American College of Physicians: Internal Medicine — Doctors for Adults ®

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As the malpractice crisis enters year two, doctors and insurers flee some markets

From the April ACP-ASIM Observer, copyright 2002 by the American College of Physicians-American Society of Internal Medicine.

By Phyllis Maguire

Do you dare to 'go bare'?
Why are premiums so high?

A general internist in Miami Beach can't find surgeons willing to put central venous pressure lines in hospitalized patients. A primary care physician in West Virginia routinely sends patients out of state for cardiology consults. The only trauma center in Las Vegas announces a month in advance the days it will divert patients, while staff physicians at a Pennsylvania academic center may soon face an across-the-board 10% salary cut.

What do these seemingly unconnected problems have in common? They are all caused by a growing liability insurance crisis that has physicians across the country struggling with rising premiums and non-renewals. Those trends now threaten to cripple physicians' financial health and referral patterns, as well as patients' access to care.

In many states, physicians are entering year two of double-digit premium hikes. For them, the crisis is largely financial, compounding their problems as other costs rise and Medicare payments go down.

In some areas, however, the problem goes much deeper as malpractice carriers flee the state or go out of business. Analysts in these states say they are seeing the worst availability crisis since the 1970s—and warn that physicians in other states may soon face the same problems before the crisis is over.

Troubling symptoms

Last year, physicians in dozens of states reported malpractice premium sticker shock. This year, average internal medicine rates nationwide rose even faster—by 22%—according to the Chicago-based trade publication Medical Liability Monitor.

But the national average doesn't begin to reflect what is happening in some parts of the country, particularly in states with no tort reform measures in place. Texas internists, for example, face hikes this year ranging from 40% to 57%, while physicians in Pennsylvania are paying 46% to 81% more than in 2001. In states with mounting premiums, rate increases in metropolitan areas—like Philadelphia and Detroit—are particularly acute.

Physicians in Pennsylvania, as well as in Nevada and West Virginia, face an even bigger problem: As the number of insurers writing policies dwindles and those remaining in the market become much more selective about who they'll insure, physicians are afraid they won't be able to get any kind of affordable coverage.

What's behind the cost and availability problems? Analysts point to the same troubling conditions that have existed for several years: the growing severity of malpractice awards and settlements. (See the online-only story, "Why are premiums so high?".

Spikes in awards and settlements have caused insurance company losses, leading some carriers to go bankrupt or to pull out of markets where they'd expanded. Some, like St. Paul Cos., have simply stopped writing medical malpractice policies altogether. The nation's second largest malpractice carrier, St. Paul, decided last December to get out of the medical liability business, citing $1 billion in losses. That decision left 42,000 physicians scrambling for new coverage.

Physicians looking for a new insurer can no longer expect the kind of welcome they got in the 1990s, when companies kept premiums low and took all comers. Physicians who settled claims in the past to save defense time and money are now unable to renew, and are getting bumped to much more expensive insurers of last resort.

Even physicians who never paid or settled a claim may find themselves shut out of the commercial market in some states. The five-physician group Health Associates of South Philadelphia, for instance, has already been told its policy won't be renewed in September. Internist Eileen K. Carpenter, ACP-ASIM Member, said the carrier claims it no longer wants to insure small groups.

After seeing their premiums double last year from $10,000 to $20,000 per physician, she said she is worried that by September, the group's only option may be the Joint Underwriting Association (JUA), the state's insurer of last resort.

"At JUA, you pay two or three times the going commercial rate," Dr. Carpenter said. "Those rates are basically meant for people who shouldn't be practicing in the first place, but more and more physicians here have no other recourse."

Even physicians who can renew policies are losing discounts for claim-free histories. And for the first time, some insurers are refusing to cover physicians who perform certain procedures.

In Oregon, for example, commercial carriers won't insure physicians doing prolotherapy or chelation therapy. Analysts say that trend may hamper physicians' ability to adopt new procedures or pursue research protocols.

And in several states, some high-risk specialists whose premiums have soared to $200,000 a year say they can no longer afford to practice, threatening access for physicians and patients.

