Three crisis states show improvement since tort reform

The steady progress toward stabilizing or reducing liability insurance rates has been, in one supporter's words, like "taking an aspirin for bringing a fever down."

By Mike Norbut — Posted March 28, 2005

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Physicians aren't ready to celebrate just yet, but tort reform efforts are showing signs of positive effects in Texas, West Virginia and Ohio -- states that enacted legislation in 2003.

From lower liability insurance premiums -- or less dramatic premium increases -- to more insurers entering the market, doctors are starting to see at least some of the results they hoped for when they pushed for change in their respective states.

In Texas, for example, every insurer but one has lowered liability premiums in 2005, and the last one soon could follow suit, said Texas Medical Assn. President Bohn D. Allen, MD. Meanwhile, West Virginia has seen an increase in new physicians and a decline in defense costs for liability insurance companies, and Ohio has seen a moderation of premium increases and two new insurers enter the market.

The states are three of 20 the AMA has declared to be in crisis because of rising medical liability insurance premiums. In those states, some physicians were retiring early, others were forced to discontinue high-risk procedures or move to states not in crisis.

Waiting for the effects of the various state measures, all enacted in 2003, has been an exercise in patience for doctors. Progress has been gradual, but the signs of what's to come are encouraging.

"I liken this with taking an aspirin for bringing a fever down," said Evan Jenkins, executive director of the West Virginia State Medical Assn. and a state senator. "Trial lawyers want you to think when you take the medicine, you'll see the effects immediately, but it takes a little time."

Trial lawyers also would argue that caps on noneconomic damages do not affect liability insurance premiums, "but they're disproved by actual facts," said AMA Immediate Past President Donald J. Palmisano, MD.

"What we want to do is try to pass common-sense legislation," Dr. Palmisano said. "We realize it may take time for the full benefit of legislation to take effect. We're encouraged that the American public understands the issue is a loss of access to care."

Constitutional amendment in Texas

In Texas, for example, voters approved a constitutional amendment that caps awards for noneconomic damages at $250,000. Access to care there seems to be building as a result.

"[Obstetrics] groups around the state that had stopped delivering babies have gone back to doing that," Dr. Allen said. "One group in Fredericksburg [near Austin] put a big ad in the newspaper saying, 'We're back.' I think we've turned the corner."

Medical liability insurers apparently feel the same way. Texas Medical Liability Trust, which insures more than one-third of Texas physicians, followed up its 12% cut in rates last year with another 5% drop this year. Maury Magids, president of the American Physicians Insurance Exchange, said premiums for Texas physicians insured by the company would decrease by a total of $3.5 million this year. Effective May 1, he said, 2,200 of the 3,500 total physicians insured by the company will see an average 5% drop.

The Doctors Company, a Napa, Calif.-based firm that insures more than 1,100 physicians in Texas, announced plans to reduce premiums for 90% of its doctors in the state this year. Some reductions will be as much as 30%, though physicians at the most common coverage level will see a 14% decline on average, said Richard E. Anderson, MD, chair and CEO of the company.

Dr. Allen said these reductions are examples of the overall effect of the constitutional amendment, which, unlike legislative action, can't be struck down by a court or changed by subsequent laws. "It's rock solid."

Positive signs in West Virginia

West Virginia physicians, on the other hand, have seen their fight shift from the Legislature to the courts, although tort reform measures in place, including a $250,000 cap on noneconomic damages, have stood up to challenges so far, Jenkins said.

Physicians have responded to the reshaping of the liability climate, Jenkins said. The West Virginia Board of Medicine reported 377 new physicians were licensed to the state in 2004, the most since 391 were licensed in 1999. The state hit a low point with 305 new licenses in 2000.

The West Virginia Insurance Commission, meanwhile, issued a report late last year that said while medical liability rates continued to rise, the increases were less dramatic than in previous years. Loss results for insurance companies have leveled off, and defense costs declined in 2002 and 2003, according to the report.

"We still have an affordability crisis in West Virginia, but every indicator at this point is very promising suggesting rate relief," Jenkins said.

Signs of future stability in Ohio

Ohio physicians are equally optimistic that rate relief is coming because they're seeing signs of stability in the liability insurance market, said Tim Maglione, senior director of government relations for the Ohio State Medical Assn.

Two new companies have begun selling liability insurance in the state since a $350,000 cap on noneconomic damages took effect in 2003, Maglione said. Meanwhile, premiums, which had been increasing at a rate in the 30% range before tort reform measures passed, were increasing between 10% and 20% this year, he said.

Still, the picture in Ohio is far from bright. The Ohio Dept. of Insurance last month reported on a "Physician Medical Malpractice Insurance Survey," which concluded that rising insurance costs are still having an adverse effect on doctors and patients.

But when assessing the state of the medical liability insurance market last month, Ohio Dept. of Insurance Director Ann Womer Benjamin said premiums had increased at a lower rate in 2004 than they did in the two previous years. Some companies had even lowered rates for general practice physicians in certain regions of the state, she said.

The medical association has used this momentum to build its case against frivolous lawsuits as well. The association has advocated sanctioning attorneys who file frivolous lawsuits that clog the state's justice system. Earlier this year, it saw a judge rule in favor of a physician who had been the target of such a case. The attorney who brought the lawsuit was ordered to pay defense costs.

"The judge found that the attorney didn't do her homework," Maglione said. "Maybe it sends a signal to other lawyers that if they continue to file cases with no merit, there's the possibility of being sanctioned."

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AMA, Texas physicians criticize liability study

The AMA and other physician groups are criticizing a recent study by four law professors who concluded that there was no liability crisis in Texas -- that rising insurance premiums over the past several years had not been caused by rising claims or payouts.

The study, which looked at closed claims in the state between 1988 and 2002, found that, controlling for population growth and inflation, potential indicators of a liability crisis were stable over that time.

Large claims, described as payouts of at least $25,000 in 1988 dollars, were stable in number, while the number of smaller paid claims declined, according to the study. Total costs per large paid claim, defined as payouts plus defense costs, rose an average of 1% each year, the study reported.

In a statement, Donald J. Palmisano, MD, immediate past president of the AMA, pointed to several nationwide studies that contradicted the law professors' findings, including a 2003 U.S. General Accounting Office report saying that since 1999, medical liability premiums rose dramatically in some states and for some specific specialties, with increases in payouts being the primary culprit for the increase.

Dr. Palmisano also said the study only reviews closed claims. Open claims, which could have large payouts or settlements, can take several years to work their way through the system, he said.

Bernard Black, a professor of law and finance at the University of Texas and one of the authors of the study, acknowledged that the study did not include open claims, but said the data from 1999 and prior years did not show any indications of increasing payouts.

Bohn D. Allen, MD, president of the Texas Medical Assn., disputed the findings of the study, saying people only had to look to the access-to-care problems some patients were experiencing to know there was a crisis.

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