Tag Archives: medical malpractice insurance

MLMIC Completes Demutualization, Acquisition by Berkshire Hathaway

MLMIC Insurance Co. announced last month the completion of its conversion from a property-and-casualty mutual insurance company to a property-and-casualty stock insurance company and the finalization of its $2.5 billion acquisition by National Indemnity Co., a subsidiary of Berkshire Hathaway Inc.

The conversion and acquisition followed a September 6 approval by the Superintendent of the New York State Department of Financial Services and a September 14 vote of MLMIC policyholders with policies in effect on July 14, 2016. The cash consideration resulting from the conversion will be paid out to eligible policyholders — policyholders with policies in effect from July 15, 2013, through July 14, 2016 — or their designees as promptly as practicable, according to the company.

As a subsidiary of Berkshire Hathaway, MLMIC will have enhanced capacity and financial strength to continue serving New York State physicians, hospitals and dentists. MLMIC remains the largest underwriter of medical professional liability insurance in New York and continues to be a New York‐focused medical malpractice writer regulated by New York State. The same Board of Directors and staff that have served the market for several decades will operate it.

“No one will see any difference [in day-to-day operations],” said Berkshire Hathaway chief executive Warren Buffett, during a livestreamed conversation between himself and James Reed, MD, MLMIC chairman of the board, from Berkshire Hathaway’s Omaha, Neb., headquarters on October 17. “The one thing that we will do is manage [MLMIC’s] investments.”

Reed highlighted how Berkshire Hathaway’s deep resources position MLMIC to address the challenging risks of the New York market as well as the hyper-evolving American healthcare delivery system.

“The tremendous financial resources of Berkshire Hathaway [lets us] assure physicians in New York that if they’re insured with MLMIC, there’s nothing that could come at us that we wouldn’t have the resources to deal with,” he said. “And the resources will allow us to be much more innovative in the way we approach malpractice insurance in the future.”

Reed pointed to the consolidation within the healthcare delivery system as one of the particularly pressing challenges currently facing the medical professional liability insurance industry that MLMIC wants to proactively address.

“At MLMIC, we know we’re going to have to be innovative with the consolidation that’s occurring — physicians coming together to form larger groups, health systems coming together, large groups coming together with health systems,” Reed said. “We need to be more innovative on the medical malpractice insurance side, and that’s exactly what we want to do as part of Berkshire Hathaway with those resources. We have a number of innovative ideas [for working] with some of these larger groups [that] we just couldn’t do in the past.”

In addition to National Indemnity Co. and MLMIC, Berkshire Hathaway also owns MedPro Group, which provides medical professional liability coverage in New York through its subsidiary risk retention group, MedPro RRG. And both Buffett and Reed view the intra-company competition as a benefit.

“We like the competition,” Buffett said. “For example, in workers compensation insurance, we have three different [companies] that have somewhat different areas of expertise. We have totally independent organizations that are out there calling on the same firms, trying to get their worker’s compensation business. Competition is fine.”

“We’re also hoping to be able to collaborate [with other Berkshire Hathaway companies operating in medical liability] because one option to consolidation in healthcare is collaboration,” Reed said. “The difficulty in doing that is always a legal one, but by being part of a single company like Berkshire Hathaway, we think particularly in the areas of working on patient safety, analytics and so forth, we can collaborate some. While each company pursues its own direction, some of those things that are common across the malpractice insurers within Berkshire Hathaway, we will be able to bring together and leverage that kind of capability to improve patient safety and, therefore, better outcomes from the malpractice standpoint.”

This information provided by Michael Matray of the Medical Liability Monitor.

PIAA 2017: Current Trends & Future Concerns

Amidst Healthcare Uncertainty, PIAA 2017 Medical Liability Conference Focused on Current Challenges, Future Concerns

Hosted at the Broadmoor Hotel in Colorado Springs, Colo., with the backdrop of a Republican plan to repeal and replace the Affordable Care Act stalled between the U.S. House and Senate, the 2017 PIAA Medical Liability Conference convened from May 17 – 19 to examine the many challenges currently facing the medical professional liability insurance industry.

“This is a time of significant uncertainty for PIAA, the medical profession and the professional liability community,” acknowledged Richard Anderson, MD, PIAA chair as well as chairman and chief executive of The Doctors Company, during the opening remarks to the conference. “The evolution in healthcare delivery is transforming healthcare financing, organization and regulation, while challenging traditional definitions of good medicine. … The consolidation of healthcare delivery is well into its second decade and will be only marginally affected by national politics. Eighteen-percent of the American economy is in play. This is a non-partisan process that is unlikely to be interrupted. PIAA is working to move the process of ‘repeal and replace’ toward reasonable solutions, if this is possible in Washington today.”

Following are some of the highlights from the educational sessions at this year’s Medical Liability Conference.

Healthcare in the Digital Age
Keynote speaker Robert M. Wachter, MD, professor and chair of the Department of Medicine at the University of California, San Francisco, launched the two-day Medical Liability Conference with a session titled, 21st Century Medicine: IT, New Practice Methods and More.

Wachter started by acknowledging, “the angst of the modern physician is the challenge to “deliver high-quality, safer, satisfying and more affordable care.”

