Rising Malpractice Premiums Threaten Neurologists’ Practices

Neurologists, neurosurgeons, and other physicians are feeling a squeeze, and it isn't the magical shrinking belts that follow holiday feasting. It is rising medical liability premiums. Some doctors are leaving states where escalating liability rates are making it harder to keep a practice open. In early November, no one was performing brain surgery in southern Illinois because the last holdout, B. Theo Mellion, MD, of Carbondale, left when his malpractice insurance carrier refused to renew his coverage and those carriers willing to provide coverage were quoting annual premiums of $200,000 to $300,000.1 A similar situation erupted at the University of Nevada Medical Center, which in 2002 had to close its Las Vegas trauma center for 10 days because its surgeons quit to protest premiums that had rocketed from $40,000 to $200,000. The center reopened only when a few returned temporarily as county employees, a strategy that capped their liability.2 For neurologists, mean annual premiums rose nationally from $10,200 in 2001 to $13,800 in 2002, then to $17,000 in 2003--increases of 35% and 23%, respectively. 3 Neurosurgeons' rates jumped from $55,500 to $84,100 in the same period and soared to more than $300,000 in some states.4 Of neurologists who responded to a survey by the American Academy of Neurology (AAN), between 55% and 90% reported that their decisions to reduce or close their practices, retire, or refer complex cases were at least partly due to liability pressures. "When I started my practice 20 years ago, neurology was considered a low-risk specialty, and my premium was about $1200 a year," said Bill Subramaniam, MD, who is in private practice in Richmond, Va. "Last year it was $15,000, including all possible discounts. It tripled in 3 years." Nationally, malpractice awards have risen dramatically. The median nearly doubled between 1997 and 2003, increasing from $157,000 to $300,000. Even from 1997 to 2002, the average award increased by $83,593.5 Although winning lawsuits can lead to big payoffs for plaintiffs, most verdicts don't go their way. In 2003, 70% of cases were closed without the plaintiff collecting a dime, and of the mere 5.8% of cases that made it to a jury, the doctors won more than 85% of the time.5 Nevertheless, it costs something to defend physicians-- an average $17,408 per case dropped or dismissed, and an average $87,720 per claim when the doctor won at trial.5 While this is relatively small change where insurers are concerned, the awards aren't. Indeed, insurance companies typically claim that high malpractice awards are the engine driving rising premiums. The proposed remedy? Tort reform. MODELS OF TORT REFORM Tort reform typically refers to several provisions, including:

• Capping noneconomic damages (and sometimes total damages).
• Establishing time limits for filing a lawsuit.
• Abolishing the "collateral source rule" that prevents a defendant from showing that a plaintiff's losses or damages have been partly paid by other insurers or third parties.
• Removing or modifying "joint and several liability" so that defendants are responsible only for their portion of damages based on alleged fault.
• Allowing damages to be paid in installments rather than lump sums.
• Adjusting contingency fees so that the bulk of awards go to plaintiffs rather than attorneys. The usual model is California, which in 1975 passed the Medical Injury Compensation Reform Act (MICRA). Among other things, MICRA capped noneconomic damages at $250,000 while leaving economic damages untouched. By most accounts, the law has been a success; since 1976, California's liability premiums have increased only 245%, versus the national average of 750%. In the same period, the Doctors Company, one of 45 carriers that constitute the Physician Insurers Association of America (PIAA), has decreased California premiums by 40% in constant dollars.6 Still, "these premiums are breaking the back of a lot of physicians' ability to practice," said Marc Nuwer, MD, a professor of neurology at the University of Cal- ifornia, Los Angeles. "There are places where it is no longer economically viable to practice medicine. California premiums are still going up, though less than in other states." Nuwer contends that low success rates of lawsuits suggest that plaintiffs' attorneys take on too many meritless cases. A 1996 study published by The New England Journal of Medicine found that the severity of a plaintiff's disability was the only reliable predictor of whether he or she received payment, whereas there was no significant correlation with adverse events or negligence.7 This buttresses the common understanding that juries award damages as much out of sympathy as out of rationality. Weak cases do sometimes win or settle, but usually they lose. ALTERED STATES? The AMA has identified 6 states it considers stable: California, Colorado, Indiana, Louisiana, New Mexico, and Wisconsin. It considers another 20 states (Arkansas, Connecticut, Florida, Georgia, Illinois, Kentucky, Massachusetts, Mississippi, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Texas, Washington, West Virginia, and Wyoming) in "medical liability crisis" and places the rest somewhere in between.8 Many states have tried to pass tort reform packages that mimic California's to varying degrees, although with mixed success. Nebraska passed tort reform in the 