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Why malpractice insurance costs so much and what you can do about it
Does the crunch on your cash flow go something like this? Low reimbursement rates plus the high cost of staffing and operating a medical office plus skyrocketing malpractice insurance bills equals a pinched pocketbook.
If so, you're not alone.
The fact is, thousands of physicians, unable to pay their malpractice premiums, are reconsidering how, where - and if - they will practice medicine. And there are many more patients whose access to care is severely limited in some geographic and medical specialty areas. Unfortunately for many physicians, this scenario is becoming all too common.
Take Francis Rockett, president of the Massachusetts Medical Society and a neurosurgeon. Rockett says his reimbursement for disk surgery has declined between 15 and 30 percent over a three-year period, while his operating costs have increased 11 percent. That one-two fiscal punch has forced him to drop aneurysm surgery, a high-risk - and highly profitable - procedure, so that he can afford to pay his malpractice premiums.
Henry Lerner, an OB/GYN in Newton, Mass., is just as frustrated. He says his insurance company, ever fearful of a lawsuit, suggests he seek a second opinion whenever possible before making a diagnosis. He laments: "'If you find a breast nodule, call for a surgical consult,' [they say]. It's too bad that following practice guidelines is not sufficient defense against malpractice."
And consider the case of Cayetano Barrera, a family practitioner in McAllen, Texas. Last year, Barrera, who had never been sued in more than 30 years of practice, suddenly found himself a defendant against 17 charges of allegedly prescribing Fen-Phen. Although legally he was not responsible - Barrera's partners had prescribed the dangerous diet drug combo - he was dragged into the case. As a result, his malpractice insurance premiums spiked 150 percent, he was forced to change carriers, he lost a year of practice time defending himself, and his reputation was scarred by the event. "[Now] I can't say I've never been sued. It was a shotgun allegation. I don't think the lawyers even looked at patient records," he says.
So, what's going on? It's no secret that healthcare costs - for patients and physicians - have been rising rapidly for more than a decade. But why are malpractice insurance costs spiking so high? Is this a classic case of good guys and bad guys? Physicians against insurers and lawyers? David versus Goliath?
On the surface, perhaps, but there are other, broader issues that come into play - competition within the insurance industry and legislative turmoil in a number of states, for example. The root cause of what's putting the squeeze on physicians warrants further examination. However, though the condition may seem critical, there are effective remedies physicians can take to combat their malpractice maladies.
Coverage in crisis
The numbers paint a picture of just how desperate the situation has become in some states. According to a recent survey of physicians in South Texas, conducted by the Texas Medical Association (TMA), as many as 55 percent of respondents say they are inclined to leave the Rio Grande Valley - or retire during the next 12 months - due to the high number of lawsuits.
Also in the survey, 33 percent of Texas physicians say carriers have stopped writing liability; 65 percent report they have been sued; and nearly half say their insurance costs have increased by 50 percent or more in the past three years.
As in Texas, 40 percent of physicians in West Virginia, according to a recent West Virginia State Medical Association (WVSMA) survey, are considering leaving the state or retiring early. Worse, the state's Department of Health and Human Services claims that 41 of the state's 55 counties report either a partial or total shortage of physicians.
Evan Jenkins, executive director of WVSMA in Charleston, says that the high cost of insurance is not just an affordability issue - St. Paul Companies and Medical Assurance Group, the two major carriers who hold 65 percent of the marketplace, are raising premiums 15 percent and 35 percent, respectively, for example - but also a matter of availability.
"Insurance companies have tightened up underwriting significantly, and it's not unusual for a physician with two or more claims in a specified time period to be denied coverage," he says, adding that even the best physicians can be at risk for litigation. "It's difficult to be claims-free when you are in a high-risk specialty. There isn't necessarily a correlation between the quality of a doctor and his or her claims history."
Those in the business of insuring physicians for malpractice agree that a number of factors, such as underpricing due to competition, lack of tort reform, extravagant and unrealistic verdicts, and difficulty predicting losses have all taken their toll on premium rates.
