By Christopher Guadagnino, Ph.D.

CAT Fund Director John H. Reed

Published January 2001

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This new year brings a familiar and grim story for physicians: Pa.’s medical malpractice environment is again posing serious challenges to the affordability and availability of medical practice in certain regions of the state, while imposing extra costs on physicians in other parts of the state even though their actual malpractice liability is relatively stable.

The problem this time involves, not only CAT Fund surcharge increases and double-digit premium increases by primary malpractice carriers, but a sharp spike in regional jury award disparities. Philadelphia juries have in recent months awarded a string of record-setting, multi-million-dollar verdicts, while physicians in counties surrounding Philadelphia are apparently being sued in Philadelphia courts in increasing numbers because of the ease with which plaintiff attorneys can shift trial venues. Spikes in jury awards against physicians have also materialized in some rural Pa. counties, causing their malpractice premiums to double.

While physicians in western and central Pa. are partially subsidizing the medical malpractice morass in the eastern part of the state, Philadelphia physicians without claims against them are paying twice as much as their colleagues in other parts of the state, raising questions as to the most equitable way to shoulder the burden.

Previous attempts at tort reform legislation have failed to pre-empt these problems, as their most vital components have been gutted unilaterally by the Pa. Supreme Court. The Pennsylvania Medical Society is poised to take a renewed crack at tort reform, both through legislative and judicial remedies, applying approaches that have worked in other states that have faced similar crises.

Dire Philadelphia Landscape

Philadelphia’s recent $100 million malpractice award was the largest ever in Pa. and the third largest in the nation in the past ten years, according to Jury Verdict Research, based in Horsham. Just a few months before that jury award came two others: one for $55 million and one for $49.6 million. Only New York pays out more than Pa. in malpractice awards, while Philadelphia alone paid out more in 1998 malpractice cases than the entire state of California, according to data from the National Association of Insurance Commissioners.

There were 33 medical malpractice verdicts in Philadelphia that exceeded $1 million in 1999, compared to 19 the previous year, according to annual surveys of civil cases in the First District.

According to CAT Fund Director John H. Reed, Esq., although Philadelphia represents only 11 percent of the state’s population, its courts and juries have awarded over $336 million in medical malpractice verdicts so far this year, representing more than 87 percent of the statewide total.

"The increasing cost of medical malpractice claims in Philadelphia represents a burden that can ultimately cripple the health care profession in the city and injure the public at large," Reed said to attendees of a medical malpractice seminar in late November. "It is no longer clear that that Philadelphia juries can be relied upon to make rational, even-handed, and dispassionate determinations in the complex matters put before them," Reed added.

Physicians may be losing a greater proportion of malpractice cases as well. Thirty-one percent of medical malpractice verdicts in Philadelphia in 1998 were plaintiff verdicts, while 46 percent favored the plaintiff in 1999, notes defense attorney Benjamin Post, Esq., of the law firm Post & Schell in Philadelphia, who expects that more than 50 percent of Philadelphia’s medical malpractice verdicts will favor plaintiffs in 2000.

As a result of these verdicts, says Reed, the cost of settlements has also gone up, with the average amount paid per case rising 15 to 20 percent statewide. Physicians and hospitals are increasingly afraid of taking cases to trial in Philadelphia, Reed notes: "Fear of the ‘economic death penalty’ has had a chilling effect on the exercise of the right to trial in even highly defensible cases."

Anecdotal accounts pin part of the problem on pro-plaintiff judges in Philadelphia. "Judges can make your life very unpleasant," says defense attorney Fredric Goldfein, Esq., of Goldfein & Hosmer in Philadelphia, noting that they make all rulings on motions during a trial, on what evidence is admissible, as well as what points of law to discuss with jurors. But it is the jurors who are putting the numbers on the awards, often driven by emotion, sympathy and other intangibles, he adds.

Philadelphia judges "bend over backward" for injured parties, allowing cases to proceed even without adequate plaintiff experts and long after filing deadlines have passed, says Paul Siegel, M.D., president of the Philadelphia County Medical Society.

Other possible explanations of why Philadelphia produces high awards, Post believes, include the deluge of publicity about the awards themselves, publicity of the medical error reduction movement and heavy saturation of advertising to consumers by plaintiff attorneys, all of which he says contributes to an epidemic of bad will toward the medical profession.

Philadelphia’s award disparity is also taking a toll on the CAT Fund’s ability to allocate its resources fairly across the state, says Reed. In a letter to the Pa. Insurance Dept. this past November, Reed notes that the CAT Fund will pay $190 million on lawsuits filed in Philadelphia County this year—representing 56 percent of all payouts in Pa.—a $20 million increase over last year and a $60 million increase over that paid three years ago. In contrast, says Reed, the Fund’s payout for Allegheny County will be less than $28 million, or just over eight percent of the statewide total.