The answer to that challenge is clearly tech-enabled, but the medical industry remains in its infancy stage regarding information technology. Wachter illustrated this point by citing statistics from the Office of the National Coordinator for Health IT that show only 9.4 percent of hospitals employed electronic health record technology in 2008, but that number jumped to 83.8 percent by 2015.

Drawing upon his professional experience and real-life case examples to explore some of the unforeseen consequences in healthcare’s adoption of data information technology, Wachter noted how the clerical burden of electronic health records has pushed physician burnout rates above 50 percent (up 9 percent in the last three years); how the intensive care unit at his hospital has an average of 2,558,760 audible alerts per month, which has created staff alert fatigue; and how digitization has threatened the doctor-nurse collaboration as well as the doctor-patient relationship.

Later that day — and in the wake of the previous week’s massive “Wanna Cry” ransomware attack that paralyzed many hospitals and physician offices in the United Kingdom — a chilling session titled The Data Privacy & Security Landscape: Today’s Threats & Risk Mitigation explored the many ways digital criminals are targeting the healthcare sector.

Panelist Gamelah Palagonia, Willis Towers Watson senior vice president, walked attendees through the increasing complexity and endless array of developing threats such as Ransomware, Distributed Denial of Service (DDoS) attacks and vulnerabilities associated with the “Internet of Things” (IoT) that has propelled the cyber risk landscape into uncharted territory.

“Healthcare is the most vulnerable industry in America,” Palagonia said, noting that the healthcare sector accounted for 22 percent of all hacking incidents by industry. The good news, she said, is that proper employee training can mitigate two-thirds of all cyber risks facing healthcare.

Emerging Trends
In a session titled Storm on the Horizon: Determining the Next Claims Hurricane, moderator Sarah Pacini, JD, chief executive of the Cooperative of American Physicians, led panelists through emerging trends in handling medical professional liability claims.

Panelist Matthew Nielsen, Esq., vice president of claims for OMS National Security Co. RRG, brought attendees’ attention to the relatively growing trend where medical liability plaintiff attorneys invest in litigation cost insurance, which covers expert fees, deposition transcripts, travel, trial exhibits, mediator expenses, copies, etc., in the event that the plaintiff loses at trial. Such coverage is currently available in 16 states. Nielsen opined that this insurance product carries the potential to spike the volume of medical liability claims filed, swell the number of cases that go to trial, increase indemnity and embolden plaintiff attorneys to spend more money on expert witnesses and the overall amount they are willing to spend on a medical malpractice trial.

Joel Hopkins, Esq., partner at Saul Ewing LLP, spent significant time exploring the inherent challenges presented by electronic health records and the discoverable metadata found in the technology’s audit trails. Not only does the available metadata raise issues of privilege and confidentiality, it can push an insurer’s loss adjustment expense into the five figures.

During the session Employment or Private Practice: Factors Influencing this Key Decision, moderator Mary Ursul, Coverys executive vice president, and panelists looked at the data indicating physician employment continues to increase as well as the factors leading to a doctor’s decision to remain in private or employed practice.

Panelists cited data from a 2015 Merritt Hawkins “Survey of Final-Year Medical Residents” that indicates 36 percent of today’s physicians finishing their residency or fellowship are open to a hospital-employed practice — up from just 3 percent in 2003. These young doctors most value free time, educational debt relief and a good income when determining how to practice. Panelists also noted medical liability as a “significant concern” to young physicians has dropped significantly since 2011.

During Leveraging Data to Change the Risk Mitigation Game, Rick Hammer, MD, senior vice president at SE Healthcare Quality Consulting, and James Saxton, Esq., chief executive at Saxton & Stump LLC, discussed how empowering doctors with their own data could serve as one of the foundational elements necessary for success. They noted that — when utilized in a very specific way — data could be a gateway to professional liability risk mitigation. To illustrate this point, the panelists looked at how the implementation of a data-driven obstetric patient safety program at the New York Weill Cornell Medical Center decreased its number of sentinel events from five in 2000 to none in 2008 and 2009; during the same period, the hospital’s obstetric department reduced its average annual compensation payments from $27,591,610 between 2003 and 2006 to $2,550,136 between 2008 and 2009.

The Financial State of MPLI
Diving deep into the financial health of the medical professional liability insurance industry, during the session MPL Insurance Industry Performance: What’s the Latest?, Chad Karls, principal and consulting actuary at Milliman Inc., examined the underlying drivers of the medical professional liability industry’s financial condition.

Karls began his presentation with the unsettling fact that the industry’s overall direct written premium decreased by 24 percent between 2006 and 2016. That number is an even bigger 32 percent when looking solely at the direct written premium from traditional physician liability insurance — as opposed to including hospitals, other facilities and other providers.

The most impressive news Karls shared was the extreme slide in claims frequency, which has fallen around 40 percent since 2001. “This is really big stuff,” he marveled. “It’s huge.” Karls later explained how the industry’s almost 40-percent drop (relative to 2000 – 2002 levels) in physician paid indemnity is “driven totally by the fall in claims frequency.”

While the decline in claims frequency and paid indemnity is a positive, Karls brought attention to “the fly in the ointment” — allocated loss adjustment expenses (ALAE) have ballooned by 6.3 percent between 2005 and 2015. Even more concerning, 38 percent of ALAE costs are spent on claims that are dropped, withdrawn or dismissed, and ALAE severity is outpacing indemnity severity. Obviously, defense costs are getting out of control.

