Even though three significant tort reform measures have been enacted in the past nine months-a string of remedies in Act 13, joint and several liability reform, and termination of venue shopping for malpractice trials-the crisis of affordable and obtainable medical malpractice insurance has worsened.

Most commercial malpractice insurance carriers have left Pa. or stopped writing physician premiums, while the largest of those companies is seeking substantial premium increases and further restricting their underwriting. On top of that, the MCARE Fund will require significantly higher surcharges next year from many physicians, particularly those in several northeastern Pa. counties, where the erosion of affordable coverage has begun to affect patient care and produce gaps in services.

For their primary coverage, some 1,500 physicians have turned to the Pa. Joint Underwriters Association (JUA), up from 300 physicians in Dec. 2000, according to Pa. Insurance Dept. data. The JUA is also implementing a substantial premium increase next year, possibly making coverage prohibitively expensive for some physicians who were abandoned by their commercial carriers.

Various entities have recently begun significant efforts to avert a massive crisis.

On the public policy side, the JUA has implemented a 15 percent discount for physicians who have been claims-free for eight years, Gov. Schweiker said he plans to defer for six months physicians’ JUA payments, Governor-elect Ed Rendell has announced a sweeping effort to implement short-term and long-term relief measures and the Pennsylvania Medical Society (PMS) has also called for a series of relief measures.

On the free market side, a number of new malpractice insurance entities have begun writing, or seek approval by Jan. 1 to write, physician policies; while some hospitals have begun to subsidize the malpractice insurance costs of private physicians in high-risk specialties, while others have formed their own malpractice insurance entities or have banded together in a large group to do so.

Crisis Deepens

Tort reforms passed in recent months will apparently not make malpractice insurance significantly more affordable or obtainable for physicians in 2003.

The reforms were intended to bring stability and predictability, not immediate relief, according to Anna Lavertue, director of communications and quality for PMSLIC, Pa.’s largest physician malpractice insurer. Lavertue notes that there is a considerable lag from the time medical treatment is rendered to when a claim is filed, a case is brought and a payment is made. The company needs to see a positive effect on its loss experience before these recent reforms impact its pricing and underwriting, she adds.

While the company is non-renewing approximately 50 physicians after Jan. 1, those still insured by PMSLIC will find significant changes in their policies and premiums. Except for the occasional locum tenens physician, all PMSLIC policies will be claims-made, rather than occurrence, says Lavertue. Claims-made coverage only applies to the year for which the premium is paid, while occurrence policies include tail coverage for claims that might be filed in the future for an incident that happened during the year the premium was paid. The change will allow PMSLIC to get a better idea of what its exposure will be and bring more predictability to the company’s ability to price its product, Lavertue adds.

The trend of large premium increases will continue next year. Last year PMSLIC had levied an across-the-board increase of 40 percent; in 2003 it will implement a 54 percent increase over its base rate, adjustable by location, specialty and claims experience of the individual physician, says Lavertue. The company is also consolidating its seven rating territories into five, which includes moving Bucks, Montgomery and Chester counties-which were previously in the third costliest territory-into the costliest territory, together with Philadelphia and Delaware counties.

PMSLIC is also continuing in 2003 its policy of not writing new business unless the applicant joins a practice already insured by the company.

PMSLIC will enhance its retirement provisions as of Jan. 1: physicians who have been continuously insured by PMSLIC for five or more years-either occurrence or claims-made-may retire at age 50 or older and receive tail coverage at no charge, while that benefit previously applied to retirees age 55 or older who had five or more years of claims-made coverage.

The bulk of GE Medical Protective’s Pa. physician renewals happen in July, so the company will have to wait until about March of next year before it knows what premium increase it will request or if it will make any underwriting changes, according to Michael Cavanaugh, vice president of marketing, clinical risk management and public policy. The company continues to see rising severity and frequency of claims, despite passage in Pa. of three significant pieces of tort reform legislation, and is wary of reacting too soon, having seen companies quickly lower premiums in Ohio, only to be followed by that state’s Supreme Court rolling back the reforms. Cavanaugh says that Medical Protective still feels comfortable writing occurrence policies in Pa.

