R. James Brenner, MD, JD

It is deja vu, all over again, as pop philosopher Yogi Berra might say.

Physicians in New Jersey and Nevada have threatened to close down their medical practices, or leave the state. It was bad enough to fight bundled claims and benefit denials from third-party payers. Now, they and others are looking at malpractice liability premiums that are rising to a point where they exceed the 5% practice expense recognized by the Centers for Medicare & Medicaid Services (CMS) Medicare Fee Schedule. One of the nation's largest liability carriers, The St Paul Companies, Inc, Minn, is no longer willing to underwrite malpractice insurance for physicians, leaving many to search for some carrier willing to provide coverage. Another large carrier, PHICO, declared bankruptcy. Whereas once there were 40 carriers willing to issue liability insurance for physicians in Florida, now there are five, some unwilling to underwrite new clients.

In the mid 1970s, when California's largest liability carrier, Transamerica, decided to exit the liability underwriting businessalso during an economically unstable periodphysicians there faced a similar dilemma. Legislation was enacted to limit trial court decisions of special awards for pain and suffering to a maximum of $250,000. It was called the Medical Injury Compensation Reform Act of 1975 (MICRA). Physician-owned liability carriers were created, and, with a lesser requirement for setting aside reserves to provide indemnity payments secondary to the "pain and suffering" capitated figure, began to reestablish an infrastructure that has survived for the most part into the 21st century. Indeed, in 1987, with organized medicine and the California trial lawyers each poised to launch a costly battle over ballot initiatives to amend the law, a truce was committed to writing on a now-famous napkin at a local state capital eatery.

UNDERWRITING PRINCIPLES

To understand the crisis, which has also received more attention of late in Ohio, Louisiana, and West Virginia, it is important to recognize certain principles involved in the business strategies of liability carriers. First, most states regulate (eg, through Departments of Insurance) reserves that must be set aside following the filing of a malpractice claim, to provide funds for indemnity awards that might be required by settlements and court decisions. These reserves are taken from the "surplus" of premiums acquired from subscribers, just like any other insurance business (eg, homeowners, auto, etc). Much of the income of the carrier may come from equity interests invested in the stock and bond market from other portions of that surplus. Based on claims experience, the economic viability of a company is predicated upon correctly apportioning such monies. Higher equity returns will often mitigate the need of the company to increase premium payments from the insured.

Depending on such surpluses, companies are regulated by the state in terms of new business they can accept. In some casesespecially workers' compensationsurpluses may have been somewhat overstated, in order to permit new business underwriting and new premiums. Extended markets often provided insurance for physicians who were such poor risks that they might otherwise have been accepted only into special "pools" reserved for these candidates (thus raising everyone's premiums during adverse economic times). When stock market values declined recently, and equity interests were diminished, all companiesespecially those that had overstated their surpluses in order to write new businessfell into a financial dilemma. The situation in some circumstances was made more severe because of the "September 11" crisis. "Reinsurance carriers," those that provide excess reserves for the normal underwriting process, found their supplies consumed by the requirements of compensating victims of the 9-11 attack, and had fewer funds to subsidize medical liability carriers; the "money became more expensive." The only way to provide sufficient capital reserves was to call on the other source of incomenamely, insurance premium dollars.

There is little control over these competing economic dilemmas that have such a large, albeit indirect, impact on premiums that physicians are asked to pay for malpractice. More obvious causes are jury awards and settlements, which are indeed increasing; between 1986 and 1996 there was nearly a 100% increase in mean awards from $1,216,195 to $2,293,064, although median awards rose less ($355K to $568K).¹

Rates have increased even more in the past 5 years. Headline-making cases engender anger toward plaintiff attorneys and trial lawyer associations. Some of this increase may be justified, and some driven by local legal practices. In Nevada, for example, more than 40% of physicians have been sued for malpractice. Attempts to structure capitated payments on special damages of pain and suffering by legislative means, as was done in Californiaawards that often account for extraordinary paymentshave in general been opposed by the state and national trial lawyers associations, whose political contributions are among the highest of any organization. It is no coincidence that attorneys, whose compensation is usually a percentage of the total indemnity award, would strongly oppose such a restriction of damage awards. (No one, of course, argues that compensation for out-of-pocket expenses should be found where medical negligence is determined.) An organized and forceful position by the trial lawyers (plaintiff attorneys) has helped ensure that attempts in several state legislatures at "tort reform" have been unsuccessful.