Combined ratios inched above 100 percent for the first time since 2005, denoting an underwriting loss, but Karls noted medical professional liability insurers are buoyed by “incredibly strong balance sheets … the strongest balance sheets we’ve ever had.”


MPLI Executive Insights: Paul Greve, Executive Vice President, Willis Towers Watson Health Care Practice

On the latest episode of Healthcare Matters, we interview Paul Greve, Executive Vice President at Willis Towers Watson Health Care Practice for our segment, MPLI Executive Insights. We sat down with Greve during the 2017 Professional Liability Underwriting Society (PLUS) Medical Professional Liability Symposium, where he moderated the panel, “Hot Topics: Regulatory and Related Changes in Healthcare.” We spoke with Greve on many topics, including the effect that changing or replacing the Affordable Care Act could have on hospitals and physician liability and the possibility of including federal tort reform in future healthcare legislation. Greve addressed how measures like caps on noneconomic damages, affidavits of merit and safe harbor laws could impact the medical liability industry.

Greve spoke with us as part of our new segment, MPLI Executive Insights, where we talk with top medical liability industry executives on current trends in medical liability, where the industry may be headed in the future and the impact of politics and reform efforts on the medical liability industry.

MPLI Executive Insights: Andre Stewart, Chief Underwriting Officer – NORCAL Mutual

Join us for the first episode of our new Healthcare Matters segment, MPLI Executive Insights, where we interview top medical liability executives on current and future trends and developments in the industry. Today’s segment features Andre Stewart, Chief Underwriting Officer for NORCAL Mutual, who joined us during the 2017 Professional Liability Underwriting Society (PLUS) Medical Professional Liability Symposium. Stewart discussed several topics with us, including the importance of underwriting profits; how ‘shock losses’ can disturb the market, and the implications of repealing the Affordable Care Act on the medical liability industry.

Founded in 1975 in San Francisco, NORCAL Mutual Insurance Company has expanded from its West Coast origins to offer medical malpractice insurance in 35 states, including newly-added Colorado and Minnesota. NORCAL has maintained a rating of “A” or higher with A.M. Best throughout its history.

Two Percent of Physicians Responsible for Half of Malpractice Payouts

If 2% of Physicians Are Responsible for Half of Malpractice Payouts, How Should We Intervene with These Outliers?

Last month, the Journal of Patient Safety published “The Detection, Analysis and Significance of Physician Clustering in Medical Malpractice Lawsuit Payouts,” an analysis of data from the National Practitioner Data Bank (NPDB) that indicates only 1.8 percent of American physicians have been responsible for at least half of the more than $83 billion in medical malpractice payments between 1990 and 2015. This assessment is in keeping with another study of NPDB data published earlier this year by The New England Journal of Medicine that found just 1 percent of doctors were associated with 32 percent of all malpractice settlements paid between 2005 and 2014. The NPDB is a federally mandated repository for information regarding medical professional liability payments.

“The Detection, Analysis and Significance of Physician Clustering in Medical Malpractice Lawsuit Payouts” study analyzed total claims payouts rather than number of claims because the authors theorized that “total claim payouts are a better predictor of future malpractice claims than the total number of claims paid because this metric would be expected to have a positive relationship to both the severity of the event and the number of claims paid.”

The good news is that the number of U.S. physicians grossly underperforming their peers has been on the decline. A very similar study of NPDB data 15 years ago by the nonprofit consumer advocacy group Public Citizen found that 5 percent of physicians were responsible for half of all malpractice awards. What this tells us is that the combination of medical liability tort reforms and risk management investment has been fruitful. It also indicates that the less than 2 percent of physicians responsible for half of medical malpractice payouts in the Journal of Patient Safety study are true outliers, driving up insurance costs for the other 98 percent of physicians.

The authors of “The Detection, Analysis and Significance of Physician Clustering in Medical Malpractice Lawsuit Payouts” emphasized the potential for their data approach to find and intervene with those physicians likely to have repeated episodes of complaints and claims. And because “those physicians in the group responsible for 50 percent of the dollars paid were more likely to have higher payments and to be repeaters than the entire group for the most commonly occurring numbers of payments, it suggests that the best way to identify physicians requiring intervention involves examining the total malpractice dollars paid by physicians.”

The ability to identify those physicians likely to have repeat, high-dollar payments would be of enormous benefit to hospital systems, medical professional liability insurers and the at-risk healthcare professionals themselves. If the outlier physicians’ malpractice payouts could be reduced or eliminated, it would make a significant difference in the nation’s total malpractice payouts, allow for greater actuarial accuracy when determining medical professional liability insurance premiums and offer the opportunity to intervene early with risk management courses for those physicians most likely to incur repeat, high-dollar claims in the future.

If hospital systems are able to determine which physicians carried the highest claim risk, they could segregate them out from their self-insurance vehicle in favor of other insurance options. Perhaps insurers of medical liability could take a page from Speaker of the House Paul Ryan suggestion for insuring Americans with a preexisting condition and create non-standard, high-risk pools for those physicians likely to have future high-dollar claims. Acceptance into these high-risk pools could mandate participation in deep patient safety and risk management training with the hope that these at-risk physicians could change course and ultimately re-enter the standard medical professional liability insurance market.