Pa. physicians will also see a large spike in the cost of their mandatory catastrophic loss coverage next year. To finance still-increasing increasing payouts, the MCARE Fund has filed for a 43 percent assessment on the prevailing primary premium for each health care provider, which is influenced by specialty and territory rating changes made by the JUA for next year.

According to analysis by the PMS, that translates into a surcharge that is 16 percent higher in 2003 than in 2002 for physicians with no specialty or territory rating change, while the change for other physicians will range from a decrease of 23 percent for psychiatrists—no surgery in territory 1 (e.g., Philadelphia) to an increase of 54 percent for anesthesiologists in the hardest—hit, new territory 6, which includes Berks, Blair, Cumberland, Dauphin, Erie, Lehigh, Luzerne, Northampton and York counties. Most physicians in these counties, the PMS indicates, will have surcharge increases in the range of 36 to 54 percent, with an obstetrician in territory 6, for example, paying 42 percent more to the MCARE Fund in 2003.

These figures reflect the 2003 MCARE surcharge credit mandated by Act 13 passed last March. Even physicians who receive both their 2002 and 2003 surcharge credit in 2003 will see a surcharge increase next year, e.g., an obstetrician in territory 6 will still have a 23 percent increase, according to the PMS.

Physicians insured by the JUA—the state’s mandated insurer of last resort—pay the highest premiums in the state. They will be hit with a 38 percent overall rate increase in 2003, although the JUA is offering a 15 percent discount next year to those seeking full-time coverage and who have no claims against them for the past eight years. That discount only accentuates the magnitude of the crisis: one may wonder why physicians with clean claim histories cannot find coverage elsewhere and have to apply for the most expensive malpractice insurance in the state.

The malpractice crisis is threatening quality of care, especially in parts of central and northeastern Pa., where the supply of rural physicians has always been lower than elsewhere, where Medicare and Medicaid reimbursements are lower than other parts of the state and where the erosion of affordable malpractice coverage now seems particularly acute. If a real quality of care crisis occurs after Jan. 1, it may happen in these regions first.

According to the Scranton Times Tribune, at least 41 doctors in the Scranton area, including more than 10 orthopedic surgeons, have announced plans to limit services this month or close their practices because of rising medical malpractice premiums. That would leave Scranton with only one orthopedic surgeon accepting new patients.

Illustrating the degree to which the malpractice is jeopardizing the quality of medical care in Pa. is a list of developments compiled by Donna Rovito, legislation chair of the Pennsylvania Medical Society Alliance. Among the recent incidents she has documented are the following.

• Nine of 12 orthopedic surgeons no longer take trauma call in Scranton.

• Three of five trained vascular surgeons in the Wilkes-Barre/Scranton area have left and the remaining two will most likely close their practice on Dec. 31, 2002, according to Dr. William Host, president of Wyoming Valley Health Care System.

• Only three pulmonary/critical care physicians remain in Wilkes-Barre, down from nine in 1989.

• The last practicing neurosurgeon at Wilkes-Barre General Hospital was recently forced to transfer a patient to Geisinger Medical Center in Danville because he could not operate on two people at once, and said that the hospital has been unable to hire another neurosurgeon to replace two who left over a year ago because of the malpractice insurance crisis.

• Delta Medix, a 35 year-old surgical and urological practice which comprises more than 30 percent of Lackawanna County’s surgeons and almost all of its urologists, said that it may be forced to close on Jan. 15, 2003, is no longer accepting new patients, will cease elective surgery Dec. 15 and can no longer perform emergency surgery or treat patients in the ER after Dec. 31, 2002.

• In Dauphin County, a reduced number of qualified neurosurgeons has resulted in a minimum three- to six-month wait to see a physician for evaluation and surgical treatment of back and neck pain due to disc disease, according to the Dept. of Neurosurgery at PSU Milton S. Hershey Medical Center.

• In Fayette County, Uniontown Hospital has lost three of its five orthopedic surgeons, and one of the remaining surgeons is in his 70’s, according to Uniontown Hospital CEO Paul Bacharach.

