surplus.

Koken also noted, among other findings, that the state's medical malpractice insurance market is less profitable in comparison to other large and regional states, "which would likely impact an insurer's willingness to commit surplus to new or expanded medical malpractice coverage." ((No kidding....))

Koken concluded that the department's and PricewaterhouseCoopers' reviews of insurance capacity "illustrates that, while there have been improvements in the marketplace from a capacity standpoint since the passage of Act 13 (the MCARE Act), the available information does not allow a finding of sufficient additional capacity to allow a step-up in the basic insurance limit at this juncture. To the contrary, because of the relatively new entries into the Pennsylvania market and the volatility of the financial results appurtenant to this market, additional seasoning is required. As contemplated by Act 13, an additional two years to study developing marketplace trends, RRG stability, and the positive effects of Act 13 in general should enable the Department to determine whether a step-up in the basic insurance limit is appropriate."

Court Statistics

In April, the Administrative Office of Pennsylvania Courts reported that the number of medical malpractice lawsuits filed in Pennsylvania in 2004 was 34 percent less than what was filed in the state prior to the reforms passed in 2002 and 2003.

Plaintiffs filed 1,815 lawsuits in Pennsylvania during 2004 - a 34percent decline from the annual average number of suits filed from 2000 to the end of 2002. The number of cases filed in 2003 was 1,712, or a 37.8 percent decline over the three-year period from 2000 to 2002. ((Sigh....once again: in fiscal year 2002-03 - 2,800 physicians were sued; in fiscal year 2003-04 - 2,100 physicians were sued; in fiscal year 2004-05 - 3,016 physicians were sued. Yes, I realize that we're comparing calendar years to fiscal years, but it's obvious that, even while lawyers are filing fewer suits, they're naming more doctors in those suits, in the hope of multiple collections and awards....))

PricewaterhouseCoopers, examining these figures, observed that an increased level in medical malpractice suits filed in 2002 was due to a rush among litigants to file claims before many of the reform measures went into effect. Consequently, 2003 numbers "may be artificially low," the report said. ((Yup - we've said that before....))

Nonetheless, the study found, "the extent of the decrease in 2003 and 2004 relative to prior years does indicate some level of reduced claim activity in the most recent years. The number of cases filed in 2004 is roughly 35% lower than the number of cases filed in 2001 and 2002." ((See above - how can a distinguished firm like PricewaterhouseCoopers ignore the state medical board's data? Or was it deliberately not provided to them?))

While reforms may be reducing the number of suits filed, the study observed that it is still too early to draw any conclusions regarding whether this will result in a reduction in total medical malpracticecosts. ((Wait a minute. Isn't the TITLE of this article is: "Pennsylvania Medical Malpractice Measures Cut Med Mal Costs 5% to 8%: Study"? Wonder who wrote the headline....))

For one, the new measures may just be reducing the number of meritless case filings, which will not necessarily lead to a decrease in total payout costs.

The study also noted that venue reform may move higher-valued cases from one county court to another without actually yielding any reduced amount in verdicts or settlements. The actual process of moving lawsuits from one county to another may also have slowed the disposition of those claims, the study found.

Finally, the study observed that several responding insurers indicated that a February change to the certificate of merit rule - clarifying how plaintiffs should file certificates when a claim is based on allegations that an entity or hospital is responsible for the negligence of its professional employees or agents - may diminish the rule's effectiveness.

"Based on these observations," the study concluded, "it does seem reasonable to expect a reduced number of claims in a post-Act 13 environment; however, it is too early to project a savings on the indemnity component of loss cost. We do believe it is reasonable at this time to expect a degree of savings on defense costs." ((Not when the number of docs sued is up 50%...))

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10-11-05 - LIABILITY UPDATE - "Without malpractice reforms, docs will keep fleeing," more - 2