1970s; physicians there pay premiums that are among the lowest in the country.9 Afew states, such as Oregon, have passed reforms over the years only to have them overturned in court; they are sometimes declared unconstitutional because they can be seen as limiting the right to a jury trial. Texas solved this problem in 2003, when voters passed a reform package that included a $250,000 cap on noneconomic damages, amending the state constitution in the process.9 Florida has passed several reforms in the past couple of years, as Nevada did in November 2004. Because this patchwork approach may spur the migration of physicians to states with lower premiums, however, Congress has tried to pass national tort reform that would supersede state laws, except in cases in which the states were even more restrictive than the federal government. Modeled on MICRA, the Help Efficient, Accessible, Low-cost, Timely Healthcare (HEALTH) Act was passed by the House in both 2003 and 2004, but so far the Senate version has stalled. Heavy lobbying by the medical societies continues, however, and the Senate may be more amenable this year because of the additional seats picked up by Republicans in November. IF IT LOOKS EASY, THINK AGAIN It appears to be an open-and-shut case, then: Skyrocketing damage awards drag premiums upward in their wake. This, in turn, drives doctors to less expensive states or into retirement. The results include regional physician shortages; diminished access to critical procedures; and "defensive medicine," which has been estimated to add $70 billion to $126 billion to the nation's annual health care bill.10 But is the situation actually this straightforward? Not surprisingly, plaintiffs' attorneys don't think so. J. William Savage, a partner in the Portland, Ore, law firm of Savage Bowersox Supperstein, LLP, said that some of Oregon's liability rates are lower than California's-- even though Oregon lacks damage caps-- and that nationwide, the connection between caps and rates is overstated. "There is not as much correlation as people think there is," Savage said. "Significant damages only get awarded in cases where the injury to the plaintiff is significant. Damage limitation takes money away from those who need it most. The solution depends on insurance reform. Companies single out some specialties unfairly; family-practice physicians who deliver a few babies a year should not be priced out of the market." INSURERS' M.O. Providers of liability coverage include private insurers and members of the PIAA, a trade association of more than 50 liability insurers owned and run by doctors and dentists. Together, PIAA insurers cover about 60% of the country's physicians; the rest carry other insurance. Sandra Olson, MD, is a professor of clinical neurology at Northwestern University; the president of the AAN; and chair of risk management at Illinois State Medical Inter-Insurance Exchange (ISMIE) Mutual Insurance Company, the local Illinois PIAA affiliate. Olson explained that insurers typically invest premium income in bonds, stocks, treasury notes, real estate, and the like. For every $1 in premiums, they can then plow anywhere from $1.25 to $1.50 into their reserves and surplus. Critics have contended that premium spikes are more related to poor investment decisions by insurers than to liability exposure. Olson denied this. Most studies support her contention that insurers generally make sound investments and are too strictly regulated to recoup bad ones by raising premiums.11 THE GAO WEIGHS IN In thorough study of the situation, the US General Accounting Office (GAO) generally agreed but pointed out that in the 1990s, fierce competition between companies, coupled with high investment returns, drove some premiums down to the point that insurers lost money.12 "Premiums were artificially low," Phil Dyer, vice president of development for The Doctors' Company, admitted to the Bulletin of the American Association of Neurological Surgeons.13 Ultimately, some carriers went bankrupt and some left the market, and with less competition, prices rebounded and kept rising. If that suggests that things aren't as simple as they seem, consider this: Texas got a shock last fall when insurer GE Medical Protective sought a 19% spike in premiums--despite the state's damage cap.14 This same insurer argued, in March 2004, that capping noneconomic damages was critical to liability reform, but its later filing contended that "noneconomic damages are a small percentage [1%] of total losses paid." GE Medical Protective, incidentally, also sought a 29% hike in California. There, however, the Department of Insurance can regulate rates, and the company settled for 60% of its request. This looks like a victory for insurance regulation, but it's worth noting that it will bring the increase to 17.4%--very close to that requested in Texas--suggesting that insurers may simply be allowing for negotiation when they file their applications. THINKING OUTSIDE THE PENALTY BOX The GAO report contains several affronts to accepted wisdom. The agency studied trends in 5 states with reported malpractice-related problems (Florida, Nevada, Pennsylvania, Mississippi, and West Virginia) and in 4 states without such problems (California, Colorado, Minnesota, and Montana). Among its findings:
• In the 5 "problem" states, access to care was not, in fact, a widespread problem and was limited primarily to isolated rural areas.