Larry Lehrner, FACP, a Las Vegas nephrologist and former Governor for the College's Nevada Chapter, has been rushing to make new referrals among the city's shrinking pool of vascular surgeons. The four-surgeon practice he and his colleagues at Nephrology and Endocrine Associates relied on for peritoneal catheters in dialysis patients closed shop two months ago because of skyrocketing premiums.

In West Virginia, general internist John D. Holloway, FACP, has already seen surgical subspecialists disappear. (Both trauma centers in Wheeling, where Dr. Holloway practices, have closed because specialists couldn't afford premiums.) Now, cardiologists and gastroenterologists are becoming so scarce and overbooked that Dr. Holloway routinely sends patients to Pittsburgh or Cleveland.

"I can beg fellow physicians only so long, then I have to send patients away," he explained. "You can't just call and make an appointment. Specialists now do triage: They want to look at test results and office notes before they'll agree to see a patient."

And, physicians warn, the specialist squeeze is far worse than just an inconvenience: The longer patients have to wait for referrals, the more primary care physicians are at risk for failure-to-diagnose or treatment errors.

Coping strategies

How are physicians adapting? In areas where specialist access isn't restricted, defensive medicine is rampant and driving up costs, said solo general internist Cornel J. Lupu, FACP, who practices in southern Florida, another liability hot spot.

"When I started practicing, I used to get consults when I didn't know something," said Dr. Lupu, whose premiums rose 30% this year. "Now, I get consults even when I know exactly what's going on. I don't want to take any responsibility on my shoulders alone."

Some doctors are resorting to risky cost-saving measures: One of Dr. Lupu's colleagues, a general internist who asked not to be named, bought a claims-made policy this year without the $20,000 tail coverage. While the tail would give him protection down the road, he felt he couldn't afford it.

"It's always at the back of my mind," that physician said. "Now I make many more notes, which takes a lot more time."

In some states, internists are even eyeing a tactic that Florida neurosurgeons have used for years: "going bare." The drastic measure calls for physicians to practice without insurance and be ready to declare bankruptcy in the event of a large judgment against them. (For more information, see "Do you dare to 'go bare?'")

Institutions are throwing together temporary fixes. In Pennsylvania, hospitals coughed up cash at the beginning of the year to help orthopedists and emergency physicians pay their premiums and keep emergency rooms open. In Las Vegas, the city's only trauma center and county facility is hiring its trauma surgeons as part-time employees to ease their premium burden and avoid diversions. (As government employees, they'll be protected by the $50,000 liability cap that only the state government enjoys.)

In West Virginia, the state decided to let private physicians who can't get commercial insurance use the state insurance board pool, which covers all state and local government employees, as well as physicians in West Virginia's medical schools.

The legislature also approved seed money to start a physician-owned insurance company, a possibility the state medical society is now exploring. (At press time, that idea was on the fast track in Nevada as well.) Because West Virginia has only one large and one small malpractice carrier, however, physicians aren't optimistic about the long-term feasibility of either a new physician-owned carrier or the state pool.

"If commercial carriers can't make any money here, how can physicians or the state run a successful insurance company?" Wheeling internist Dr. Holloway asked.

Ironically, he added, a struggling state-run underwriter may prove to be the fastest route to effective tort reform. "If the state ends up millions of dollars in the red," he pointed out, "legislators might see that they need to make some changes." (Seven physicians in the state are positioning themselves to do just that, by running this year for seats in the state legislature.)

But some analysts point out that shifting coverage to state insurers will hardly bring physicians premium relief. New state-run insurance programs may just provide "a new and very attractive pocket to sue," said Richard E. Anderson, MD, a medical oncologist and chairman of The Doctors Company, a national physician-owned insurer. "Everybody thinks that a state is an infinite well of impersonal money." (The Doctors Company offers premium discounts to College members. For more information, call the company at 1-800-352-0320.)

Tort reform: the only real solution?

In fact, state mechanisms to fund malpractice insurance "become a serious distraction," Dr. Anderson continued. "States pat themselves on the back and think they've solved a crisis, when all they've done is perpetuate a bad system."

And although physician-owned insurers have flourished in the past, they often rode in on the heels of tort reform. Without significant reform, Dr. Anderson predicted, it will be impossible to get new physician coverage off the ground.

