Medical Professional Liability Insurance involves a multitude of problems that are difficult to pull apart, for sure, although, until recently, the finger pointing might have made it seem that the parts were distinct. The issue highlights the need for serious tort reform, discreet insurance regulatory standards, stricter NYS DH enforcement of professional standards and more aggressive underwriting. The issue brings to light such causal relationships as that between defensive medicine and rising cases of MRSA that are ever more virulent and immune to over prescribed anti-biotic medicines and it brings into focus legislation that has created an unbalanced playing field between state regulated, not-forprofit carriers and federally regulated, for-profit, out-of-state formats that are not insurance per se.

The list of issues directly or indirectly touched by med mal reform is extensive, yet, as every sequence of dominoes has a first domino that must be pushed, so New York State Senator Jeff Klein, in an effort to identify and push the initial domino, has introduced medical malpractice reform legislation in the Senate that would “amend the current NYS insurance laws in a manner that would allow for stability within the volatile medical malpractice market,” according to the Senator. The bill would remove an onerous cost upon insurers, i.e. their huge contribution to a pool that is set up for “uninsurable” doctors. Right off the bat, it would allow the insurers to lower or at least stabilize pricing as the result of several of the bill’s implications. Also, the bill would create effectively a standard of reserving for the insurers that reflects their experience over time, a risky but short term fix that would give doctors a remedy almost immediately. PRI and others voiced support for the legislation.

The med mal market is described as artificially frozen by the New York State legislature to prevent further rate increases, an effort that has merely bought time, but done nothing to fix the problem. December hearings in Albany went past the usual contentiousness and found the three major factions (doctors, the trial lawyers, and the medical malpractice insurers) well represented. The public was represented by the Senators Neil D. Breslin, Thomas K. Duane, Eric T. Schneiderman, Ruben Diaz, Betty Little, Andrea Stewart-Cousins, Carl Kruger and some media present.

Numbers flew. “$170,000,” said Dr. Wendy Fried right out, a practicing OB/GYN from Long Island, “That is what I pay in medical malpractice insurance every year.” Dr. Fried told a story of a woman who was so grateful for the emergency surgery she performed that saved her life and the life of her baby that she invited Dr. Fried to Christmas dinner. Two months later that same woman had "lawyered up" and was suing Dr. Fried, “nothing personal, strictly business”. Dr. Fried, after a lengthy and expensive legal ordeal, was found innocent of any wrong doing. Point is, the system works against the doctor, usually innocent, as a result of the trial bar’s hold on the laws and its lobbying power.

Dr. Fried’s story is not an isolated incident: over 95% of OB/GYN's and 80% of neurosurgeons will be sued at least once in their first 10 years of practice. "We can argue back and forth about what percentage of neurosurgeons are bad doctors, but I can say with certainty that the number is nowhere near 80%" said Dr. Lee Goldman, Executive Vice President and Dean of Columbia University Medical Center (CUMC). “OB’s are being forced out of business. Several hospitals have closed their maternity wards and in Northern Manhattan, where CUMC is located, the only practicing OB’s remaining are those who are part of our Faculty Practice Organization and our average annual premium on them is over $150,000. The only reason we can still have practicing OBs is because we can cross-subsidize them, but if rates continue to rise, I do not know how long even we can keep this up,” explained Dr. Goldman.

A report from the Pacific Research Institute, which cited A.M. Best as their primary source for their data, notes that from an economic perspective, New York ranks dead last in its losses due to medical malpractice. Liability defense costs have risen 485 percent since 1977, adjusted for inflation. Jury awards generally are 600 percent above the national norm and include 10 of the nation’s top payouts in 2006. “Defensive medicine”—physicians’ over-reliance on tests and medications as a hedge against litigation—add up to 9 percent to medical bills, Pacific Research Institute claims. And Dr. Goldman noted that 93% of Doctors in New York report practicing defensive medicine. To compound the issue, a recent study released by the New York Medical College that appeared in the American Journal of Therapeutics, suggests that defensive medicine is playing a role in the increase of MRSA in New York health care settings by encouraging clinicians to prescribe antibiotics more often and more broadly than clinical circumstances warrant. The study found a strong correlation between the prevalence of Methicillin resistance and density of attorneys and no correlation between density of physicians and Methicillin resistance. Change our matter of life and “dearth” to “death”, here. Doctors seek reform of the "I'm sorry" law. In New York, apologizing can cost doctors dearly. As the law stands now, an apology or explanation of what went wrong in a procedure can be used against the doctor in a medical malpractice suit. "Amend the rules of evidence so this type of apology cannot be used in court, as 30 other states have done. This will go a long way to turning down the temperature when a mistake is made." said Goldman. In a passionate rebuttal, Richard S. Binko, President of the New York State Trial Lawyers Association, expressed the opposing view, i.e. that Doctors needing legal protection to apologize for what they have done wrong goes against the nation’s founding principles.