Many industries are already using big data and predictive analytics to forecast trends and alter employee behavior. Applying this approach to healthcare liability carries the potential to further reduce claims frequency and deflate the cost of medical professional liability insurance costs for the 98 percent of practicing physicians who are not likely to have recurring, high-dollar malpractice claims.

President-Elect Trump

Special Report: The Future of the Medical Professional Liability Industry and the PPACA under a Trump Administration

The Future of the Medical Professional Liability, Patient Protection & Affordable Care Act Under a Trump Administration

Having weathered two Supreme Court challenges and more than 60 repeal attempts by a GOP-controlled Congress, it was the 2016 election that ultimately handed the Republican Party the ammunition it needs to neuter the Patient Protection & Affordable Care Act of 2010.

With a President-elect who campaigned on a full repeal and replacement of the Affordable Care Act as well as Republicans in control of both houses of Congress, it’s safe to say that President Obama’s signature health law — if not fully repealed — will undergo significant changes.

Despite the unified Republican government, Democrats in the Senate are likely to filibuster any wholesale attempt at repealing the landmark legislation that brought 22 million Americans healthcare coverage for the first time, leaving Republicans the parliamentary procedure known as reconciliation to hamstring the law often pejoratively referred to as Obamacare. The reconciliation process is restricted to matters that relate to spending, require only a majority vote and would allow Republicans to repeal the individual mandate that all Americans purchase health insurance, take apart the Affordable Care Act’s expansion of Medicaid and rescind the premium tax credits for low- and middle-income individuals purchasing health insurance on the open market.

The Republican Congress moved a reconciliation bill that would have repealed those portions of the Affordable Care Act to President Obama’s desk where it was promptly vetoed in December of last year, and the rhetoric so far suggests they are likely to use that bill — or one very similar — to financially hobble the healthcare law early in the Trump presidency.

The replacement portion of “repeal and replace” will likely take much longer as Republicans try to coalesce around legislation that its members can support and doesn’t result in the politically untenable position of abruptly throwing the newly insured out of healthcare access. Add to that the fact that many of the Affordable Care Act’s regulations have woven themselves into the healthcare delivery system during the last six years, and any quick, complete replacement of the Affordable Care Act is unlikely.

How Will Medical Liability Be Affected?

President-elect Trump has been mute so far on what role medical liability tort reform might play in his vision for the American healthcare delivery system, but Speaker of the House Paul Ryan released a 37-page white paper in June of this year where he broadly outlined his goals for replacing the Affordable Care Act.

Ryan’s white paper makes several calls for federal-level medical liability tort reforms. It argues the United States’ current system for medical malpractice remedy has “imperiled patient access and imposed tremendous costs on our nation. The current system has forced doctors out of practicing in certain specialties; it has caused trauma centers to close; and it has forced pregnant women to drive hours to find an obstetrician. The current system also has imposed a tremendous burden in unnecessary costs on our national healthcare system and federal government. Estimates are that the failure to enact meaningful medical liability reform costs our nation’s healthcare system as much as $300 billion each year.”

In its plea for tort reform, Ryan’s white paper argues “comprehensive medical liability reform that includes caps on noneconomic damages will improve patients’ access to quality care while reducing the overall cost of healthcare in America. Our plan will include liability reform that includes caps on noneconomic damage awards.”

The white paper further promises to “work with the states to pursue a wide variety of options such as loser-pays, proportional liability, the collateral source rule, consideration of the statute of limitation, safe harbor provisions, health courts and independent pre-discovery medical review panels.”

If President-elect Trump were a typical Republican, one could assume he holds views similar to Ryan, but the mercurial populist and serial-filer-of-lawsuits Trump campaigned on sticking up for the “little guy” and never officially disclosed his views on tort reform.

“One of the big questions is where the Trump Administration will be on tort reform,” said Mike Stinson, vice president of governmental relations and public policy for PIAA, the insurance industry trade association that represents entities doing business in the medical professional liability arena. “We’re not 100-percent sure we have a pro-business President-elect who is also going to be pro-tort reform. We usually link those two ideas together, but he could go in directions that would normally seem contradictory.”

Add to that the Freedom Caucus — comprised of conservative, libertarian-leaning Republican members of the House — having thwarted their own party’s Help Efficient, Accessible, Low-cost, Timely Healthcare (HEALTH) Act, which would have imposed a nationwide cap on damages, from getting out of committee earlier this year on grounds that the federal government has no authority to overwrite state civil liability laws, and nationwide medical liability tort reform under a unified Republican government seems like even less of a slam dunk.

How Will Malpractice Litigation Be Affected?

While political partisans and healthcare pundits debated the constitutionality and/or practical effectiveness of the Affordable Care Act, the medical malpractice insurance industry was closely watching the U.S. court system as medical malpractice defense attorneys argued — both successfully and unsuccessfully — that provisions of the Affordable Care Act should impact a plaintiff’s ability to recover the cost of future medical expenses.

When a negative medical outcome occurs, the lion’s share of economic damages to a plaintiff is most often the costs pertaining to his or her future medical care. Depending on the age of the patient and the severity of the medical injury, the cost of future healthcare needs can easily stretch into the millions of dollars. Traditionally, it has been generally assumed that 100 percent of these medical expenses would be paid for out-of-pocket by the plaintiff. Life care plans have rarely, if ever, taken into consideration the benefits of the plaintiff’s health insurance that would abrogate many of the projected expenses. This is because — prior to the Affordable Care Act — healthcare insurance almost always carried preexisting condition exclusions as well as annual and lifetime expenditure limits.