The arguments of trial lawyers (plaintiff attorneys) are not devoid of merit. Patients who have been harmed under our civil law systems are entitled to restitution, and awards for pain and suffering are a reasonable component of that process. Think of yourself, for a moment, as a victim of negligence, and contemplate the propriety of such compensation. Consider a child whose life may be adversely affected by negligence, and decide for yourself if there is any award that approaches fair compensation.

DESTINED FOR FAILURE

There is no shortage of commentary regarding alternative dispute resolution (ADL), but most are unlikely to prevail under the current legal system. Some success has been realized; 36 states have abolished joint and several liability, and nearly half the states have upheld tort reforms. Recent attention by the American Medical Association and even the President has prompted the Senate to revisit tort reform for the first time in 6 years. S 2793 and its House of Representatives companion bill, HR 4600, seek national tort reform; 26 states have imposed limits on noneconomic or total damages. Other procedural Band-Aid solutions such as screening panels or notices of intent to sue either have not shown demonstrable impact on litigation frequency or have been unsupported by the courts. Arbitration has enjoyed a modicum of success under selected circumstances.

Civil procedure, however, can limit reform. Consider New York, a source of high litigation. Discovery depositions of experts are not permitted, discouraging fact-finding that might lead to more reasonable settlement amounts.

Advocates of the California solution point to the overall society benefit of maintaining a medical care system that does not encourage physicians to seek liability relief by moving to other states. Critics note that the $250,000 limit of pain and suffering has not changed in 20 years and is out of date. Other critics argue that there should be no restriction.

As is usually the case, a workable solution may lay somewhere in the middle. I suggest that the limit on pain and suffering is a necessary component to tort law in the United States, which differs from similar legal systems as may be found in Europe and is even more distinguishable from legal systems in the Far East. However, the argument that the fixed amount of $250K, as established in the 1970s, is too small is both valid and resolvable. Recent legislative action in California failed but is likely to succeed next year to provide for adjustments for inflation to this amount. It may seem anathema for a physician to be endorsing a rising schedule of pain and suffering fees, but probably no less so for an attorney to prioritize the maintenance of a system that balances institutional and personal goals. Only through such compromised efforts can there be any real success. Indeed, Nevada recently passed emergency legislation when its two largest carriersSt Paul and CNAwithdrew from the market, providing for a modified "cap" on pain and suffering damages, and inviting new companies to underwrite physicians.

A GRASSROOTS PUSH?

Attention continues to be paid to this issue across the country, but the political process has prevented national legislative guidance at this point. State initiatives and legislation face the same problem, but the local focus has been more successful in California and Nevada. Recall that court cases are governed, in general, by state, not federal, courts. As the circumstances provide for more limited awards, more physician-owned liability carriers may emerge, focused on medical liability only. Note that this solution is not a panacea; some physician-owned companies, facing the same business perspectives as larger underwriters, have engaged in unsuccessful capital ventures and face the same issues described for larger companies.

The problem will not resolve on its own, but the crisis must be addressed. State bars are unlikely to be a source of reform, especially when some of their consumer complaint divisions remain resistant to investigating abuse. Attorneys have long recognized the importance and power of the political process. They are unlikely to endorse limitations on awards, a result that physicians and others contend would discourage costly litigation. Indeed, much of the cost of litigation is taken up by administrative fees, not simply indemnity payments. Physicians have increasingly taken notice of such external influences on their professional lives.

If premiums in one state are two to four times higher than in another state, it is not likely that this discrepancy can be reconciled with gross differences in medical practice. There are forces both within and without the control of physicians affected by malpractice premium increases. I remind my colleagues on occasion that "there is no interest like self-interest." Getting involved in the political process is a natural consequence of this philosophy. While following good medical practice is the best defense to a malpractice claim, grassroots initiatives in the political process may be the necessary corollary for physicians to enact conditions of practice that discourage unnecessary consequences of litigation and control liability premium rates.

R. James Brenner, MD, JD, FACR, FCLM, is director of breast imaging at the Eisenberg Keefer Breast Center, Tower-St Johns Imaging in Santa Monica, Calif, and clinical professor of radiology at UCLA. He is chair of the ACR task force on mammography practice.

References:

1. Current Award Trends in Personal Injury, 1997 edition. Jury Verdict Research Series, LRP publications, as stated in Muirhead G. Medical malpractice award trends. Strategic Medicine. 1998; 2:48