"Insurance relies on predictability - spreading risk among doctors based on how often there is a suit and the average cost of that suit, so that you can develop an appropriate rating structure. Unfortunately, there is no predictability," says Dave Golden, director of commercial lines for the National Association of Independent Insurers (NAII) in Des Plaines, Ill., one of the country's largest property and casualty trade associations. "Someone has to pay when plaintiffs are awarded large amounts."
"When we had a serious claim [in the past], we could put a dollar value on it," adds Paul Greve, vice president of The Medical Protective Company in Fort Wayne, Ind., "but not today, due to high jury verdicts and settlements. You have to look ahead and charge an adequate amount. That makes us more reluctant to guarantee a rate for future years."
Capping off caps?
Also contributing to the rise in insurance costs is the imminent end to - or complete lack of - caps on noneconomic damages. Many states look to California's Medical Injury Compensation Reform Act (MICRA) of 1975, whose $250,000 cap on noneconomic damages is at its core, as a model for tort reform that has successfully kept the state's premiums below the country's average.
The Health Care Liability Alliance (HCLA), a national advocacy group in Washington, D.C., dedicated to medical liability reform, endorses the cap and other MICRA provisions, including limits on plaintiff attorneys' fees, advance notice of a claim, and joint and several liability reform (holding defendants responsible for only their share of damages for pain and suffering).
The outlook in other states isn't as sunny. For instance, Oregon's $500,000 cap, instituted in 1987 as part of a larger reform package, was overturned in 1999; in a ballot measure in May 2000, it was soundly defeated. In essence, based on the state's constitution, the state legislature cannot pass a law that impinges on an individual's right to a jury trial of his peers or the jury's right to assess monetary damages as deemed appropriate.
This makes it impossible under state law to reduce the cost or frequency of lawsuits through traditional tort reform, according to Jim Kronenberg, associate executive director of the Oregon Medical Association in Portland. "Nothing will happen until people are affected by a lack of quality care, and then they will vote for setting a cap, maybe five years from now," Kronenberg predicts.
Pennsylvania has had its share of woes lately, too. Sarah Lawhorne, president and chief operating officer of the Pennsylvania Medical Society Liability Insurance Co. (PMSLIC), in Harrisburg, cites the state as one of the most intensely competitive in the country for medical malpractice. The result has been price-cutting, the insolvency of two large insurers (P.I.E. Mutual Insurance Co. and PIC Insurance Group) and subsequent soaring premiums to make up for prior years' low rates.
Lawhorne says that PMSLIC - owned in part by NorCal Mutual Insurance Co. in San Francisco and the Pennsylvania Medical Society (PMS) - raised its 2001 rates 10 percent over the prior year, compared to a 15 percent increase between 1999 and 2000. The result, she says, is more realistic rates. "Physicians are now paying what they should have been paying all along," Lawhorne contends.
Like most of the medical community in Pennsylvania, Lawhorne points a finger at the lack of tort reform, due to the state's activist Supreme Court, pro-claimant juries, a plethora of attorneys, and a strong union base, which rejects reform. Add a constitutional prohibition against capping pain and suffering, along with the Medical Professional Liability Catastrophic Loss, or CAT, fund, and the stage is set for out-of-sight rates and departing doctors.
One bright spot is Philadelphia-based Independence Blue Cross' decision to raise its reimbursement rates to providers to compensate for high premiums (PMS is in discussion with Aetna and Highmark Blue Cross Blue Shield for a similar deal), but it does not address careening malpractice insurance rates head on.
As in Texas and West Virginia, the unstable environment has caused limited access to certain specialties. A survey conducted by PMS of 1,000 physicians around the state found that 17 percent are cutting back on their practices to reduce risk and 56 percent anticipate retiring earlier than planned due to malpractice abuse.
Crisis management tips
Whether you're from Pennsylvania, Oregon, Texas -or anywhere in between - such horror stories are not news: They are being repeated in office after office across the country. So, what can today's physicians do to respond to, or even prevent, the rising cost of malpractice insurance? Take action, say the experts.