Savvy medical liability defense attorneys recognized that the Affordable Care Act removed preexisting condition barriers and expenditure limits as well as required all Americans to obtain some basic level of healthcare insurance. If this is the case, they contended, why can’t the defense argue future medical expenses will never be fully paid by the plaintiff out-of-pocket, and as such, the health insurance they are required to carry should be considered as a collateral source of recovery, subrogating portions of the total cost of economic damages?

Rather than paying the total cost of the plaintiff’s life care plan, these defense attorneys argued, the defendant should only be required to pay for the premium costs of obtaining the plaintiff’s healthcare insurance as well as any associated co-pays and deductibles. This argument has had mixed results so far in the American court system.

In court decisions that barred consideration of the Affordable Care Act offset potential, the most common reasoning had been that the Affordable Care Act’s future is too unsettled. Judges opined that with the heated politics surrounding the Affordable Care Act, the legislation could be struck down in one of the many lawsuits challenging its constitutionality or repealed when the balance of power shifts in Washington, D.C. — especially when one political party has been campaigning almost exclusively on doing just that. This was the reasoning in a 2012 case in Alabama, a 2013 case in Illinois and a 2014 case in Pennsylvania, among others.

Conversely, courts in Arizona, California, Hawaii, Illinois, Michigan and Ohio have allowed the Affordable Care Act’s mitigating effect to be admitted into evidence. In the Hawaii case, the defendant was allowed to cross-examine the plaintiff’s life care planner on the setoff effect of the Affordable Care Act on future medical expenses. In the Michigan case, the court found that “insurance provided under the Affordable Care Act is reasonably likely to continue into the future and that its discussion before the jury is not precluded.” In the Ohio case, Jones v. MetroHealth Medical Center, the court reduced a $14.5 million future damage award to $2.9 million by offsetting amounts covered under the Affordable Care Act, but allowing recovery for premiums, out-of-pocket costs and other expenses.

“If the Affordable Care Act is repealed, you’re no longer going to be able to compel people to purchase health insurance and you’re going to lose the future damages argument,” said Paul Greve, JD, RPLU, executive vice president/senior consultant of the Willis Towers Watson Health Care Practice. “Everyone in our industry had been watching the case Jones v. MetroHealth Medical Center in Ohio. The lower courts agreed with our argument and it was on its way to the state Supreme Court where we hoped it would set precedent. If Hillary Clinton had been elected president and Ohio maintained a Republican Supreme Court, which it did, the chances were very high that Jones was going to be upheld at the highest level, and we would then have a case other courts around the country could look to. That’s probably not going to happen now. If the requirement to purchase insurance is repealed, the argument is probably dead.“

By Michael Matray, the Editor of the Medical Liability Monitor. He can be reached at editor@mlmonitor.com

MLM 2016 Annual Rate Survey – Will the Market Harden?

mlm-logoMedical Liability Monitor 2016 Annual Rate Survey Indicates Medical Malpractice Insurance Rates Remain Flat, Building Pressures Could Harden Market

Last month, Medical Liability Monitor published its 2016 Annual Rate Survey, which provides a year-to-year, continuing overview of changing premium rates for medical professional liability insurance. The Annual Rate Survey reports the manual rates for specific mature, claims-made specialties with $1 million coverage per claim and a $3 million annual aggregate – by far the most common limits. The special issue details three specialties – Internal Medicine, General Surgery and Obstetrics/Gynecology – to reflect the wide range of rates charged.

This year’s Annual Rate Survey depicts the cost of medical malpractice coverage against the backdrop of a medical professional liability insurance industry continuing an unprecedented run of consecutive profitable years. Much of the industry’s financial success is being driven by calendar-year underwriting profitability. This is significant because, during the approximately 40 years medical professional liability has been reported as a separate line of business, there have been only 13 years reflecting a calendar-year combined ratio under 100 percent. Ten of those 13 have been the last 10 years.

The consistent profitability and level of the calendar-year combined ratio is due, in no small part, to the favorable reserve development that began in 2005 after a five-year period of unfavorable development, occurring on the heels of significant broad-based increases in medical malpractice insurance rates and high-profile debates about the connection between access to healthcare, increases in medical professional liability loss costs/rates and tort reforms – with many states, consequently, implementing tort reforms beginning primarily in the 2003 to 2005 time period. These tort reforms – in concert with escalating costs associated with bringing a malpractice lawsuit and a shift in attitude by jury pools toward physician sympathy – have had a chilling effect on claim frequency.

As a result, the medical professional liability insurance industry has enjoyed a decade-long soft market where malpractice insurance rates have declined or remained flat from year to year. Results from the 2016 Annual Rate Survey indicate that the cost of medical malpractice insurance remains largely unchanged (flat) when compared to 2015 results. While the average rate decreased by 0.1 percent between 2015 and 2016, the vast majority (75 percent) of medical professional liability insurers participating in the 2016 Annual Rate Survey reported no rate change between 2015 and 2016 – slightly higher than the percentage with no manual change shown in 2015 (71 percent).