Reed also notes a significant imbalance between the claims it must pay for physicians in the eastern region of the state and the surcharge it receives from them. The CAT Fund’s 2000 claims payout of $341 million, according to Reed, includes more than $232 million in payments made on behalf of health care providers in the seven-county southeastern region, while the surcharge for that region in 2000 is not expected to exceed $165 million. In contrast, he adds, the CAT Fund saw a surcharge surplus from providers in central and western Pa.

In the past, the CAT Fund has reported claims payments on the basis of the venue of the lawsuits. An improved computer system that allows matching claims payments to physician practice locations has revealed a startling fact: 40 percent of the money the CAT Fund pays in Philadelphia will be on behalf of providers from outside the city, as trial venues for lawsuits against suburban physicians and hospitals are moved to Philadelphia, Reed notes in his letter to the Insurance Dept. Reed recalls a Gettysburg physician who found himself as a malpractice defendant in Philadelphia.

A plaintiff’s attorney can get a trial venue moved to Philadelphia with relative ease, according to Goldfein, who represented a orthopedic surgeon from Delaware to whom this happened because one of the other physicians in the practice saw patients in Philadelphia. The defendant can file objections to the shift in venue, to be ruled on by the judge, he notes.

The CAT Fund is currently experiencing a higher loss ratio with respect to Montgomery, Delaware and Chester County physicians than it experiences in regard to Philadelphia providers, Reed says, speculating that the difference may be entirely attributable to more hostility by Philadelphia juries toward suburban providers than toward city physicians when they are defendants.

CAT Fund data on claims paid in 2000 by origin of health care provider show that $113.9 million was paid on behalf of Philadelphia providers, $37.3 million was paid for Montgomery Co., $29.3 million was paid for Delaware Co. and $22.5 million was paid for Chester Co. Providers in Allegheny Co., by contrast, cost the Fund $26.2 million in claims paid. The largest single payout for a malpractice case by the CAT Fund in Pittsburgh, says Reed, was $6 million.

Although Philadelphia’s verdict award problem is particularly acute, other Pa. counties are not immune. Suburban counties also saw record malpractice verdicts last year, according to Post, including a $5 million verdict in Montgomery County and a $2.5 million verdict in Bucks County.

Impact on Premiums

While the existence of Pa.’s CAT Fund mitigates the impact of huge awards on primary malpractice coverage, the state’s major primary carriers are already struggling to keep up with increasing liability. AM Best’s 1999 loss ratio data for Pa.’s major medical malpractice insurance carriers is disturbing. PHICO Group, Pa.’s third largest carrier with 17 percent market share, spent $2.26 for every dollar in premiums it collected in its Pa. book of business; MIIX Group, Pa.’s largest carrier with 20 percent market share, spent $1.64; and PMSLIC with 19 percent market share spent $1.38.

Medical Protective, Pa.’s fourth largest carrier with nine percent market share, spent only $0.94 for every premium dollar collected in Pa. Jury awards tend to be a relatively small portion of what the company pays out, compared to settlements and defense costs, says the company’s Treasurer Dan Landrigan. The company is willing to limit its exposure by only writing certain types of insureds, he says, but would first need to know whether something was unusual about Philadelphia’s legal system before labeling that county’s recent high verdicts as a trend.

Philadelphia is one of the tougher regions for ProNational, but the company’s two years in Pa. has not given it enough firm data from which to draw more definitive conclusions about whether recent verdicts are cause for alarm, says Jeff Bowlby, senior vice president of marketing and sales. The company’s loss costs are going up in virtually every region of the six states in which it offers coverage, he adds.

Like most carriers, PMSLIC sets its malpractice premium rates primarily according to a physician’s territory and specialty. The company rates a physician by where the majority of his or her practice is located, rather than where claims are adjudicated, notes Tim Friers, director of underwriting. He adds that PMSLIC is closely watching the phenomenon of trial venues being shifted to Philadelphia, to see whether and to what extent it is occurring before considering changing its territory ratings to compensate for it.

Several years of frequency and severity claims data have led the company, as of Jan. 1, to change its territory categories for the first time in many years, says Friers. Spikes in awards in Lackawanna, Monroe and Schuylkill counties have bumped those regions into a costlier category of their own, second only to Delaware and Philadelphia counties, which for years have had a similar claims history and remain together in the highest category. Conversely, years of favorable claims experience have moved Allegheny and Westmoreland counties down into a less costly category, grouped with several rural counties such as Elk, Fayette and Greene. Allegheny Co. physicians pay roughly half of the premium amount paid by Philadelphia physicians.

