A draft study of the Texas medical malpractice insurance market which concludes that there was no justification for the 2003 enactment of medical liability reform legislation is fatally flawed because the authors’ analysis ignores key data that is most predictive of future malpractice insurance rates, according to the American Insurance Association (AIA).
The paper, “Stability, Not Crisis: Medical Malpractice Claim Outcomes in Texas, 1988-2002,” seeks to “assess the extent to which the spike in malpractice insurance premiums in Texas at the start of the 21st century reflected changes in the number or cost of malpractice claims.” In a letter to the paper’s authors, David Corum, AIA assistant vice president, challenged the study’s finding of market stability.
“By focusing their analysis only on a Texas database of claims that have been closed and paid, the authors shine their analytical light where there is no problem,” said Corum. “Scant attention is devoted to the impact of very large claims ($1 million or more) that have not yet closed, or to the relatively small numbers of medical specialists most often affected by ‘mega’ claims. This flaw has led the authors to make erroneous conclusions and observations regarding the relationship between legal outcomes and insurance prices.”
Medical malpractice claims against physicians take, on average, 4-5 years to close after first being reported to insurers. More serious claims take even longer. “The implications of this fact for the authors’ study are serious,” said Corum. “It means, for example, that the data analyzed includes only approximately one-half of the claims arising in 1999, and even fewer of the claims arising in 2000, and fewer still for subsequent years.
“On top of that, the more serious and costly claims from those years which take longer to close but are weighed heavily in insurance pricing, are much less likely to be included in the Texas closed claim data,” Corum explained. “This means that the database analyzed by the authors cannot be relied on for an explanation of what was happening in terms of new claim activity during several years preceding 2002 – the last year studied.”
In a comparison of Texas data on claim losses paid versus claim losses incurred between 2000 and 2003, the impact of these large, not yet closed, claims on medical malpractice premiums is reportedly clearly evident. During those years medical malpractice carriers reported a 34 percent increase in incurred claim liabilities in Texas, from $378 million to $508 million. During the same period, paid claims actually declined.
“A more complete look at the data by the study’s authors would have shown that Texas was long overdue for medical liability reform to address the rising frequency and severity of claims,” said Corum.
According to the AIA, proof of the positive impact of the 2003 reforms on the Texas market has been reported in recent months by the Texas Department of Insurance and others. For example:
• Rate reductions – The largest medical malpractice insurance carrier in Texas, Texas Medical Liability Trust, has reduced its rates by a total of 17 percent, affecting more than one-third of Texas physicians. American Physicians Insurance Exchange (APIE), the state’s third largest insurer of physicians, will be reducing rates five (5) percent for many obstetricians and surgeons effective May 1, 2005. Likewise, The Doctors Company, the nation’s leading physician-owned medical malpractice carrier, will be implementing a May rate cut, with reductions ranging from 9 to 14 percent. GE Medical Protective, the state’s second largest physician carrier, also announced it would not seek a rate increase this year.
•New Interest in the Texas Market – Since September 2003, the Texas Department of Insurance has been contacted by more than two dozen companies wanting start-up and licensing information. Thirteen new carriers are entering the Texas market, and existing ones are seeking new business.
•Reduced Costs for Hospitals – Last year Texas hospitals were hit with an average 54 percent hike in their liability costs. This year, with a new damage cap in place these same hospitals are seeing their liability costs slashed 17 percent.
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