Of note is the distortion created by states with a Patient Compensation Fund (PCF). In 2016, and to some degree in 2015, the PCF surcharges have been impacted by unusual events. For example, the Mcare fund in Pennsylvania reflected decreased surcharges by about 50 percent in last year’s survey, but an approximate 40 percent increase in this year’s survey (related to adjustments called for in a settlement of litigation). Besides Pennsylvania, this year’s survey reports changes for the PCF surcharges in Indiana (increase), Louisiana (decrease) and Nebraska (increase). Eliminating the distortion created by the PCF surcharge changes causes the 75-percent no-change percentage mentioned above to increase to 82 percent, reduces the percentages reflecting increases (15 percent becomes 10 percent) and slightly reduces the percentage of decreases (9.4 percent becomes 8.6 percent).

In the 2015 Annual Rate Survey, medical malpractice insurers reported more rate increases than decreases for the fist time since 2006. This trend continues in the 2016 Survey – with 15 percent reporting increases and 9 percent reporting decreases. Double-digit rate increases are nonexistent this year, and only three states reported decreases of more than 5 percent: Arizona, Colorado and Louisiana.

For the twelfth-straight year, most increases were less than 10 percent. Roughly 1 percent of rate increases exceeded 10 percent, compared to a more than 5 percent of rate increases in excess of 10 percent a year ago. Similarly, 4 percent of last year’s rate increases exceeded 15 percent, whereas this year only one-half-of-1-percent of rate changes fell in this range.

Indications that the medical malpractice insurance industry’s fortune could be due to wane include a declining reserve development. During the last 10 years, favorable reserve development has benefited otherwise indicated industry calendar-year loss ratios by more than 27 points in some years. However, that benefit has declined to nearly 20 points in 2015, begging the question as to whether the medical professional liability insurance industry will continue the unprecedented, decade-long string of calendar-year underwriting profitability.

Another indication is the industry’s inflating “defense and cost-containment expense,” often referred to as allocate loss adjustment expense, or ALAE. In layman’s terms, the cost of attorneys, their staff, expert witnesses and other court-related services is getting more expensive. This increasing pressure has not prompted rate action yet because of all the other favorable claim trends, which are having a significant effect, but the increased ALAE costs should not be ignored.

The Medical Liability Monitor 2016 Annual Rate Survey indicates that the medical malpractice marketplace will remain stable in the near term, but over the long term, the industry’s slowly declining underwriting results and increasing ALAE pressures could potentially start pushing rates upward.

Michael Matray is the Editor of the Medical Liability Monitor, he can be reached here.

PIAA 2016 Medical Liability Conference Recap

by Michael Matray, editor of Medical Liability Monitor

Hosted in the nation’s capitol during the most bizarre, contentious election year in recent memory, the 2016 PIAA Medical Liability Conference convened from May 11 – 13 to foster discussion about the factors currently driving the medical professional liability industry as well as the emerging trends it will address in the near future.

Educational sessions at this year’s conference examined generational differences between younger millennial physicians and those of the baby boom generation, the benefits of shared decision making for patients and providers, the rapid growth of retail medicine and the emerging role of telemedicine in healthcare delivery as well as the future of data analysis and how to leverage this new approach to healthcare management. Following are some highlights from the three-day Medical Liability Conference.

PPACA Remains Front & Center

The Medical Liability Conference kicked-off with a keynote address from Kathleen Sebilius, former-U.S. Secretary of Health & Human Services and the woman who helmed the launch of the Patient Protection & Affordable Care Act (PPACA) of 2010. A leading voice in health policy, Sebelius revisited her part in the rollout of PPACA, its influence on the current direction of the healthcare industry and its potential future effects on the medical professional liability industry.

Sebelius began by noting how PPACA has driven the U.S. uninsured rate below 10 percent for the first time, moved the Centers for Medicare & Medicaid Services from a passive payer to an active purchaser of healthcare and slowed the rate of expansion in healthcare spending to a 15-year low.

When it comes to the future of medical liability, she believes “the next 10 years will look much different than any previous period.” According to Sebelius, the new technologies, data sets and reimbursement model PPACA has made possible will have great influence on those participating in the business of medical professional liability.

“The future is in data and data analysis,” Sebelius explained, highlighting how PPACA’s incentives to move from paper medical records to electronic health records will help facilitate the collection and scrutiny of healthcare data in new and advantageous ways. She also noted the boom in startup companies that analyze large volumes of data in order to advise the most advantageous course of treatment.

Sebelius warned that while the move to a value-based reimbursement system has had the positive effect of reducing adverse outcomes by 17 percent and decreasing the number of hospital readmissions by 565,000 since 2010, enterprising trial lawyers are likely to exploit readmission denials as a new claim avenue when such a denial ends in an unintended negative outcome.

Millennials & Baby Boomers

Two sessions at this year’s Medical Liability Conference focused on how generational differences between physician populations are affecting the practice of medicine as well as physician risk profiles.

In a session titled Perspectives on 21st Century Medicine: Enter the Millennials, Graham Billingham, MD, MedPro Group chief medical officer, moderated a panel that looked at challenges the healthcare delivery system is likely to confront in adapting to the expectations of this new millennial demographic.

Characteristics that define the worldview of physicians who reached adulthood at the turn of the 21st century include their comfort with and reliance upon technology, emphasis on a work-life balance, comfort in challenging authority and embrace of performance-based incentives rather than reimbursement for the quantity of patients seen in a day.

