Medical malpractice premiums: What's behind the rise in price?

4/11/2005

COLUMBUS - For Dr. Jonathan Diller and the 30 to 50 babies a year he used to deliver, Ohio's medical malpractice insurance crisis is real.

The 51-year-old Fremont family practitioner gave up delivering babies two years ago after his annual malpractice premiums crossed the $40,000 mark. He has no plans to resume the procedure.

"The rates have gone up significantly since 1999 and 2000, when I was paying $15,000 a year," he said. "When it went up to $42,000 for a family doctor, I decided I couldn't afford it."

There are no family physicians left in Sandusky County who still deliver babies, he said.

Today marks the two-year anniversary of the effective date of Ohio's controversial law capping what plaintiffs may collect for pain, suffering, and other noneconomic damages in malpractice cases. But debate continues over what has driven the skyrocketing premiums doctors have to pay to stay in business.

Whether because of outrageous jury verdicts, greedy insurance companies, sloppy medicine, frivolous lawsuits, investment losses, medical-cost inflation, or all of the above, the average base malpractice premium for a doctor in Ohio climbed 200 percent since 2000.

The Ohio Medical Malpractice Commission - with 10 members representing doctors, hospitals, lawyers, and the insurance industry - is preparing its final report to Gov. Bob Taft and the General Assembly. It is expected to say doctors continue to flee the state, give up riskier procedures, or at least think about it because of higher premiums.

A majority on the commission appears to believe enactment of medical tort reform law has had some calming influence on the malpractice insurance market, though insurers have said it's too soon to take it into consideration when setting rates. A challenge has yet to work its way up to the Ohio Supreme Court.

"Some would argue that it's just the insurance cycle, but it would appear tort reform has at least stabilized the actuarial market," said Dr. William Kose, a panel member, a doctor with a law degree, and vice president of medical affairs at Blanchard Valley Hospital in Findlay.

The malpractice law caps noneconomic damages at $1 million in catastrophic cases, such as those involving loss of limb or permanent disfigurement, and $500,000 in less severe cases. The law does not limit what plaintiffs may collect for lost wages, medical bills, and other out-of-pocket expenses.

A recent department survey suggested 40 percent of responding Ohio doctors have at least considered leaving Ohio because of malpractice premiums. Of the 8,000 sent the survey, 1,359, or 17 percent, responded, a rate the department says represents the broadest survey to date in Ohio on the subject.

Despite the survey results, yet-to-be-published data from the State Medical Board of Ohio shows that the number of physicians licensed to practice in the state increased at its greatest pace in five years last year.

The state had 38,742 medical and osteopathic doctors with active licenses in 2004, up 401, or 1 percent, over 2003. The number of active licenses has increased 9 percent since 1997. The board stresses, however, that the sheer numbers do not indicate whether those doctors are still actively practicing here or whether they've given up performing some procedures.

"There are no perfect statistics on whether doctors are leaving or coming to Ohio," said Toledo trial lawyer Steve Collier, a commission member. "But that [medical board] statistic is better than a survey conducted by the Department of Insurance with a 17 percent response rate.

"That means that 83 percent of those doctors to whom the survey was sent in a crisis situation didn't even respond to it," he said. "That suggests to me that it was skewed toward those who are more emotional and angry about the subject."

Mr. Collier has argued that the commission has relied heavily on anecdotal information and seemed preordained to reach a conclusion retroactively supporting the General Assembly's passage of medical tort reform. He said the commission has done too little to address medical error and negligence and has not heard testimony from a single victim of malpractice.

A recent University of Texas law school study of jury verdicts, settlements, and litigation costs in that state also challenges insurance company claims that lawsuits are the primary driver of premium increases. The study examined medical malpractice data between 1998 and 2003 that insurance companies there have been required to submit to the state for more than a decade. Responding to rising premiums, Texas, like Ohio, enacted damage caps in 2003.

"The study looked at the claim frequency and pay-outs on claims, settlements, and total costs, including defense costs and jury verdicts," said Charles Silver, law professor and one of the study's authors. "We found that when you adjust for inflation, which you have to do, the average payment on claims and the median claim have not changed at all.

"We were looking at whether any change in the tort system could be responsible for such a huge increase [in premiums] in a short period of time," he said. "Defense costs could not be responsible for that. Certainly they would help to drive up insurance rates to some degree, but we found that defense costs went up about 4.4 percent a year. There were no spikes."

Ohio has only recently begun collecting meaningful data on malpractice litigation. By law, the data will remain confidential and will be released only in the aggregate by the department. The state of Washington recently went beyond that, ordering insurers to submit data dating back five years so it could immediately conduct its own study.

The Ohio commission's legislated mission will end with the issuance of the final report in late April. But Dr. Kose said he believes a new commission should be formed for a definitive study after several years of collecting useful data.

The Ohio commission's report is expected to indicate that the malpractice insurance market is showing signs of stabilizing.

To date, two of Ohio's five largest malpractice insurers have submitted rate hikes averaging less than 12 percent. Insurance Director Ann Womer Benjamin said she expects the average rise for all companies this year to be about 10 percent. Some companies have even started lowering rates in some regions of the state and for some specialties.

"I don't think you can point at the rates and say, 'Aha! Tort reform was the answer,' " said Ms. Womer Benjamin. "There hasn't been case experience to reflect that. But the perspective at the department is that tort reform certainly made companies more willing to tough it out in Ohio."

In testimony before the panel, she pointed to the entry of two new policy writers into the Ohio malpractice insurance market - OHA Insurance Solutions Inc. and Health Underwriters Group - as encouraging signs the market is turning around. But both companies said they entered the market because the state remains in crisis, not because they felt it was abating. And malpractice reform won't become a factor, they said, until the state Supreme Court definitively decides its constitutionality.

"This is cyclical," said Steven Salman, president and chief executive officer of Florida-based Global Insurance Management Co. and Healthcare Underwriters Group companies in Ohio and Kentucky. "It's a great time to be a contrarian if you understand the business," he said. "The exact reasons that others were leaving the state are the exact reasons we wanted to enter the market. It doesn't mean the crisis isn't turning. It will turn."

He said the company liked the idea of starting fresh in Ohio when medical malpractice premiums are at a peak without having to make up for losses like those suffered by firms already here.

OHA Insurance Solutions, an outgrowth of the Ohio Hospital Association, entered because it wanted to inject competition and stability into the volatile market.

"The primary motive was to help bring capacity into the marketplace for both hospitals and physicians, and it would have been done even if tort reform had not taken place," said Susan Stanfield, president and CEO of OHA Insurance Solutions. "But we support anything that would bring predictability and stability."

Mr. Salman said he also expects that the law eventually will have an impact.

"Tort reform in Ohio has been passed numerous times," he said. "It's been thrown out numerous times. If it's upheld, it will have a major impact."

But Ms. Womer Benjamin said: "They weren't clamoring to come in before tort reform. I'm sure they've taken it into consideration. They know that Ohio has paid attention, that legislators are engaged in the problem, and that is encouraging."

Despite rising premiums, Dr. Diller, a product of Medical College of Ohio at Toledo, said he has no intention of taking down his shingle and leaving the state as the department's survey suggests 40 percent of his colleagues are thinking of doing.

"I can't retire," he said. "I truly enjoy practicing medicine. It's mentally challenging every day. I'm in the minority."

Contact Jim Provance at: jprovance@theblade.com or 614-221-0496.