New Approaches by Physicians, Underwriters and Actuaries Reportedly Needed to Address Med-Mal Crisis

November 28, 2003

With medical malpractice reform reportedly unlikely at the federal level and in many crisis states, insurers unable to make a profit and coverage for doctors unaffordable, new ways are needed to manage the risk, panelists told the recent Annual Meeting of the Casualty Actuarial Society.

The joint presentation was made by Carl Ashenbrenner, actuary, Milliman USA; Sarah Dore, principal, SM Dore Consulting; and Kathy Pinkham, president, Healthcare First, a division of Arthur J. Gallagher & Company.

“Medical malpractice is a small line that creates a lot of problems,” observed Ashenbrenner. It was pointed out that past crises led to the creation of unique solutions. For example, physician-owned insurers were formed after multi-line companies withdrew from the market in the 1970s and claims-made coverage was introduced after substantial rate increases in the 1980s.

Today, significant availability and affordability problems reportedly exist at a time when capacity is severely constrained, claim severity is increasing, financial pressures in the healthcare system are forcing physicians to see more patients and there is a serious shortage of nurses.

The physicians have reportedly responded in a number of ways: accepting lower limits and higher deductibles, forming captives, “going bare,” obtaining coverage from hospitals and leaving crisis states or changing practices. “A lot of doctors are going without insurance,” said Pinkham.

At the same time, insurers are re-underwriting their book of business, retrenching back to core businesses, initiating new business moratoriums or using a broad-brushed underwriting approach.

A number of legislative proposals also have been advocated. One proposal, advanced by the Alliance for Healthcare Reform, would create an administrative compensation system, taking disputes out of the courts, and guarantee reasonable compensation for avoidable injuries.

One measure, the Medical Justice Act, would provide immunity from lawsuits with an early offer of compensation for injury. Another proposal would allow for no-fault on certain specialties, such as obstetrics, trauma and emergency treatment.

Proposals for governmental action also reportedly include the establishment of state administrative boards to evaluate compensation and special health care courts with binding rules on causation, compensation, standards of care and related issues and the creation of state compensation funds. The current AMA agenda reportedly calls for capping pain and suffering awards.

There are, however, a number of other ways that physicians, underwriters and actuaries can address the current environment.

For example, physicians and other medical staff reportedly need to be trained to treat patients better by setting patient expectations properly and reinforcing those expectations frequently.

Physicians were urged to spend more quality time with patients, accepting a reduction in patients seen per day in order to reduce potential claims and insurance costs. In addition, doctors should gather patient feed back and have it independently evaluated and obtain “real” informed consent.

Medical malpractice insurers were called on to reduce the number of claims – stop paying off illegitimate claims to make them go away. Insurers also should ask physicians to retain more risk though higher deductibles.

Panelists suggested that insurers work only with physicians who will follow best practices and insist that patients recognize their role in maintaining their own health and in keeping malpractice insurance costs manageable. Changing the policy form to recognize arbitration agreements also is advisable.

Underwriters were urged to use more efficient ways of evaluating risk. Considerations should reportedly include the number of patients, number of high risk patients, quality of care measurements, adherence of standards of care, identification of the types of procedures that generate claims and the evaluation of error-management programs in hospital and practices as well as patient advocacy programs.

More coverage options also should reportedly be made available. These could include placing defense costs within policy limits and permitting tail limits as the extension of last limits.

“Actuaries can help underwriters look at new techniques in the delivery of medicine,” said Dore. Actuaries should review losses in more detail, drilling down to causation, rather than classifying and penalizing areas of practice. They should then recommend evaluative measures to underwriters.

In addition, actuaries should reportedly study the practices of low risk doctors and develop rating factors based on those factors. Common factors among high risk patients also could be identified. For example, these factors could help physicians select patients who are unlikely to sue them.

Finally, it was advised that actuaries also could create a measuring tool to evaluate the risk profiles of physicians, identifying the risk characteristics of physicians who have been sued, building a national database that provides a risk profile and use it to load individual physician’s rates. High-risk physicians also should be encouraged to leave the patient care area of medicine.

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