These generational attributes meld well with the direction PPACA reforms have been pushing healthcare delivery, but they also present certain challenges. How will they react when the technology they rely on fails? What is the best way to provide positive reinforcement—while at the same time establishing realistic expectations for recognition—for a segment of physicians who grew up as part of the “everyone-gets-a-trophy” generation?

Later the same day, James Swift, DDS, chair of OMS National Insurance Co., moderated a session on Aging Healthcare Professionals—Issues & Considerations for Insurers, which looked at the impact aging has on a physician’s cognitive and physical abilities as well as how malpractice insurers can manage senior physicians’ elevated risk profile.

Like the millennials, the aging baby-boom generation of physicians carry their own challenging liability issues. Reasoning skills generally decline by around 10 percent between ages 65 and 70 years old. Between 3 and 19 percent of adults older than 65 years experience mild cognitive impairment, affecting memory under stressful situations. Due to their earned stature, most aging physicians receive little evaluation and are almost universally resistant to an intervention regarding their cognitive decline.

In light of these statistics, the panel discussed the benefits of late-career-practitioner medical malpractice insurance policies that incorporate confidential, well-structured, rigorous peer review to evaluate cognitive and physical decline.

Now Mainstream

Two sessions at this year’s conference examined healthcare practices that have recently emerged into the mainstream—telemedicine and retail medicine.

Joseph McMenamin, MD, JD, who spends the majority of his legal practice advising and consulting practitioners of telemedicine, conducted a session titled Telemedicine: Indentifying, Assessing & Minimizing Associated Risks where he weighed the benefits against the disadvantages of telemedicine. McMenamin acknowledged there have been few telemedicine liability claims to date, but he expects that to change in the future.

With a growing physician shortage in the United States, telemedicine offers isolated patients convenient access to medical care. Patients are more likely to share sensitive, personal information via telemedicine than during face-to-face consultations, and the practice also carries a number of cost-saving advantages.

Those benefits aside, telemedicine is limiting in that the medical professional cannot auscultate and is limited by his or her inability to conduct a physical, hands-on inspection of the patient.

McMenamin anticipates liability claims will stem from telemedicine’s limited data for diagnosis, documentation errors and whether or not the telemedicine professional directed the patient to visit his or her primary care physician for follow-up.

Kavita Patel, MD, MS, presented a session titled The Rapid Growth of Retail Medicine in which she detailed the scope of services offered at retail clinics, their beneficial cost structure and consumer appeal.

Retail clinics offer acute episodic care, and according to Patel, 75 percent of diagnoses are for five to seven common conditions. Costs are containable due to the low cost for space and the fact that labor is generally performed by less-expensive nurse practitioners. Consumers are drawn to retail medicine for to its convenience and transparent pricing.

According to Patel, medical centers previously thought if they ignored the retail medicine trend, it would go away; now most are affiliating themselves with local big-box retail clinics. Payer coverage is also expanding.

The Financial State of the MPLI Industry

Perhaps the most well attended of the sessions each year at the Medical Liability Conference is the one that dives deep into the financial health of the medical professional liability insurance industry. This year’s session, titled MPL Financial Performance: Are the Winds of Change Finally Beginning to Blow?, conducted by James D. Hurley, consulting actuary with Willis Towers Watson, was no exception.

For his presentation, Hurley assembled the data of roughly 35 PIAA member companies, excluding Medical Protective and MLMIC of New York for logistical reasons, as of Dec. 31, 2015.

The good news is that 2015 continued the medical professional liability insurance industry’s decade-long streak of underwriting profitability.

“The combined ratio was at 89 percent in 2006, dipped down to a low of 76 percent in 2008 and has been on a steady, but slow increase to date,” Hurley explained. “But you also see an indication of stability in that every one of these numbers over the last 10 years is under 100 percent.”

To illustrate how much the medical professional liability insurance industry’s underwriting has changed over the years, Hurley showed a slide stretching back to 1976 where the combined ratio dipped under 100 percent just three times previous to 2006. And underwriting needs to be sound in today’s marketplace, as 2015’s investment income was at its lowest point since the economic crisis of 2008.

“Pressure is building on the underwriting side,” Hurley warned, pointing to a slide that illustrated how combined ratios have steadily climbed from a low of 76 percent in 2008 to 96 percent in 2015. “We can see the steady increase in combined ratios. Dealing with exposure and balancing that with pricing is critical.”

To stay competitive during the industry’s now-decade-long soft market, insurers have buoyed themselves with reserve releases. Hurley shared how the industry’s total loss reserves have decreased from a high point of $11.2 billion in 2007 to $8.5 billion in 2015. At what point will this be unsustainable?

Hurley noted that another significant factor to the industry’s positive financial results has been the decline in claims frequency. He shared a slide that showed a stark, almost-nine-point decline in claims frequency with cost in two states that passed medical liability tort reforms in the early 2000s as well as two states that passed no reforms, yet still experienced a decrease in claims with cost.

New York’s Medical Malpractice Market in the Spotlight

by Michael Matray, editor of Medical Liability Monitor

New York’s medical malpractice insurance market was the subject of two lengthy articles last month that examined the state’s shifting competitive landscape and the questionable finances of its second-largest insurer of medical liability, Physicians’ Reciprocal Insurers (PRI).

