Malpractice Insurance Could Be Headed Upward

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Arkansas was one of 10 states in which St. Paul Cos. raised its medical malpractice insurance premiums last summer.

For Minnesota-based St. Paul Cos., it was the first across-the-board hike since 1991, according to the Arkansas Insurance Commissioner’s office. But it could be a signal that a round of premium increases is imminent because experts say insurance of any kind tends to be cyclical and in recent years there’s been little upward activity in that regard.

St. Paul, which conducts rate reviews for physicians twice a year, is weeks away from completing its latest study. It’s too soon to say whether the company, the second-largest medical malpractice insurer in Arkansas and one of the nation’s largest carriers, will seek another increase, says Steve Nelson, vice president of underwriting for the company’s medical services area.

Nelson says the company raised premiums by about 10 percent in 10 states, including Arkansas, last July. The state insurance commission’s office figured the increase in Arkansas at an average of 8 percent.

But for some physicians the hike was much steeper, says Mike Wood, whose company, Saint Louis Management Group Inc., manages physicians’ associations across the country.

“We had some specialists in Pulaski County where, I think, [the cost] almost doubled,” Wood says.

Big Expense

Medical malpractice insurance is typically one of the two largest expenses facing physicians – the other is payroll. The American Medical Association reports the average malpractice insurance premium paid by self-employed physicians in 1996 was $14,100, down from $15,000 the year before.

Yet cost isn’t the only factor influencing physicians’ decisions in choosing a carrier.

Wood notes that physician’s consent to settle is a “huge” issue. That clause gives doctors the right to decide whether a malpractice claim is settled or contested. Otherwise, an insurance carrier may choose to settle a claim with little merit simply because it’s less expensive than going to court.

That’s an important issue with doctors, Wood explains, because “if they pay out on a claim, even if it’s a nuisance claim, that’s on [the doctor’s] record.”

Another important issue for physicians is whether the carrier offers so-called “tail coverage,” of special importance to obstetricians-gynecologists who may face claims 18 or 20 years after delivering an infant. “Tail coverage” provides insurance after physicians retire or stop practicing for claims arising during their years of active practice.

David Wroten, assistant executive vice president for the Arkansas Medical Society in Little Rock, believes the primary factor keeping malpractice rates stable is competition.

“I think that has got more to do with it than anything,” he says. “We’ve got several carriers in Arkansas, and that’s probably contributing to [the rate stability] as much as anything else, added to the fact that Arkansas probably has the lowest malpractice rates in the country.

“Arkansas is just not as litigious a state as some of the others.”

In addition, Wroten speculates that managed care hasn’t taken a toll.

It hasn’t “gotten to the point yet where physicians are feeling pressure to withhold treatment. It just hasn’t happened, and physicians have resisted that type of effort to the extent it’s out there,” Wroten says.

Nelson, the insurance executive, says it’s difficult to say whether managed care has affected his company’s experience with medical malpractice. “Maybe it’s a little too early to say at this point.”

But he notes that in Minnesota, where St. Paul Cos. is based, a large percentage of the population – perhaps 70 percent – is now covered by managed care plans.

“We simply haven’t seen big differences at this point” in numbers of malpractice claims, Nelson says. “It might be a little premature. We are trying to track our experience with managed care vs. fee for service.”

He continues, “A lot of people are saying that medicine is becoming standardized and that people besides physicians are making [health care] decisions. That might be the case, but we have not seen a deterioration” in care levels.

Nelson doesn’t believe there are fewer claims per physician in Arkansas, but he does say that the size of claims tends to be lower than in some other areas, especially urban centers.

“In terms of overall rate levels, in Arkansas the average value of claims is lower than the countrywide average,” he says. In Texas, for example, claims tend to be higher than in Arkansas – but to the extent that’s true, it varies even within the state of Texas, Nelson says.

A number of factors may influence that fact, including the legal environment – attitudes of juries and plaintiffs’ attorneys as well as the applicable law, Nelson says.

Wroten agrees that the way laws are structured affects claims. He notes that in some states, a physician who’s judged to be 10 percent at fault for a claim may be saddled with the entire judgment.

“Arkansas doesn’t have that type of law.”

Alternatives

Some physicians with small clinics are finding insurance discounts by joining organizations that then obtain premium quotes based on the overall membership or on the number of members who express interest.

“It’s simple economics,” says Kristi Erickson, operations director for Saint Louis Management Group. “Whereas it’s tough for one doctor to get much of a discount … when you have a number of doctors, [the insurance companies] are often willing to accept a discount.”

The rules of economics apply to the physicians, too, Erickson notes, because “there are two ways you increase your profits: You increase revenues or you decrease expenses.”

Wood says his company has obtained such discount agreements for physician groups across the country, including at least two in Arkansas – the Northwest Arkansas Independent Physicians Association Inc. and PhysiciansCare Inc. in Pulaski County.

“Right now, the medical malpractice industry is pretty soft,” he says. “It used to be that unless the physicians were all in one medical group … most carriers wouldn’t offer any kind of discounts. What’s beginning to happen is these mammoth physician organizations are coming around and medical malpractice carriers are saying, ‘We want part of that business.'”

Discounts average 20-40 percent, Wood says, and frequently physicians don’t even have to change carriers. That’s because the physicians’ group takes bids from the three or four top companies used by the members. In Arkansas, the groups have solicited bids from all A-rated carriers, he adds.

Most carriers don’t require that all physician group members use their coverage, so it’s optional for members, Wood says.

Erickson says it’s difficult to say how many physicians in northwest Arkansas are participating in the insurance program. Letters about the program went out to members last November. Those members who are interested must first consent to releasing credential information to the insurance companies, and many of those contracts are just now being received, she says.

Also, the physicians who want to purchase their medical malpractice insurance through the program contract directly with those companies. The IPA isn’t involved in the actual transactions.