• Only one orthopedic surgeon is available for trauma call in all of Huntington County.

• On a statewide basis, 18 percent of Pa.’s 190 actively practicing neurosurgeons have given up surgery, moved, retired or gone part-time, according to a survey done by the PMS in conjunction with the Pa. Neurosurgical Society.

• Of combined high-risk specialties, including orthopedics, ob/gyn and neurosurgery, 83 to 87 percent of residents and fellows trained in Pa. are settling outside of the state, according to the Pa. Orthopaedic Society.

Public Policy Relief Efforts

In the face of an impending massive crisis, a flurry of major public policy changes are being put in motion.

Gov. Mark Schweiker plans to suspend physicians’ 2003 payments to the MCARE Fund for six months, allowing physicians to put off paying as much as 50 percent of their malpractice insurance bill. The move needs no legislative approval; Schweiker had similarly instructed the Pa. insurance commissioner back in Jan. to suspend physicians’ 2002 surcharge payments until April 30.

More short- and long-term reforms are planned by Governor-elect Ed Rendell, who detailed an agenda to avert a malpractice crisis at a Nov. 20 press conference. Together with Rebecca W. Rimel, President of the Pew Charitable Trusts, Rendell announced the creation of a Medical Malpractice Liability Insurance Crisis Task Force designed to consolidate the various resources being utilized on investigating the problem. The 28-member task force includes three physicians—Dr. James Tayoun, Jr., a vascular surgeon and Chairman of Surgery at St. Agnes Hospital; Dr. Nancy Roberts, Chair of OB/GYN at Main Line Health; and Dr. Ana L. Pujols-McKee, an internist with Penn’s Clinical Care Associates—as well as a cross-section of stakeholders including lawyers, insurance executives, organized labor and the business community. The task force will be chaired by Judge Abraham Gafni, a professor of law at Villanova University, who will work closely with Dr. William M. Sage, a nationally acclaimed health law expert and the director of the $3.2 million Pew project to study the malpractice crisis.

Rendell called upon the task force to present him with an interim report that addresses short-term solutions to the crisis by Jan. 20, the day before he is sworn in as Pa. governor, and recommendations for longer-term remedies within six months.

Among the proposals Rendell wants the task force to study are:

• Creating a multi-state coalition to deal with the serious financial pressures created by Medicare and Medicaid reimbursement caps.

• Authorizing joint physician negotiation to give physicians more leverage to obtain fair terms and reimbursement from third party payers.

• Restructuring unfunded liabilities in the MCARE Fund through a bond issue to reduce the annual surcharge on physicians.

Rendell said he will work closely with the Schweiker Administration on possible emergency legislative actions to take place before the end of the year, and that he plans to meet shortly with the Stephen Zappala, Chief Justice of the Pa. Supreme Court, to discuss a series of other short-term proposals that may be enacted to bring immediate relief to the problem. Rendell said he has spoken with Zappala about ‘’certificate of merit’’ court rules that require malpractice plaintiffs to provide a document signed by a doctor verifying the claim before a suit can proceed, and the governor-elect said he is optimistic it can be implemented next year, according to the Morning Call.

Ultimately, Rendell expects consensus on a comprehensive reform measure that will include tort reforms, economic relief for physicians and vulnerable hospitals, and improved regulation for insurance and health care generally, although he dismisses the medical community’s proposal for a cap on noneconomic damage awards in malpractice cases.

The PMS House of Delegates has also developed a series of relief measures that it had hoped to pursue in the Pa. General Assembly in the lame duck session before its Nov. recess. The PMS has developed legislative language on several proposals and its lobbying team is currently looking for sponsors, according to PMS Executive Vice President Roger Mecum. The proposals seek to:

• Lower Pa.’s mandated physician malpractice insurance level to $500,000, and prohibit other entities like health insurance companies and health care systems from requiring additional coverage above the state limit

• Either declare the MCARE Fund insolvent—invoking the Pennsylvania Insurance Guaranty Association (PIGA) to cover its unfunded liability—or provide immediate financial relief by tapping the state’s tobacco settlement funds.