Following are some specific, effective solutions for thriving in this volatile environment. Find one that makes sense for your practice - and put it to work.
Satisfied patients don't sue
The best low-tech, no-cost solution is to improve patient satisfaction - the standard line of defense against malpractice claims. According to a landmark 1994 study by Howard Beckman, MD, and colleagues, 71 percent of malpractice suits were filed based on a breakdown in the physician-patient relationship. A surefire strategy to combat a communications collapse is to develop a collegial, open rapport with your patient panel.
The Bayer Institute for Health Care Communication, based in New Haven, Conn., has made a business out of fostering communication between physicians and patients. Dan O'Connell, a clinical psychologist and the Institute's Northwest regional coordinator who conducts a two-hour seminar, "Communication: A Risk Management Tool," suggests that physicians be more attentive to patient concerns and emotions by eliciting them and responding appropriately. "If you establish a sound relationship at the onset, you will avoid an inflammatory one if the patient is disappointed," O'Connell says.
Also, always ask patients for their view of the problem and how they expect to be treated. "In short, develop a collaborative approach," O'Connell emphasizes. "That opens up discussion and lets patients know you are diligent."
Finally, agree on a treatment plan, with the patients' buy-in. The Institute has also piloted a seminar on disclosing medical errors - an obvious catalyst for many malpractice suits. "If a medical error has occurred, don't run and hide; instead, talk it over with colleagues and determine why it happened," O'Connell suggests. "Be honest with patients and their families and immediately explain what went wrong. It may have been an unexpected outcome and not really a medical error. And finally, arrange for patients' care and assure them that they will not be responsible for the costs. That's what their insurance is for."
Take back control
Sometimes, however, physicians can't control their fate. No matter how diligent they are, they still get sued. But some experts believe that, rather than just sitting down and taking their licks, physicians should take back control by fighting for reform. Bruce Vanett, an orthopedist in Havertown, Pa., has been sued several times and, as a result, is curtailing high-risk procedures such as back surgery and hip replacements - and is contemplating leaving the area.
He reports that half the orthopedic surgeons in nearby Frankford and 75 percent in neighboring Scranton will no longer take trauma calls because they cannot afford the rising malpractice insurance rates. "This situation presents a threat to the way we practice medicine," he says.
For his part, Vanett is active in educating the public about the problems physicians face, explaining his position on public radio, placing ads, writing op/ed pieces, and putting posters and brochures in his office to get his message across. As much as he wishes he could let patients know his predicament, he says the message won't get through to them until there are not enough doctors available to treat the community.
Many medical societies are getting into the fight, too, by pushing their legislators into action. In West Virginia, physicians went en masse to the statehouse to ask for modest reform - alternative dispute resolution, for one - leading to a select committee to study the crisis in the state. Others have created PACs, or political action committees, to put clout behind their interests.
And in Nebraska, where the combined economic and noneconomic $1.25 million cap is facing a crisis after a judge deemed it unconstitutional last year, physicians are urged by the medical society to get involved. "Take legislators to dinner, play a round of golf - and if a member of the legislature is your patient, let your concerns be known," says Chuck Palleson, counsel for the society. "You have to watch bills as they are introduced and go to the chambers when the Health Committee meets. You can't wait for the day of the vote."
He suggests also that physicians get involved with political candidates at the grassroots level. "Serve on a campaign committee or attend a fund raiser. Legislators may be more apt to answer the door when you come knocking if you have supported them."
The Hospital & Healthsystem Association of Pennsylvania (HAP) and PMS have taken matters into their own hands by preparing a joint public statement endorsing changes to the medical liability system. Included in its recommendations are discouraging frivolous lawsuits, capping noneconomic damages, requiring periodic payment of future damages, supporting joint and several liability, permitting juries to know if losses have already been paid, and providing alternative dispute resolution methods.
It is the physicians' hope that politicians will realize the impact in terms of the state's fiscal health. "If specialty care isn't available," says Carol Rose, an anesthesiologist and president of PMS, "we will be at an economic disadvantage. It behooves the state to do something."