Clearly, Mr. Binko and his fellow panelist John K. Powers, Esq., representing the New York State Academy of Trial Lawyers, didn't see eye to eye with the panels of doctors and others who suggested methods of reform which focused heavily on tort reform and placing caps on non-economic damages. The panel representing the trial lawyers held that it was a lack of safety precaution, not the civil justice system that needed reforming to rein in malpractice insurance rates. Mr. Binko stated, "Fifty percent of all malpractice claims are committed by six percent of the doctors." Oversimplified, the doctors blame the lawyers and the lawyers blame the doctors, a stalemate which has resulted in little being accomplished over the years in the way of reform.

No one recognizes that better than the medical malpractice carriers in the middle who have looked to Senator Klein’s bill S. 5374B to solve their problems without getting mired in the tort reform/medical practices reform argument.

New York State Deputy Majority Leader, Senator Jeff Klein, authored bill S. 5374B in hopes that it would amend NYS insurance laws in an effort to provide more security and stability for doctors.

Specifically, the bill aims to change the financial regulatory framework for medical malpractice insurers by reducing the capital reserves needed to be retained by a medical malpractice insurer to pay claims so that premium rates could be allowed to remain stable or even perhaps be reduced. “This bill modernizes the current insurance laws related to the medical malpractice market,” said Senator Klein. “Like so many other aspects of our current health care system, medical malpractice insurance is in desperate need of reform. My hope is that this bill, when passed, will give doctors the security and stability they need in order to provide the best care to their patients.” Senator Klein highlighted the following specifics that this bill hopes to accomplish:

• Allows Medical Malpractice Insurers to apply the value of surcharges or assessments that they could collect from their insured doctors and add that amount of potential surcharge or assessments to their admitted asset calculations without having to actually collect such surcharges or assessments.
• Amends Insurance Law section 1311 to provide for the inclusion of the ability to collect surcharges from physicians to admitted assets and into the calculation of statutorily required surplus. Under the Insurance Law, and based on Risk-Based Capital Standards, the required surplus is calculated to ensure that a medical malpractice insurer has sufficient reserves to pay all outstanding medical malpractice claims judgments • Amends Insurance Law section 1325 to permanently exempt medical malpractice insurers from the provisions of NY State law relating to the Risk- Based Capital Standards that apply to all other Property Casualty Insurers (i.e. Homeowner’s & Auto). Risk- Based Capital Standards are national standards established by the National Association of Insurance Commissioners (NAIC) which measure an insurer’s financial strength to pay its claims on a timely basis.
• Directs the NYS Superintendent of Insurance to develop a new financial regulatory standards framework for medical malpractice insurers that operate in N State. The new standards would be created by June 2011 and be put into effect by January 2012. Klein advises that the new financial standards to be developed by the Department should be based on consultations with insurers and other interested parties. • Creates Insurance Law section 1326 to limit the application contingent liabilities to the financial statements of medical malpractice insurers.
• Makes permanent certain prohibitions on requests for orders of rehabilitation or liquidation for medical mandates that a medical malpractice insurer cannot be forced into rehabilitation or liquidation even if the insurer’s admitted assets are less than its booked claims obligations.
• Amends Insurance Law section 6108 to create a presumption for Reciprocal Insurers (PRI and Academic that surcharges or assessments are components of admitted assets. Importantly this section of the bill also allows insurers to adjust premium rates upward no more than five percent per year on a file and use basis, solvency regulatory system is established pursuant to this bill.