• Suspend the requirement for MCARE Fund payments to maintain licensure until there is adequate medical liability insurance reform and tort reform.

• Invoke the emergency provision for an amendment to the state constitution involving the prohibition against ceilings on jury awards, specifically for non-economic damages.

• Require the JUA to immediately reduce premium levels to those comparable to the private insurance market, until such time that additional private insurance carriers return to Pa. and the JUA is again an insurer of last resort.

• Enact fundamental system changes in the judicial system, including the elimination of the common law cause of action and replacing it with a statutory system that would include a patient compensation fund.

• Pass legislation to void provisions in health insurer contracts with physicians to allow a temporary emergency surcharge on bills to cover the costs of liability insurance, similar to surcharges hotels use to cover unusual energy costs.

If the state fails to bring liability insurance costs to an affordable level, the PMS House of Delegates discussed the possibility that doctors across the state may need to change their medical licenses status to "inactive" to avoid breaking the law if they are unable to pay the high premium rates.

The PMS’ legal department is also exploring ways for physicians to drop down to part-time status and only be assessed a portion of their MCARE Fund payment, says Mecum.

Free Market Interventions

Several new malpractice insurance insurers have emerged in Pa., hoping to fill in the void for physicians struggling to find coverage.

Several new companies that are specifically marketing coverage to Pa. physicians are being formed as risk retention groups (RRGs), which can be set up relatively quickly because federal statute allows an RRG domiciled in one state—typically Vermont or South Carolina—to register and conduct business in other states such as Pa., according to Fran Roggenbaum, of Saul Ewing, LLP in Harrisburg. Insureds of a RRG share risk with each other and are required to be owners of the company, paying a capitalization cost on top of their premiums, while the RRG will qualify as an approved basic limits carrier in Pa. only if it meets Pa.’s statutory minimum capital and surplus requirements for liability insurers, currently $1,125,000, she notes.

Although typically not less expensive than coverage under traditional commercial insurers, at least initially, the RRG model addresses the availability problem of malpractice insurance and does allow dedicated owner-insureds the opportunity to stabilize premiums by implementing risk management and loss control programs, says Roggenbaum. Physicians expecting lower-cost coverage quickly will be very disappointed, she adds, noting that insurance industry analysts project general hard market conditions to last for at least several more years, while RRGs face exactly the same insuring, claims and investment climates as traditional insurers, as well as the additional costs of start-up.

The presence of new insurers brings some stability to the overall market, and start-ups don’t have to recoup several years of depressed premium rates as the commercial carriers do, says Joseph Roethel, assistant vice president of A.M. Best Company Inc. RRGs do a good job setting up for long-term viability, Roethel adds, noting that A.M. Best uses the same rating criteria for them as it does for commercial carriers, and that the RRGs he has seen have remained stable.

Some are less optimistic. Although new RRGs fill an insurance access void, "To put a risky venture together in a bad environment where commercial carriers are leaving because they can’t financially sustain it, and with the small amount of capital these groups raise, it causes a lot of concern," says Mecum. "If those companies do get into financial trouble, there is no PIGA backup to cover future losses and the physicians involved are going to be considerably held at risk," Mecum adds, noting that the PMS advises physicians to read the fine print and understand the risk of such companies.

Physicians should stay with their existing carriers if they can, while those who face the high JUA premiums now have another alternative, says Michael Kempski, principal in the insurance brokerage CLA Insurance, and co-founder of Millennium Insurance Company (A Risk Retention Group). Some 600 of CLA Insurance’s physician clients had been non-renewed by their malpractice insurers and the brokerage wanted to offer them such an alternative, Kempski adds, noting also that Doylestown Hospital—whose Bucks County Physician Hospital Alliance of Doylestown is also a co-founder of Millennium—wanted to prevent losing physicians from its 275-member medical staff.