The CAT Fund’s recent experience of expensive award and settlement payments in Philadelphia does not mirror the experience of primary malpractice insurance carriers, explains Sarah H. Lawhorne, PMSLIC’s president and COO. She notes that there are specialties and territories that are more likely to trigger payments by the CAT Fund, but PMSLIC’s rates don’t consider that.

One example historically has been OB/GYNs, who tend to be in the highest premium class in other states, she notes, but in Pa., they generally are not because it is the severity of claims (amount paid) and not the frequency of claims that pushes their rates up. Since basic carriers in Pa. don’t pay the amount of the award above basic limits, OBs haven’t been in PMSLIC’s highest classification.

From PMSLIC’s standpoint, Philadelphia’s claims activity over this past year has been consistent with previous years, although settlement demands and verdicts have significantly increased, says Michelle Cameron, the company’s vice president of claims. She notes that this trend is extending to other Pa. territories.

Although PMSLIC is increasing premiums by a statewide average of ten percent this year, certain specialties, in certain regions, can expect much steeper rates of increase, Friers notes. Cardiologists (no surgery) and Neurologists will see a 45 percent increase in Philadelphia and in excess of 100 percent in Lackawanna and Monroe counties, he notes. Philadelphia Hematologists/Oncologists will see a 30 percent increase and OBs will see a 20 percent increase, he adds.

Steep premium increases in rural territories will hit physicians in those regions particularly hard, given that their lower RBRVS reimbursements are partly based on Medicare’s assumption that rural physicians pay lower medical malpractice insurance premiums than do urban physicians, notes Reed. Friers admits that access to care may be adversely impacted in such areas, many of which already suffer from physician shortages.

PMSLIC this year is also unveiling a new experience rating program to give a credit of up to 15 percent off of its base premium rates to individual physicians who have had no loss payments in the past five years and have no open claims, notes Lawhorne.

PMSLIC’s physician advisory boards have considered alternative ways of ensuring equitable premium rates for physicians across the state, such as patient volume, specific medical procedures and practice income, but have rejected them as less equitable replacements for traditional specialty and territory rating categories, says Lawhorne. The new discount program, she adds, is intended to mitigate some of the regional claims disparities.

Primary carriers will see more exposure to high verdicts as the CAT Fund’s exposure decreases, Lawhorne notes, and physicians in high-risk territories and specialties can expect to pay higher premiums accordingly, although the experience discount may mitigate the increase.

Since Philadelphia physicians already pay significantly higher medical malpractice insurance premiums than do physicians in other Pa. regions, a flat, across-the-board premium increase would be equitable because it already factors in regional claims history disparities, believes Siegel. Placing the entire cost of Philadelphia’s payouts on Philadelphia physicians, he cautions, could have a chilling effect on physician practice capabilities, given the already low reimbursement rates they receive in proportion to the expenses and wage taxes they bear relative to physicians in other counties.

Since the Joint Underwriters Association (JUA) sets rates on which CAT Fund premiums are based, Reed has proposed to the Pa. Insurance Department that the JUA review its rate structure and make appropriate adjustments, including possible increases. He maintains that the territorial ratings for counties in Pa.’s eastern region should be adjusted, given the high loss ratio the Fund is experiencing in Montgomery, Delaware and Chester County physicians relative to Philadelphia physicians.

He also proposes that the rules for defining a health care provider’s territory be restated, given the inordinate amount of payments the CAT Fund makes in Philadelphia on behalf of providers from outside the city. He specifically recommends charging Philadelphia’s rates to any facility or individual provider affiliated with or having privileges with a health system that has a nexus to Philadelphia.

Reed also intends to present other recommendations to both the JUA and Insurance Dept. to mitigate premium inequities for physicians without a claims history, such as applying an experience adjustment to physician ratings, something he says current CAT Fund law permits for hospitals, but not for physicians.

Reed says that solutions cannot simply shift the cost on to physicians in the rest of the state and that allowing juries to continue to award excessive amounts in the eastern part of the state that are subsidized by physicians in other regions merely conceals deeper problems in the state’s health care delivery or in the judicial process.

Crafting an Effective Solution

Perhaps the most serious obstacle to effective solutions is the Pennsylvania Supreme Court, which suspended key provisions of Act 135, a medical tort reform bill championed by the Pennsylvania Medical Society (PMS). The Court suspended without the opportunity for stakeholder comment a number of key provisions, ruling that their passage by the legislature violated the state constitution’s separation of powers, according to PMS General Counsel Ken Jones, Esq.:

• Punitive damage procedural provisions that would have bifurcated a trial by requiring a plaintiff to prove both that a malpractice lawsuit is justified and that punitive damages are warranted.

• Expert witness report requirements shortly after a lawsuit is filed that would have helped reduce the number of frivolous lawsuits.

• Speedy proceeding provisions mandating and setting a time frame for conciliation, discovery and pre-trial conferences between plaintiff and defense attorneys that would have helped expedite cases and the exposure of frivolous lawsuits.

