Actuaries Told: No ‘Duct Tape Solution’ to the Current Med-Mal Crisis

The current medical malpractice crisis did not happen overnight and is not going to resolve itself without bringing predictability and stability into the system. This was the message delivered by a panel of experts at the annual Ratemaking Seminar of the Casualty Actuarial Society (CAS), recently, at the Wyndham Franklin Plaza Hotel in Philadelphia.

Pennsylvania Insurance Commissioner Diane Koken introduced the panel session. She said that during her tenure, medical malpractice is the most challenging issue and one that is prone to many anecdotal arguments from all involved parties.

Koken said that while she has heard many stories – doctors fleeing the state, insurers price-gouging and lawyers making profits – there is a lack of definitive statistics. In Pennsylvania, some progress has been made but she said that companies need to “use their crystal balls to predict the future and set prices based on the information while achieving a balance between avoiding insolvency and keeping down insurance costs.”

Gail Ross, manager and senior consultant, Milliman USA, provided a history of the medical malpractice system, stating that although the industry has been through this before, the current crisis is worse than in the past.

In 2003, only seven states did not show a problem with medical malpractice and 17 states reported a “full-blown” crisis, with Pennsylvania being one of those states.

This was partially driven by intense competition during the soft market of the ’90s and availability problems caused between 1990 and 1998 by the insolvency of four insurers, the withdrawal of another and by two other companies which non-renewed Pennsylvania physicians, according to Ross.

Ross talked about the state’s Mcare (Medical Care Availability and Reduction of Error) Fund, created in an earlier medical malpractice crisis in 1975 as a provision of Pennsylvania law to provide excess limits of coverage to health-care providers. Since funding has been provided on a pay-as-you-go basis since inception, an unfunded liability of more than $2 billion currently exists. Effectively, “the sins of the past become burdens of the current providers,” explained Ross.

With regard to capacity, Linda Dembiec, CFO & actuary, Medical Mutual Liability Insurance Society of Maryland, likes to talk about the “Class of ’96” when there were 20 top medical malpractice writers. “Due to downgrades, insolvencies and players exiting the market, you might have three companies left with a B+ or better rating,” she said. “That means stressed capacity for a few companies left standing,” she added.

Joseph Roda, attorney, Roda & Nast P.C., said that current tort reform discussions focus on caps on non-economic damages. He argued that such caps discriminate against the most severely injured and against the poor and retired since in these cases there would be less of an economic loss. “There is no proof that caps will lower premiums,” he added. Florida, which has a cap, has the highest average premium in the nation.

He said that in Pennsylvania, doctors with three or more claims against them account for 51.4 percent of the total payouts. He feels that disciplinary actions need to be taken with these repeat offenders and that the public should be informed about these ‘bad doctors’. “Shouldn’t we pound the drum about reforming safety as much as we do about capping non-economic damages?” he asked.

James Redmond, senior vice president, legislative services, Hospital and Health System Association of Pennsylvania, pointed out that while he agrees that there are repeat offenders in need of disciplinary action, this does not make them ‘bad doctors.” He explained that most of the complex medical procedures are performed by specialists, who are a very small group, thus giving us a higher ratio or error per doctor.

Redmond said there is no ‘duct tape solution’ to this crisis and called for changes in the insurance system. “Mcare did not serve us well and only added to disruption in the insurance marketplace,” he said.

Samuel Marshall, president and CEO, Insurance Federation of Pennsylvania, advised the industry to step back and look at what is really needed from the medical malpractice system. “If the purpose is to prevent liability in the first place, then patient safety measures must be improved.”

Marshall said that Pennsylvania’s system is not fair or accessible and that claimants are not consistently given a fair hearing or a fair determination. He believes that the system’s structure is flawed and is not consistent across the state.

“The real reform needed is of the system itself,” Marshall said. He suggested regional reforms with special courts and more judicial discretion in order to bring more predictability and stability to the system. Capping non-economic damages could reportedly go a long way, but he doesn’t see that happening.