Millennium currently has commitments from 20 physicians, has 250 application quotes being delivered and in its first year expects to have some 600 physician insureds statewide, including surgical and non-surgical specialties, according to Kempski. The company, which is writing all specialties and territories in the state and is willing to consider physicians with pending claims against them, has a 25 percent applicant rejection rate, says Kempski. Premiums are similar to those of PMSLIC and average 30 percent less than JUA premiums, he adds. Insureds are committed to a two-year policy and are responsible for a one-time capitalization fee, payable over two years, equal to 80 percent of their premium. Based on enrollment projections, the company expects by the end of its first year to generate $4 million in premiums and $8 million in capital.

Millennium is only writing claims-made policies in order to protect its ability to adjust rates to its claims experience, Kempski says, noting that there is usually a time lag of several years between premiums paid in and claims paid out under occurrence policies.

CLA Insurance will manage the RRG and oversee underwriting, finance and risk management. A 25-year risk management expert with RN and MBA degrees is preparing a risk management manual and will disseminate quarterly newsletters to insureds and visit individual practices. The company expects to keep costs down through proactive risk management activities such as reviewing informed consent procedures, documentation and patient follow-up, says Kempski. The company also plans to develop CME course on risk management.

Although the company lacks PIGA coverage, Kempski says that none of the 80 Vermont-domiciled RRGs, of which Millennium is one, has ever failed, and he is confident in the company’s capitalization and premiums will keep the company financially stable. The company would consider purchasing excess loss coverage in the future, but is currently not able to find a reinsurer that will offer coverage within Millenium’s policy range, which ends at $500,000.

A physician-driven malpractice insurance company for orthopaedic and other specialty surgeons has also been licensed to write in Pa. Positive Mutual Risk Retention Group, Inc. has written 60 orthopedic surgeon policies so far and expects to have 100 enrollees from around the state by the end of first quarter 2003, according to its president, Lewis S. Sharps, M.D., a board member of the Pennsylvania Orthopaedic Society. By having a medical review board composed of actively practicing orthopedic surgeons overseeing the group’s prospective risk-prevention protocols and retrospective reviews, Sharps says the group will be able to dramatically lower the frequency of claims against its physicians by managing risk and costs more effectively and efficiently than any other insurance group to date.

The company is using insurance brokerage and consulting company Marsh USA for its captive management and regulatory reporting, and a third party administrator from Harrisburg to handle underwriting policies and claims review, while its medical review board will review applications and claims histories to make recommendations to the underwriter, as well make binding recommendations to the legal defense team on whether cases should be defended or settled, says Sharps.

Insureds of the company must all have a dedicated risk manager in their practice and must secure binding arbitration agreements from patients before performing nonemergency surgery, which Sharps says can eliminate a large percentage of frivolous lawsuits. Also, in anticipation that the recent law banning venue shopping will be challenged and appealed by trial lawyers, says Sharps, the company requires its physicians to have patients sign venue agreements that perform the same function.

The company is writing two-year occurrence policies and premiums are based on Medical Protective’s rates, with adjustments based on an applicant’s geographic area and claims history, says Sharps, plus a one-time capitalization fee that is 38 percent of the first year’s premium. The company’s capitalization goal is $5 million in three years, he notes.

The company is also receiving inquiries from groups of anesthesiologists and radiologists and is in the early stages of underwriting review for them, with the vision of growing the enrollment of those specialists to a size where they have the critical mass to implement their own specialty-specific medical review board and risk management protocols, Sharps notes.

Sharps views the company as a "long-term, stable bridge" while the struggle for more tort reform continues, including a check on the ability for existing reforms to be overturned by appeal, and caps on non-economic damages. "Otherwise," he adds, "the ability for the malpractice insurance market to predict risk remains speculative, and no insurer provides coverage for gambling."

There are other companies in Pa. currently seeking to write policies for physicians effective Jan. 1 with the expectation of being approved by the Pa. Insurance Department. Professional Risk Retention Group has 1,000 applications representing all specialties and areas of the state, and the company expects twice that by the end of Dec., according to Barton Post, founder of Post & Schell, P.C., one of five law firms helping to finance the venture.

