RFM: In Act 13, the goal was to slowly decrease the amount of financial obligation for malpractice insurance at the MCARE level, while increasing the financial obligation at commercial insurance level, with the goal of eventually terminating the MCARE level entirely and having a physician or hospital obtain all of the required insurance from the commercial market. But realizing the severity of the liability crisis even when Act 13 was adopted, there was precautionary language put in the bill that, at each stage when the MCARE level was to go down another $250,000 while the primary level was to up an equal amount, the Insurance Department was to conduct a thorough study to determine whether or not there was enough capacity in the commercial private market to successfully bring up the primary level. That first study was to be completed by July 1^st of this year to determine whether or not the MCARE level would be reduced in 2006 to $250,000 from the current $500,000 – bringing the primary level up to $750,000.

The Insurance Department’s study made the determination that increasing the primary limits and decreasing the MCARE level should be postponed for two years, as per Act 13, after which the Insurance Department is to study again whether or not there are improvements in capacity to allow the increase to occur at the primary level. If in 2007 the Insurance Department continues to feel that the market capacity is not there, then it can be postponed yet another two years, and so on.

RFM: The Insurance Department’s conclusion was that, although there has been some improvement in capacity, it has not come primarily from the commercial carriers at all. There has been a significant decline in the amount that commercial carriers are writing, and much of the capacity has been met by self-insured plans and risk retention groups, while the market is still uncertain about the long-term viability of risk retention groups. Most of them are brand new in Pennsylvania, so they’ve not had any large payouts yet. Over the last five years, while the commercial insurance market has diminished, there have been no new commercial companies of any magnitude that have been attracted to Pennsylvania. Even insurers like PMSLIC, which are financially doing a bit better these days, are still not writing any large amounts of new business. So, there is still a great deal of uncertainty in the marketplace, and I think the Insurance Department felt under those circumstances that, rather than bring quite a bit of disruption into the market right now, it would continue to let the market attempt to stabilize over the next two years.

RFM: We wrote the Insurance Department as the study was being conducted and we strongly felt that there was not enough capacity in the market to make this change, and that physicians were not in the position to pay the large increase in premiums that would result by having primary insurers be responsible for an added $250,000 of insurance. With the combination of those two issues, we strongly recommended that the Insurance Department postpone, and they did. We support the ruling of the Insurance Department.

RFM: It hasn’t at all. We supported inclusion of language in Act 13 recognizing that the insurance market was so volatile that there needed to be some avenue to at least postpone the termination of the MCARE Fund if it was for the good of physicians and the market overall. It doesn’t mean that the long-term goal of eliminating the MCARE Fund has gone away.

RFM: Yes. The question is how would its unfunded liability be paid, because that continues to be an enormous barrier, particularly in bringing younger physicians to Pennsylvania if they are going to have responsibility for that unfunded liability – which is now in the billions of dollars. So, as long as there is a commitment on the part of state to continue to use public funds through the cigarette tax to provide financial relief at that level, or to pay down the unfunded liability, we feel that that would be a good thing. But phasing out the MCARE Fund must be done responsibly because of the huge market implications and costs associated with it, as well as the question how the unfunded liability is going to be paid once the MCARE Fund is no more. The decision of the Insurance Department to postpone permits a bit of a status quo, which right now we desperately need. From a practical perspective, I don’t think this postponement is going to have any huge effect on the market, but it does permit the market to at least remain on a bit more of a stable level. For example, in the wake of the decision, PMSLIC has decided not to increase their rates for 2006. There is still the uncertainty of the MCARE abatement. We have no commitment yet for abatement beyond this year, and that is what we are currently working on with the administration and legislative leaders.

RFM: Absolutely. The Fund has had a tainted history in some ways, but it was created with all good intentions and for many years it really did receive a lot of appreciation for helping to improve the market in Pennsylvania, which was in a dire strait in the mid 1970s. But over the years it has turned into a dinosaur and no one knows what to do with it, particularly with this huge amassed unfunded liability.