Representatives from the trade group Physician Insurers Association of America agree, saying that group members support national reform efforts. Even when tort reform measures pass in state legislatures, they point out, state courts often rule them to be unconstitutional, throwing physicians back to square one. Tort nullifications have taken place in Illinois, Ohio, Oregon, Pennsylvania and Washington.

This year, ACP-ASIM, the AMA, other specialty societies and several key state medical societies have formed a steering committee to coordinate national and state liability reform efforts. While the forum helps groups share strategies, Robert B. Doherty, the College's Senior Vice President for Governmental Affairs and Public Policy, gave a blunt assessment of the situation. "On a federal level," he said, "we simply don't have the critical mass needed for meaningful reform."

That's why the most targeted efforts, Mr. Doherty explained, have to take place at the state level. Organized medicine in Ohio, for instance, "is going more for court reform than tort reform," he said, with state medical groups trying to elect more sympathetic judges.

In Pennsylvania, physicians and hospitals advocating tort reform have faced a bitter battle with the state's powerful trial lawyer lobby. The state House and Senate are working on compromise legislation that should give physicians some premium relief over the next several years. But without caps on noneconomic damages, medical groups fear the measures will do nothing to shore up a rapidly deteriorating market or the state's three very strained carriers.

Organized medicine in Oregon and Florida is considering another already traveled route: trying to pass a constitutional amendment to cap pain and suffering awards. But similar referendums were soundly defeated in both states within the past few years, and a renewed push in each state would cost medical groups at least $15 million.

"We didn't get tort reform in the 1980s until Little League Baseball and city parks shut down," explained Thomas J. Curry, chief executive officer of the Washington State Medical Association, who said that physicians there are down to less than a handful of carriers. "In this decade, we won't get this fixed until the middle class can't see a doctor."


Do you dare to 'go bare'?

It's not a strategy for the faint of heart, and it has troubling implications for patients who are legitimately injured. But going bare—not carrying malpractice insurance—is a tactic that Florida's highest-risk specialists have used for years. In the current premium crisis, even internists are being tempted.

In Florida's last liability crisis in the mid-80s, the legislature passed a statute allowing physicians with hospital privileges to forgo coverage as long as they could pay a $250,000 judgment within 60 days. (The level of responsibility for physicians who don't admit is $100,000.)

Florida is highly unusual in extending that exemption to physicians with hospital privileges. The state is even more unique in that hospitals and HMOs have quietly stopped requiring insurance coverage for neurosurgeons, orthopedists and obstetricians. In some parts of the state, virtually all neurosurgeons are not covered.

One of them is Amos W. Stoll, MD, a neurosurgeon in Ft. Lauderdale. He first went bare in 1987, when a $250,000 annual policy would have cost him $100,000. (That same policy today, he said, would cost between $140,000 and $200,000.)

"Since then, I've spent a fair amount out of pocket on defense costs and made two settlements," Dr. Stoll said. "But I've still saved a lot over what I would have paid in premiums."

The catch, if he gets hit with a sizeable judgment, is that "I'd have to go bankrupt," Dr. Stoll explained. "The strategy is simple and quite effective: The plaintiff doesn't seek more than you're willing to settle for because he knows he won't get it under the state's bankruptcy provisions."

With the nation's most liberal asset protection laws, Florida allows you to keep a house, a pension fund, life insurance policies and annuities—all with unlimited value—safe from creditors in bankruptcy proceedings.

The risky strategy is not right for everyone. Sandeep Jain, MD, a Ft. Lauderdale pulmonologist, for example, said he isn't ready to go without insurance. He can still afford his premiums, he said, although they doubled this year to $30,000. And "going bare doesn't help patients as much as being insured does," he explained.

Marc Singer, a financial planner with Singer Xenos Wealth Management in Coral Gables and one of the architects of the strategy, agreed with that assessment. "We have a lose-lose situation here," he said. In the event of a judgment against a physician who has no insurance or assets, he confirmed, an injured patient may collect nothing.

