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Prepared Witness Testimony The House Committee on Energy and Commerce
The Medical Liability Insurance Crisis: A Review of the Situation in Pennsylvania
Subcommittee on Oversight and Investigations
Mr. John H. Reed
Thank you for inviting me to appear before the
Committee. Notwithstanding the passage of significant remedial legislation
in Pennsylvania in 2002, the insurance affordability and availability problem
being faced by hospitals and physicians today in the commercial marketplace has
not been corrected. This problem has confronted health care providers across a
broad front, including those not having a record of prior lawsuits and who
practice in regions of the state where juries have consistently proven to be
unreceptive to medical malpractice claims. Indeed, the cost of traditional
coverage is escalating sharply even though the aggregate amount of jury verdicts
in Pennsylvania medical malpractice cases has declined markedly in each of the
last two years, with the amount awarded in 2002 being 65% lower than in 2000. The factors that contribute to the current
difficulty are complex and by no means did they develop overnight. The
Ainsurance cycle@ and insufficient regulatory oversight has played a role.
Carrier insolvency has created added expense for all insurers in Pennsylvania,
triggering an estimated $30 million addtional annual cost for the Fund at the
peak of the PIC/PIE/PHICO/and RELIANCE debacle. The current situation has also
been distorted by the pace of the medical malpractice insurance privitization
process initiated by Act 135, with health care providers now having to bear the
burden of purchasing increased primary limits from private insurers before that
expense can be offset by the winding down of Fund obligations which, by
legislative design, were not prefunded. . As part of my testimony, I am attaching copies of
several memoranda that were authored addressing a number of these issues while I
served as Director of Pennsylvania=s Medical Professional Liability Catastrophe
Loss Fund (now known as the MCARE Fund). In particular, I invite your
attention to the February 2002 memorandum outlining several
alternative approaches that would immediately reduce the cost of medical
malpractice insurance and thereby help avert the overall financial crisis in
medicine. The following are some of my recommended solutions. Risk Retention Groups An
RRG permits health care providers to reap substantial and immediate savings on
their malpractice insurance premiums. Other than a governmental
mechanism such as Pennsylvania=s Fund, RRGs provide the least expensive, most
flexible self-insurance vehicle available to the health care community.
When designed properly, these programs can serve to reduce losses through peer
review by the owners/insured and consequently result in savings. Many
hospital systems are now using this approach and this past year a number of new
insurers for physicians have been formed on this model. When operating on
a non-profit basis, such programs have the potential to offer coverage to
Pennsylvania health care providers at premium levels that are substantially less
than what is otherwise available in the marketplace today. However, individual
physicians are often reticent to take advantage of this insurance alternative
absent some protection in the event of program insolvency. Federal
enabling legislation presently does not permit risk retention groups
to participate in the guaranty funds that the states have created for commercial
insurers. Were Congress to address that problem, I am certain a
significant percentage of the physician community would elect to benefit from
the lower cost and the long term assured availability of coverage that the risk
retention approach can provide. Compressing
the Rate Schedule Obviously, not all physicians pay the
Aaverage@ physician surcharge. Their rates vary by specialty and geography
in accordance with the JUA schedule. For 2002, Fund charges for physicians
ranged from $1,702 for allergists and hematologists in areas such as
Lancaster and Harrisburg, to $44,659 for neurosurgeons and orthopedic surgeons
in Philadelphia and Delaware counties (the Fund assessment for the last two
specialties was cut by 17% for 2002). For 2002 the average physician
surcharge was approximately $7,000. The rate range could be compressed if
the state either reduced the number of specialty classifications or if the
geographic areas were combined into fewer rating territories. For example,
if all of Pennsylvania were considered one rating territory, as is presently the
case in New Jersey, the surcharge for Philadelphia orthopedists and
neurosurgeons would drop by one-third. Similarly, placing a $1,000
increase on the surcharge of those physicians who presently pay under $10,000
(Class 35 and lower) would have a similar impact of reducing the surcharge of
all those physicians in the higher classes by approximately one-third.
However, because these types of smoothing mechanisms go outside the conventions
of traditional insurance, and would probably be opposed by those adversely
affected, it is not likely that they would be accepted. Focus on
Risk Management and Problem Providers Many medical errors are often
preventable through proper selection, training, and coordination of professional
personnel and provider programs. In addition, the economic stresses faced
today by the medical profession have sometimes lead to business decisions that
adversely impact patient care. Notwithstanding, risk management has
traditionally not ranked as a top priority and the medical profession has been
slow identify, monitor, and counsel the small subset of providers that are
responsible for a major portion of medical malpractice awards. The
accompanying chart shows that 10% of the Pennsylvania physicians who have
practiced since the Fund was established are responsible for 100% of its claim
payments, while just 2% of the physician population account for 41% of the total
payout. Fast-track
Arbitration of Claims The adoption of fast-track
mediation/arbitration of claims before a qualified, medically knowledgeable
panel would lower litigation costs and assure greater consistency and fairness
of results. The findings of the panel would be non-binding and the case
could subsequently be presented to a jury, but the arbitration results would be
admissible at trial. This approach would reduce the risk of aberrant
verdicts while also assuring that health care providers across the state would
be accountable to a uniform and predictable standard of care. Regional
Juries As with the suggestions in the preceding paragraph, this would better assure fairness and uniformity of results given similar fact patterns. Closely
Monitor the Impact of the Reforms Already Adopted Substantial changes in Pennslvania
medical malpractice litigation will eventually occur as a result of the reforms
adopted in 2002. The venue provisions alone will transfer 40% of the
claims in Philadelphia county court (measured by Fund payments) to courts in
suburban counties and elsewhere. This, combined with reforms to the collateral
source rule, reduced payments for future losses, and restrictions on joint and
several liability, should serve to lower claim payments for all insurers.
The impact of these reforms should be monitored to assure that they accomplish
their intended purpose of maintaining a fair balance between the interests of
the medical profession and the public that they serve. All of the above suggestions will reduce malpractice premiums for health care providers. Most importantly, they can accomplish that result without having to bar the door of the courthouse to those individuals having legitimate claims.
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