The old CAT Fund was created in the mid 1970s and for many years did exactly what it was intended to do because the problem back then was not affordability, it was availability and companies were abandoning the state right and left, as they have more recently. After the CAT Fund was established and the financial responsibility of the primary carriers was capped at a low level, insurance companies did return to Pennsylvania. The Fund also provided a real financial cushion for physicians in terms of what they were paying for liability insurance. But this pay-as-you-go system does lead to billions of dollars in unfunded liability and, as claim level severity has increased and more cases were being bumped into the MCARE coverage level, we had a series of years, particularly the ‘90s, in which the CAT Fund was levying surcharges and emergency surcharges – and all of a sudden we had an issue of affordability at the MCARE level. There have also been questions in the past about how the Fund was managed.

So, the Fund has had a variety of positive benefits and negative effects, but by and large I think most people realize that, given how it has been structured and what we have today to deal with, it’s probably better to get rid of it. There are other concerns about that, however. If you do away with the MCARE are we going to lose our de facto cap on liability exposure?

RFM: The Medical Society continues to fight for liability reforms. We feel that we have made enormous progress in Pennsylvania, thanks to the General Assembly and the Supreme Court. We have probably brought about more reform, in terms of total number of reforms, than any state in the country that has recently passed reforms, and we’re very proud of that record. We have confidence that the MCARE Fund is doing a pretty good job, given what they’ve been handed on their plate in recent years – particularly the massive administrative undertaking of calculating and working with premium abatement with high risk physicians at zero and everyone else at 50 percent – and the fact that a lot of insurance companies are not very prompt in reporting to the MCARE office.

We would like to see a long-term commitment to using the cigarette tax to pay off the unfunded liability of the MCARE Fund so that it can be done away with without burdening future physicians. Unfortunately, it requires a pretty heavy commitment on the part of key stakeholders to come up with an effective plan to do that, presumably by floating some type of a bond that the cigarette tax money would be used to pay off. However, the abatement process is a very complicated financial dealing where the state has to borrow money to provide the abatement and then, once the cigarette tax monies flow into the cigarette tax fund, they pay off these loans and it’s constantly catch-up as you go. The General Assembly does not seem to be inclined to give us anything other than a year-to-year extension on abatement. While there is currently only a commitment for financial relief for 2005, the administration and a lot of legislative leaders seem to be committed to continuing this financial help, but it has not yet been accomplished. I don’t think anyone on the hill is anxious to have another huge flare-up from the medical community if suddenly this relief package that many physicians need is taken away.

In order to do actuarial evaluations of a long-term abatement extension, we needed to know what the increased MCARE coverage limit factor was going to be, and of course that was not determined until July. We are working with the administration, and we’ve agreed on an actuary to use for the financial study. The MCARE office has also been doing some financial analysis, which I believe has been looked at by the budget office. We’re going to have to wait until the General Assembly returns in the fall in order to try to get a legislative decision on abatement.

RFM: Trying to continue to get the abatement is extremely high on our list. Physicians, with how much they’re paying for the primary level right now, simply cannot continue to fund the MCARE level, so the financial relief package is critical if we want medicine to not be impacted negatively further in the state. We also are working to promote alternatives to the current tort system. Our board has adopted a seven-point initiative to try to educate physicians more on mediation. It is being used now with some success at Drexel, at Abington, and at the UPMC system in Pittsburgh. We’re working with the hospital association to introduce legislation to have a demonstration pilot for a no-fault system. We are also very interested in an administrative court system – specialized courts before an administrative law judge. There is now legislation in the U.S. Senate that would offer grant monies to states to try such a system, and we hope Pennsylvania can be one of those states. We’re continuing to encourage the court to look at a sliding scale on lawyers’ contingency fees, but I don’t expect anything on that soon. We’re also requesting a rule change at the court level that expressions of sympathy and admissions of fault and apologies would not be admissible in litigation. We’ve got our program to assist physicians, in certain cases, to counter-sue lawyers who file frivolous lawsuits. And we’ve got House Bill 501 introduced by Rep. Tom Gannon that would delink medical licensure from malpractice insurance requirements. Next year, we anticipate there will be attention again to a process to seek a constitutional change on caps on non-economic damages.