"Is that fair to a patient, especially if the doctor has truly been at fault? Absolutely not," he said. "But it's also not fair for a physician who may have saved thousands of lives to have no house or retirement because he couldn't pay exorbitant premiums."

The solution is not to stop going bare, Mr. Singer added, but to achieve meaningful tort reform. Such legislation would make adequate coverage affordable for physicians so that patients can be protected.

While physicians like Dr. Jain may balk at the idea of going bare, most physicians in Florida are underinsured as a defense against suits. (In Florida, physicians are required to carry only $250,000 in coverage. In Pennsylvania, by contrast, physicians must be insured for $1.2 million through the state's catastrophic fund.)

The thinking behind having smaller coverage is simple: "If you carry more insurance, you become a fatter target in a lawsuit," Dr. Jain explained. "If six doctors are sued and you have the biggest policy, you're the one they'll go after."

Hospitals and managed care companies in the state are being pressured to relax coverage requirements for other specialties. In the meantime, physicians who have gone bare are keeping an eye on the federal Bankruptcy Reform Act of 2001, which would reduce many of the asset protections Florida now extends.

While the bill hasn't had any success in the last two years, "it has us worried," admitted Dr. Stoll, the bare neurosurgeon. "If it passes, it might change our whole strategy."

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Why are premiums so high?

Physicians in many parts of the country are suffering through a second year of double- or triple-digit premium hikes. At the same time, analysts warn physicians to expect several more years of annual rate increases of at least 15%.

What keeps pushing premiums up? In some parts of the country, the number of malpractice claims is outstripping population growth. According to the Las Vegas Sun, the number of complaints in Las Vegas brought before the state's medical screening board (the first step in bringing a suit) jumped 50% between 1996 and 2001, while the population grew only 33%.

Even more importantly, awards and settlements continue to rise, particularly as state courts strike down tort reform measures. The liability climate in Oregon was stable from 1987--when the legislature approved a $500,000 noneconomic damage cap--until 1999, when that cap was nullified.

"Whereas an award or settlement in excess of $1 million used to be unusual, we've had around 20 since August 1999," said James A. Kronenberg, the Oregon Medical Association's associate executive director. "For a small state, that's significant."

In many markets, physicians become the victims of a vicious business cycle. Commercial carriers expand into new markets, gaining business by offering rock-bottom rates. When they stop making money, they pull out of the market, and force physician-owned insurers to boost rates to stay solvent. Several years later, the market stabilizes and the cycle begins again.

That experience has been particularly bitter in Nevada, where a physician-owned mutual was established in the mid-1970s after commercial carriers deserted the state. In the mid-1990s, St. Paul Cos. bought the company. Then last December, St. Paul, which by that time insured 60% of Nevada's physicians, announced it was dumping its medical liability line.

"There are cycles here with some irony attached to them," said Lawrence P. Matheis, executive director of the state medical association, "but not much humor."

This year's rising premiums also reflect reinsurance losses resulting from the Sept. 11 attacks, with reinsurers raising their premiums to recapitalize. And some insurers are using premiums to help them weather stock market losses—though "not to the extent that trial lawyers tell everyone," said Lawrence E. Smarr, president of the Physician Insurers Association of America, a trade association of physician-owned insurers. "It has not been a catastrophic mismanagement scenario, as trial lawyers say."

Physician-owned companies invest primarily in bonds, Mr. Smarr explained, with only 13% of their assets in stocks. Insurers have, however, seen interest income decline over the last several years, which affects premiums.

And finally, analysts say an evolving standard of care is influencing trial outcomes, which affect rates. "At one time, the standard of care was locally determined," said Richard E. Anderson, MD, medical oncologist and chairman of The Doctors Company, a national insurer that offers premium discounts to ACP-ASIM members. "Juries understood the limitations of what could be accomplished based on a community's available equipment, services and specialists."

Now, however, physicians in rural Alaska are held to the same care standard as those practicing at the Mayo Clinic, Dr. Anderson said. Not only has the country moved to one standard, he continued, but that standard has become harder to meet.

"The national standard of care is basically perfection, and any result short of that is subject to challenge," he said. While an 80% chance may be good odds if you're betting, he added, "many patients in that 20% range think they have the basis for litigation."

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