MDI: 2002 Med-Mal Payments Didn’t Keep Pace With Injuries

Severity of patient injuries reached an all-time high for medical malpractice payments in 2002, but victim awards have not kept pace with inflation and increasing disabilities, the Missouri Department of Insurance said in a report.

In its 2002 annual medical malpractice report, MDI noted:

For the first time, the typical medical malpractice claim payment involved at least permanently disabling injuries, based on insurers’ own evaluations of paid claims. Successful claims against physicians involved even more damaging injuries, again reaching unprecedented severity levels.

Paid claims involved 205 patient deaths — a 49 percent increase from 2001 and 68 percent from 2000. Such deaths accounted for more than one-third of claims.

Permanent injury or death was involved in two-thirds of claim payments.

As a result, average claim payments — after declining in 2001 — rebounded to the record levels earlier reached in 2000 and 1996, particularly on claims against physicians. Average payments in deaths rose from $194,067 to $254,944. Patients lived, but suffered permanent injuries in another 170 cases, which had average awards rise from $242,100 to $291,079.

Nevertheless, the report showed average claim payments continued to increase at a slower rate than the combined effects of medical inflation (84 percent), wage inflation (55 percent) and injury severity (a full-step increase in physical disability), which are the principal factors in awards.

Payouts on closed claims reached $108.7 million, compared to a previous high of $76.9 million in 1996 for licensed insurers. Another $26.3 millon was paid in unlicensed, alternative markets. For reasons unknown, insurers began settling more cases, making payments on 12 percent more claims in 2002 and boosting overall totals.

An MDI statistical analysis found that despite the increasing size of awards, victims actually were receiving less generous payments than in the past. That analysis found Missourians should have expected larger awards in 2002 if they had kept pace with increasing medical costs, wages and injury severity since 1990.

On the issue of injury severity, Gov. Bob Holden has appointed a 17-member Missouri Commission on Patient Safety, which began meeting in October to recommend ways to reduce the incidence of medical errors. The panel already has met three times and scheduled daylong sessions twice a month through May to investigate how to reduce unnecessary patient injuries.

MDI Director Scott Lakin said two years of sudden turbulence in the Missouri market — because of national insolvencies and withdrawal — made analysis of trends very difficult.

Before 2002, Missouri’s data indicated no significant problems with the malpractice market that were not common to most lines of property and casualty insurance.

But between August 2001 and May 2002, Missouri’s malpractice insurance market lost 57 percent of its capacity to write new business because of two major insolvencies, the withdrawal of two other major carriers nationally and a moratorium on new business by the state’s largest writer.

“The loss of capacity to write new business came on the heels of a long period of intense price competition when, insurers agree, they had substantially underpriced their product for physicians. In hindsight, the current wave of large price increases and difficulties in finding any coverage was predictable, but not preventible,” Lakin said, referring to Missouri’s legal reliance on competition to regulate malpractice and other commercial insurance rates.

“We have been extremely frustrated because malpractice carriers leaving Missouri have stressed that the state remains a good place to conduct insurance business. They uniformly have cited losses elsewhere in their decisions to stop writing malpractice coverage. Insurers across the country simply have little interest now in expanding into medical malpractice in any state, and increased competition is essential to stabilizing our market.”

In the critical area of physicians, five insurers with 30 percent of Missouri doctors’business in 2002 are withdrawing, sometimes gradually, from the national medical malpractice market, and another with 25 percent of the Missouri market has a moratorium on new business.

The latest withdrawal from the Missouri market, to begin in March 2004, involves Farmers Insurance Group, which paid losses of only $7,500 and expects future payments of less than $1.2 million on $20 million in premium earned in 2002. Farmers executives assured MDI that their decision to withdraw nationally was not based on any problems in the Missouri market.

Mixed messages from the market

Even in the area of competition, the Missouri market has sent mixed messages.

Missouri surprisingly has licensed seven new medical malpractice carriers since Jan. 1, despite the continuing reluctance of insurers nationally to add such risks. These new firms usually need considerable time to reach full marketing strength, although one startup insurer has sold several million dollars of coverage this year. With the Farmers withdrawl, Missouri has nine malpractice carriers accepting new applicants.

Hard markets tend to find more policyholders searching for coverage from typically expensive alternative markets, which are typically expensive, largely unregulated surplus lines carriers and risk retention groups.

But the share of Missouri’s malpractice business conducted in alternative markets fell from 18.4 percent in 2000 to 13 percent in 2002. The dollar value of surplus lines earned premium actually fell in 2002.