Anthony J. Bonomo, CEO of Physicians’ Reciprocal Insurers, New York’s second largest medical malpractice carrier, stated from the outset that he had no interest in the usual debate, or politicization of the issue, arguing that Senator Klein’s bill would bring much needed relief for the insurers and, as a result, the doctors: “The crisis in medical malpractice today is as much rooted in the statutory scheme and regulatory system that was designed to assure the system’s safety and soundness as it is in the courtrooms of New York,” said Bonomo. “The Klein bill effectively depoliticizes medical malpractice insurance rates by allowing carriers to compete on rates within the first five percent of an established rate, allowing rates to go up or down without Insurance Department involvement before individual carriers have to justify a rate increase or decrease the Department is taken out of the difficult position of establishing rates and some rational cost stabilization is introduced into the marketplace. Superintendent Jim Wrynn’s proposal to establish a rate service organization that provides guidance on rates would go a long way to assisting the rate methodology provided for in Senator Klein’s bill and provide a databank of critical information on medical malpractice rates and losses.” Bonomo is a proponent of a system that would encompass Klein’s bill, certain pieces of the governor’s bill and initiatives set by forth by Superintendent of Insurance Wrynn. In particular, Bonomo and others endorse a multi-tiered rating system where rates for doctors are based on their individual careers, not unlike the way car insurance rates are based on the driving record of the individual driver.

Moreover, Bonomo pointed out, the idea of allowing medical malpractice insurers the right to reserve funds, as outlined in Klein’s bill, would be a real world solution for the dominos to begin to fall, along with rates.

The Klein bill is not positively viewed by everyone, particularly some in the accounting community. An article in Crain’s cited Klein’s bill as a big test for Governor Patterson, saying he may be pressured to push the bill through, but that many accountants consider the bill “pure insanity.” The article also quotes MLMIC’s vice president Ed Amsler who says, “The bill is scary as hell.” MLMIC is New York State’s largest medical malpractice insurer. The article also points out that under current state mandated reserve guidelines PRI could be considered insolvent with others not far behind. The article fails to point out that insolvency standards themselves do not reflect experience and other claims data, and do not reflect the particular onus placed on the med mal insurers.

Martin Kern, Executive of Academic Health backs Bonomo’s opinion that Senator Klein’s bill is the answer. In defense of the bill, he notes that New York doctors have historically faced serious issues being insured in New York, as commercial and for-profit insurance carriers would enter the market and then realize they could not operate profitably and pull out-suddenly leaving doctors scrambling for coverage. As a result, the market has not attracted outside insurers and has been corrupted by cash flow styled formats, not insurance per se, offering little depth or support for the defense of doctors. As a result, New York state doctors are primarily selfinsured, in that the largest writers of insurance by premium volume are all physician or hospital owned. MLMIC, PRI HIC, Academic, and HPIC together write approximately 90% of the premium volume in the state. An undisclosed volume of premiums, tens of millions easily, is paid to unregulated offshore captives and risk retention groups. “It has been observed that in New York State medical malpractice insurers have evolved into institutions that are analogous to public utilities. They are non-profit self-insurance vehicles funded by their insureds. The focus on carrier reserve strength serves only to unnecessarily drain much needed capital away from the provision of services to patients,” said Martin Kern. “Senator Klein’s bill would not only give state domiciled and regulated carriers an even playing field with federally regulated out-of-state carriers, but protect doctors from having their insurance yanked out from under them when out-of-state insurers inevitably pull out” he added. Kern also said, “Regulating this line of business consistent with the insurance industry standard NAIC Accounting and Procedures Manual is impractical because it is financially not feasible for the healthcare industry to tie up potentially hundreds of millions, or even billions, of dollars of capital for reserves for future claim payments, and thereby create policy holder surpluses on medical malpractice carrier balance sheets, when their cash flow is sufficient to meet current obligations on an ongoing basis.”

Kern admitted opponents of the bill may question the value of separate accounting treatment for malpractice carriers but feels the proposed changes “merely bring to the forefront and recognize current operating realities imposed by the regulatory regime in which we operate.”

Bill S. 5374B may offer the best solution for New York’s medical malpractice insurance carriers and doctors to get a hand on the reins of out-of-control rates and slow or halt the current doctor exodus from the state, or it may be potentially a financial nightmare the likes of which the New York Insurance community has never seen.

“The bottom line is the situation has reached a point where any unilateral or ostrich approach often favored in Albany as a means of satisfying everyone a little, no one a lot is no longer an option; the Klein bill still leaves the underlying contentious issues for future debate, but gives the relief that insurers and our clients, the doctors who really do deserve a break, a “real world” way of saving and passing those on to the consumer,” Bonomo said, noting, “And it’s not happening a moment too soon.