The Court eventually replaced the suspended measures with narrower, watered-down civil rules amendments with far less potency.

Act 135 provisions that have not yet been challenged include:

• Codified and expanded definition of informed consent to toughen causation requirements before filing a lawsuit.

• Punitive damage standard requiring clear and convincing evidence of willful or reckless, wanton conduct or reckless indifference to the rights of others beyond gross negligence.

• Provision allowing physicians to file an affidavit of non-involvement to prevent being sued if they had no involvement in a case.

• Periodic payment provision permitting, but not mandating, settlements and awards between plaintiffs and defendants to be paid out over time.

As part of the deal that led to passage of Act 135, the PMS agreed not to pursue medical liability reform for five years. In response to a resolution passed by the PMS House of Delegates at its October 2000 meeting calling on the PMS to re-commit to a new medical malpractice reform campaign, the PMS is now drafting a new reform bill which it hopes the Pa. General Assembly will address by this summer, says PMS Executive Vice President Roger Mecum.

No one expected that the Pa. Supreme Court would strike down key provisions of Act 135, and it is difficult to know where the separation of powers argument begins and ends, says Jones. A starting point for the new bill, he notes, is to stay away from procedural provisions, which fall within the purview of the Court, e.g., rules of evidence and of civil procedure such as calling for bifurcation of a trial to establish a separate punitive damage threshold.

Substantive rules for defining a cause of action, on the other hand, are supported by Pa. Supreme Court case law as being within the legislature’s purview and are the kinds of malpractice reform provisions most likely to survive the Court’s scrutiny, Jones believes. Mandating periodic payments could fall into that category, he adds.

A major obstacle to reform is that the Pa. Constitution specifically rules out limiting awards, except in workers’ compensation cases, says Jones. Capping punitive damages would require a constitutional amendment or a way to get around the Supreme Court by creating a new cause of action for medical malpractice, he adds.

In addition to legislative reform, PMS is also launching an awareness campaign to promote judicial reform. Mecum notes that the seven Pa. Supreme Court Justices are elected and subject to retention elections every ten years, and that several seats come up for election in the next two or three years. The makeup of the Court, he says, could affect what kind of tort reform provisions survive after passage by the legislature. The campaign will also publicize the kind of judges that are allowing multi-million dollar verdicts and the impact those verdicts will have on the availability and cost of health care to consumers, Mecum adds.

To help develop an effective judicial awareness campaign and to draft a survivable medical liability bill, the PMS is working closely with NORCAL Mutual Insurance Company, the majority owner of PMSLIC.

NORCAL’s home state of California endured a medical care crisis in 1975 that led to passage of one of the most sweeping medical liability reform measures in the nation. A rapid increase in frequency and severity of claims against physicians led to withdrawals from the state of medical malpractice insurers, an 1,800 percent increase in claims costs, a 600 percent increase in malpractice premium rates within five years and massive surgeon and physician departures and strike actions throughout the state, according to NORCAL.

To make radical medical tort reform measures more palatable to the state Supreme Court, the California Medical Association sought to ensure that the reforms demonstrated a clear public benefit and physician accountability, and proposed a quid pro quo, including creating a more effective disciplinary body with additional powers to monitor deviant practitioners, assigning a majority of lay members to the state medical board itself, and giving the state insurance department authority to control premium rates of medical malpractice insurance companies to deal with issues of premium increases and availability of coverage.

In return, the California General Assembly passed the Medical Injury Compensation Act (MICRA), giving physicians significant medical tort reforms which Pa. physicians do not enjoy, including a $250,000 cap on noneconomic damages, mandatory periodic award payments, a statute of limitations requiring claims to be filed within one year after discovery of injury and no later than three years after the injury occurred or before a child’s eight birthday, a provision allowing physicians to require a patient to agree to binding arbitration of medical malpractice claims as a pre-condition to providing medical treatment, and a provision permitting juries to hear evidence of collateral sources of recovery.

Before trial courts would enforce MICRA, however, it was necessary to get the California Supreme Court to establish its constitutionality. Nine years after the statute was passed, the Court struck it down as unconstitutional on a four-to-three vote. A year later, after one Justice was replaced, a rehearing was requested and the Court upheld by a four-to-three vote the constitutionality of all MICRA provisions.

Separate legislative and judicial awareness campaigns in Pa. are also being launched by the Pennsylvania Civil Justice Coalition, which includes members from the medical, business and public sector communities. The coalition sent a letter to the Pa. Supreme Court calling for changes in the rules of civil procedure and hopes to draft passable general tort reform legislation to supersede its SB 5, which was not acted on in the Pa. Legislature last year, says Mecum, who is vice chairman of the coalition.