• Although neurologists reported reducing 12 different types of services, the biggest reduction was reported by fewer than 4% of respondents.15
• Although many physicians reported practicing "defensive medicine," studies of this have been limited and quantifying such practices is extremely difficult.
• Although premium raises are less frequent in states that have passed tort reform, it is hard to tell whether those differences were caused by such laws or by other factors. The AMA challenged several of the report's assertions, but the GAO pointed out that although the AMA routinely promotes its policies based on member surveys, the rate of response to those surveys is often only about 10%. The AAN survey noted above, however, had a comparatively robust response rate of about 25%. As Olson points out, neurologists and neurosurgeons are particularly exposed because of the nature of their work. "We deal with people who can have long-lasting, devastating injuries--stroke, epilepsy, trauma, things like that," she said. "In cases against neurosurgeons, people are often injured but don't die, so they require lifelong care. These are expensive cases." ? REFERENCES 1. Conn J. Surgeon's a poster doc for med-mal premium crisis. Modernphysician. com. July 8, 2004. Available at: http://www.modernphysician.com/ printwindow.cms?newsId=2337&pageType=news. Accessed December 15, 2004. 2. US Department of Health and Human Services. Confronting the Health Care Crisis: Improving Health Care Quality and Lowering Costs by Fixing Our Medical Liability System. July 24, 2003. Available at: http://www.aspe.hhs.gov/ daltcp/reports/litrefm.htm. Accessed December 15, 2004. 3. American Academy of Neurology. Position Statement. Medical Liability Reform. Access from titles list. Available at: http://www.aan.com/ advocacy/federal/academy.cfm. Accessed December 15, 2004. 4. Orrico KO. Federal medical liability reform: neurosurgeons plan to preserve patients' access to care. AANS Bulletin. 2003;12:7-8. Available at: http://www. aans.org/bulletin/pdfs/fall03.pdf. Accessed December 10, 2004. 5. Physician Insurers Association of America. PIAA Claim Trend Analysis. 2003 ed. (2004). 6. Statement of Richard E. Anderson, chairman of the Doctors' Company for the Physician Insurance Association of America. Harming Patient Access to Care: The Impact of Excessive Litigation. Hearing before the Subcommittee on Health of the Commission on Energy and Commerce, 107th Congress 88 (2002). 7. Brennan TA, Sox CM, Burstin HR. Relation between negligent adverse events and the outcomes of medical-malpractice litigation. N Engl J Med. 1996;335:1963-1967. 8. American Medical Association. America's Medical Liability Crisis: A National View. September 25, 2002. Available at: http://aspe.hhs.gov/daltcp/reports/ mlupd1.htm. Accessed December 10, 2004. 9. Albert T. Liability premium increases slowing, yet rates remain at record highs. AMNews. November 15, 2004. Available at: http://www.ama-assn. org/amednews/2004/11/15/prl11115.htm. Accessed December 10, 2004. 10. US Department of Health and Human Services. Addressing the New Health Care Crisis: Reforming the Medical Litigation System to Improve the Quality of Health Care. March 3, 2003:11. Available at: http://aspe.hhs.gov/daltcp/ reports/medliab.pdf. Accessed December 10, 2004. 11. Bean JM. Laying myths to rest: common misperceptions of federal medical liability reform. AANS Bulletin. 2003;12:12. Available at: http://www. aans.org/bulletin/pdfs/fall03.pdf. Accessed December 10, 2004. 12. United States General Accounting Office. Medical Malpractice: Implications of Rising Premiums on Access to Health Care. GAO-03-836. August 2003:9-10. Access from titles list at: http://www.gao.gov/docsearch/app_processform. php?app_id=docdblite_date&page=6. Accessed December 10, 2004. 13. Copp J. A profession at risk. AANS Bulletin. 2001;10:6-14. Available at: http://www.aans.org/bulletin/pdfs/fall01.pdf. Accessed December 15, 2004. 14. US Newswire Media Medialink Worldwide. FTCR: nation's largest medical malpractice insurer declares caps on damages don't work, raises docs' premiums; smoking gun document exposes insurance industry lies. Press release, embargoed 10/16/04. Available at: http://releases.usnewswire.com/ GetRelease.asp?id=38849. Accessed December 10, 2004. 15. United States General Accounting Office. Medical Malpractice: Implications of Rising Premiums on Access to Health Care. GAO-03-836. August 2003:20. Access from titles list at: http://www.gao.gov/docsearch/app_processform. php?app_id=docdblite_date&page=6. Accessed December 10, 2004.