Alter your cash flow
Even if you are unable to control external forces - a patient's emotional state, for instance, or court decisions - you can still control internal ones. Cut costs by reducing overhead, for example. Vanett's response has been to cut staff, reduce insurance benefits for employees, and decrease salaries. Not ideal solutions, he realizes, but they have helped trim his ballooning practice budget.
Another solution is to consider boosting income by offering additional services. Oliver Rogers, a senior vice president for Phycor Inc., a practice management company in Nashville, Tenn., estimates that about 10 percent to 30 percent of total revenue for a multispecialty practice comes from ancillary services, such as wellness centers, alternative care, and executive physicals. Rogers says ancillaries don't have to be exotic offerings, just basic lab tests that can generate income.
He also cautions physicians to pay attention to details, "so you know what you are paying for" - hire a competent individual who understands coding and payer guidelines to handle claims, for example.
Fran Lavallette with Healthcare Facilitators in Ocoee, Fla., agrees that physicians should really be focusing on generating revenue, rather than cutting costs. Lavallette suggests hiring a medical assistant to greet patients and take them to the exam room. This will allow the physician to have "more quality time with patients and to see more people."
Scale back your practice
Despite their best efforts to increase income or trim budget excesses, in some cases it may be safer (and cheaper) for physicians to modify the scope of their practices. Andre C. Blanzaco, an OB/GYN in Philadelphia, gave up obstetrics last December when rising premiums made it financially unfeasible for him to manage both sides of the practice. It is something he will sorely miss after 37 years of delivering babies. "When there is a bad outcome, patients and lawyers look for someone to blame," he says.
He recalls one long-time patient who decided to sue because, as she admitted, "'It was a way to make money.' That's the mindset of people and their lawyers."
Blanzaco isn't the only one shortening his specialty title. The American College of Obstetrics and Gynecologists (ACOG) recently conducted a survey of 3,500 of its members in New York. One in three said they would stop delivering babies if the state's Excess Medical Malpractice Insurance Program, which provides physicians with state-funded excess protection of $3 million per occurrence and $6 million per year (doubling their basic premium), comes to an end.
Meanwhile, the same number of respondents said they have already stopped practicing obstetrics due to liability and the fear of litigation. As many as 83 percent reported that they have been sued one to four times, while 14 percent said they were sued five or more times. ACOG is part of a statewide coalition lobbying for tort reform.
Ken Jones, counsel for PMS, says this situation is somewhat ironic: "Obviously, cutting back on practices may mean there are not enough doctors to deliver babies or perform orthopedic surgery. That may just push the legislature to pass serious tort reform -although it could be too late."
Pack up your troubles
An extreme solution - though not unheard of - might be to leave your area for greener pastures. But beware. In an effort to get out from under the weight of his state's hefty malpractice burden, Scott Beattie, an OB/GYN in Wheeling, W.Va., accepted an ideal job at a 90-physician multispecialty practice in Nashua, N.H., last May.
Unfortunately, he changed insurers when his original one was downgraded, and the new insurer would not give him prior acts coverage. This cost him $115,000 for rework of his "tail" - the insurance needed to cover claims for a malpractice suit filed four years hence, but allegedly occurring in the current year. After having already accepted a pay cut of $150,000 to take the Nashua position, Beattie opted to stay in Wheeling.
Physicians are leaving other hard-hit states as well. "Philadelphia is seen as a premier medical center in the country, known for its academics and care," says PMS' Jones. "If doctors leave, we will be losing our best and brightest, which will have considerable consequences. Once we lose our status, it will be hard to get it back."
Vanett agrees that fleeing the state is causing a brain drain, but he also looks at it from a more personal viewpoint - that families are being uprooted from communities where they once flourished. He sees experienced physicians over 58 retiring early, middle-aged doctors leaving, and residents choosing not to stay, refusing to consider Pennsylvania as a place to practice.
And many who are leaving fear that, unless real reform is enacted soon, they truly won't be able to go home again.
Mari Edlin can be reached at firstname.lastname@example.org.
This article originally appeared in the September/October 2001 issue of Physicians Practice.