The company is writing claims-made policies and requiring a four-year commitment to join and has a capitalization requirement of 50 percent of the first year’s premium, which Post says is more reasonable than commercial carriers and substantially lower than JUA. The company’s capitalization goal is $10 million by Jan. 1, and has the added stability of reinsurance arrangements to mirror the role of PIGA, says Post.

As part of its risk management program, the company would like its physicians to have access to computerized record-keeping and prescribing programs, while it will use the resources of its five law firms to aggressively defend cases and launch counter-lawsuits to discourage frivolous lawsuits, as well as the approach by some plaintiff attorneys of naming multiple physicians in cases.

Pennsylvania Healthcare Providers Insurance Exchange represents a different insurance approach from RRGs. The company hopes to gain approval before Jan. 1 to operate as a reciprocal exchange, whose premium rates, expenses and capitalization levels are fully regulated by the Pa. Insurance Dept. and whose insureds qualify for protection under PIGA, says Mitchell Goldman, a partner in Duane Morris law firm, which is majority owner of a newly-created holding company which in turn owns the exchange’s management company.

The amount the company can spend on operations is regulated, up to 25 percent of its premium dollar, and all underwriting profits in an exchange must also stay in the company to be used to strengthen reserves or to subsidize premiums, says Goldman, noting that both features highlight the stability of the exchange model and are absent under the RRG model.

The company’s risk management activities include working more closely with hospitals to get physicians to report claims sooner—to allow for easier settlement, requiring physicians to participate in their hospitals’ risk management programs and reducing defense costs by fostering a coordinated defense of claims between hospitals and physicians without compromising the interests of either party, says Goldman.

The company plans to write one-year occurrence policies and guarantee availability for three years, while premiums will be competitive in the marketplace and a one-time fixed capitalization cost will be assessed from each insured in an amount dependent upon the physician’s specialty, ranging from $6,000 to $30,000, says Goldman.

A Maryland-based commercial carrier, Campmed Casualty and Indemnity Company, has filed to write physician policies in Pa., but has not yet written any, preferring to focus on other health care providers such as podiatrists, physical therapists, psychologists and small hospitals, according to Dennis Santoli, the company’s chief underwriter. The company is not big enough to handle the surplus exposure that a mainstream physician business generates and is not promoting it, Santoli says, but it has received physician inquiries and would consider some on a limited basis.

Hospitals Also Respond

Because of lack of available commercial coverage, more than 40 percent of Pa.’s hospitals have converted from commercial coverage to alternative risk financial mechanisms in the past 12 months, according to a recent member survey conducted by the Hospital & Healthsystem Association of Pennsylvania (HAP). The majority of Pa.’s hospitals were commercially insured a year ago; 38 percent are currently.

For example, Pinnacle Health System, previously covered by MIIX, has just developed its own risk retention group and is exploring inquiries by physicians as to whether they can participate, says spokesperson Chris Markley.

A group of 33 rural hospitals in Pa. have formed a risk retention group known as Community Hospital Alternative for Risk Transfer (CHART) instead of remaining with their commercial carriers, whose higher premiums meant subsidizing the claims histories of higher-risk tertiary hospitals in Philadelphia and Pittsburgh, says Thomas J. Murray, president and CEO of Centre Community Hospital. Member hospitals of CHART have agreed to use a uniform event reporting sheet and aggregate claims data will be shared with all members as part of collaborative risk management activities, which also include communicating with each other to share best practices, Murray adds.

Hospitals are also proactively extending coverage options to physicians in order to keep them in the community. HAP’s survey found that, over the past year, 42 percent of respondents had some members of their medical staff ask the hospital to subsidize their liability coverage, 31 percent had some members of their medical staff added to the hospital’s coverage—most likely by hiring them, and 28 percent offered liability coverage as an incentive for some recruited physicians.

Because of federal antitrust law, a hospital has to demonstrate a lack of access to a particular medical service and a need to subsidize a private physician’s malpractice premium, according to Martin J. Ciccocioppo, HAP’s vice president of research. Under a contractual arrangement known as a "physician retention agreement," he notes, a hospital typically pays for the amount that a physician’s malpractice premium has increased, and in return the physician agrees to stay and provide services.