In an article dated April 9, Politico New York primarily concentrated on the influx of risk retention groups (RRGs) to the New York market and its effect on the state’s admitted medical professional liability insurance companies. RRGs are governed by the federal Liability Risk Retention Act of 1981, which allows persons engaged in similar activities to band together as a self insurer to cover each other’s risks. The entity is only governed by the laws of the state in which it is domiciled, but free to offer coverage in all other states. Admitted insurers have been approved by the state’s insurance department, must comply with all state regulations, and in the event of financial failure, the state’s medical malpractice guaranty fund will cover its losses. The guaranty fund is a safety net financed by the state’s other admitted insurers. If an admitted insurance company fails, the costs are passed to the state’s other admitted insurers.

The Politico New York article noted that New York has 63 medical malpractice RRGs, 16 of which have entered the market since 2012. Because these RRGs are not required to pay into the state’s guaranty fund, they are often able to offer premiums that fall well below the state’s admitted insurers.

The less-expensive rates many RRGs are offering have affected the net written premium of the state’s two largest admitted insurers of medical liability, Medical Liability Malpractice Insurance Co. (MLMIC) and PRI. According to the Politico New York article, MLMIC’s net written premium decreased $79 million between 2014 and 2015, while PRI’s net written premium fell by $90 million. MLMIC remains financially strong with $1.8 billion in surplus, but as Politico New York points out, PRI reported a net underwriting loss of $12 million in 2015 and a $25 million loss in 2014. PRI’s liabilities exceed its assets by more than $138 million.

Because the New York Department of Financial Services has no control over the capital reserve requirements of RRGs operating in the state, and RRGs have the option to exit the market whenever they see fit, some legislators and regulators have expressed concern with their growing influence over the New York medical malpractice insurance market. “I know [an RRG] is a lower-cost option but I would say it is a riskier option,” Politico New York quoted state Sen. James Seward, who chairs the chamber’s insurance committee, as saying.

In an article also dated April 9, the Albany Times Union focused exclusively on the concerning financials of PRI and the role of Anthony Bonomo, the chief executive officer of Administrators for the Professions (AFP), Inc., which manages administrative and claims services for PRI. The reciprocal insurer has no actual employees and is operated by AFP, which collects a $42 million management fee from PRI. The article also noted that PRI’s 2015 expense ratio was 19 percent, more than double that of MLMIC.

In addition to chronicling PRI’s underwriting losses and negative surplus, the Times Union article delved into Bonomo’s role in events underlying the 2015 corruption trial of ex-Senate majority leader Dean Skelos.

In 1985, the state legislature enacted a law that allows medical professional liability insurers to operate at a loss. The law’s continued renewal is critical to PRI’s ability to operate, and the reciprocal spends considerable lobbying dollars to ensure that it does. Prior to his arrest in May of last year, Skelos was influential in passing the law’s most recent renewal, good through 2019.

The U.S. Attorney’s Office charged Skelos with extorting those with business before New York State to make payments to his son Adam with the expectation that such payments would result in official action by Skelos. According to prosecutors, Skelos pressured PRI to hire his son in 2012 for what turned out to be a no-show job. Skelos and his son were convicted in December of eight federal bribery, extortion and conspiracy counts involving PRI and two other companies. Bonomo was a witness for the prosecution, testifying under a non-prosecution agreement.

The Department for Financial Services declined a Times Union open records request for its three most recent financial examinations of PRI, saying the exams were never formally adopted and filed, and therefore not public.

Both the Times Union and Politico New York articles mentioned the unconfirmed industry rumor that AFP has been in ongoing discussions with The Doctors Company to sell its assets to the California-headquartered insurer of medical liability. [Editor’s note: On May 2, Politico New York published an article that reports The Doctors Company has withdrawn its offer to purchase AFP.]

New Report: Best and Worst States for Doctors

Source: WalletHub

Earlier this month, personal finance site WalletHub published a report ranking the best and worst states for physicians. They based the rankings on a variety of factors, including the cost of medical malpractice insurance, the amount of malpractice award payouts per capita in the previous year and average physician wages, as well as public health measures, like the number of state residents with health insurance and the number of hospitals in the state. Click here to view their full report.

Coming out on top was Mississippi, which had the highest wages for physicians when adjusted for cost-of-living. Mississippi is also undergoing a physician shortage, especially in rural areas, so there is plenty of demand for doctors. Other top-ranking states included Iowa (2), Minnesota (3) and North Dakota (4). Both Iowa and Minnesota were among the least expensive states for medical liability insurance, while North Dakota was number one on the list of states with the lowest malpractice award payouts per capita.

The bottom of the rankings included many states in the northeast and mid-Atlantic regions, with Washington, D.C. (51) ranking last, just ahead of New York (50), Rhode Island (49), Maryland (48) and Connecticut (47). Maryland, New York and Rhode Island were among the states with the highest malpractice award payouts per capita, while Washington, D.C. and New York had some of the most expensive medical liability insurance. Connecticut, New York and Washington, D.C. also had some of the lowest wages for physicians, when adjusted for cost-of-living.

While WalletHub’s report provides some interesting insights for physicians, to get a clearer picture of the cost of medical malpractice insurance in the 50 states and Washington, D.C., see our Historic Medical Malpractice Rate Data. Cunningham Group has partnered with the Medical Liability Monitor to publish historic rate data for all 50 states. Click here to see insurance rates for your state!