Louis J Sheehan 80175

DOCTORS AND POLITICIAN MISS MOST OBVIOUS SOLUTIONS TO MEDICAL MALPRACTICE “CRISIS”:
THE FORGOTTEN MEMO OF SOLUTIONS.
Herb Denenberg Column for May 05, 2003
Doctors and politicians in search of the magic bullet to solve the so-called medical malpractice crisis have focused on a pie-in-the-sky solution that won’t fly politically or constitutionally – the $250,000 cap on pain and suffering. That would take a constitutional amendment, which requires something close to a political consensus. That political consensus will never happen due to the determined and effective opposition of the trial lawyers and most consumer organizations, and the difficulties inherent in passing any constitutional amendment at the state or federal level. What’s worse, the public, even if half-informed, would reject the concept, of a cap on damages. It is obviously unfair and off the wall.


In the process of primary focus on a solution that will never happen these interest groups are missing the more obvious, the more practical and the more immediate solutions that may produce bigger and quicker premium reductions. To find these solutions all the doctors and politicians would have to do is to read a memo dated February 28, 2002, entitled “Suggestions to Effect Immediate Premium Savings for Health Care Providers.” The memo was written by John H. Reed, then the Director of the Cat Fund (now an attorney in private practice in Sellingsgrove, Pennsylvania), and his Deputy Director, Robert W. Waeger.


Here are a few of their recommendations, which should be given immediate and serious consideration, but which have been ignored by doctors and politicians and legislators and by the insurance commissioner and the insurance industry (the latter two groups being in perpetual hibernation when it comes to new ideas or basic reforms of the present system).


LET STATE PROVIDE MEDICAL MALPRACTICE COVERAGE THROUGH CAT FUND. Now doctors have to go to commercial insurers for the first $500,000 of coverage (the excess over that $500,000 primary limit is now provided by the CAT Fund).


The commercial insurance companies don’t want to write the business. Fine. They should have no complaints when the state of Pennsylvania fills the vacuum. As the memo in question indicates, the Cat Fund could provide the first $500,000 coverage for 40 percent less than the commercial insurance industry. That would be possible, as the state through the Cat Fund, would have a lower expense ratio. They would not have to pay commissions to agents or support a major marketing structure. The Cat Fund would not have to earn and pay a profit to shareholders. It would not have to pay taxes. It would not have to support the corporate structure that goes with any commercial insurance operation. The CAT Fund pays out in claims 99 cents on the dollar of collected premiums; commercial insurers, in contrast, pay out 60 to 65 cents on the dollar in claims, with 35 to 40 cents going for marketing, commissions, profits, etc.


CUT REQUIREMENT OF $500,000 IN PRIMARY COVERAGE TO $200,000. Now each doctor must buy $500,000 in commercial insurance and the rest if sold by the state-operated CAT fund. If this $500,000 requirement were cut to $200,000, the Reed-Waeger Memo estimates premiums would be reduced by at least 25 to 35 percent. This would also increase the market for malpractice as commercial insurers would have to shoulder less risk, and that in turn would improve the competitive environment. It would also make it easier for doctors to use self-insurance, risk retention groups (RRGs), fronted captives and other alternatives to commercial insurance (see next reform on RRGs). This change could come about without adoption of the first recommended change.


PROMOTE USE OF RRGs. The Risk Retention Group is a self-insurance device, which involves doctors banding together in non-profit groups to self-insure their coverage. It is a min-insurance company. The reduction of the primary requirement from $500,000 to $200,000, as suggested above, would make this approach easier to undertake. Although not mentioned in the MEMO, Reed recommends that a solvency fund be created to cover RRGs for medical malpractice. This was a recommendation he did make in testifying before the U.S. House Committee on Energy and Commerce on February 10, 2003. Now RRGs are not so covered, and this means that doctors would have a dangerous exposure if the RRG would go under. With commercial insurance companies, there is a solvency fund back-up and if this were extended to RRGs, they would become more popular and could make a larger contribution to the solution of any problems in obtaining reasonably priced medical malpractice insurance. The MEMO estimates that some specialists could cut their premiums by 60 to70 percent with RRGs.


COMPRESS RATE SCHEDULE. Now there is incredible variation in premiums between so-called high-risk specialists and lower-risk categories of doctors. Premiums are so tailored to each category of doctors that the insurance function of spreading risk does not work as effectively as it might. Compressing rate schedules means that the differences between the highest and lowest risk categories would be reduced, thus lowering the burden on the higher risk specialties and spreading risk more evenly. The Memo says, if the lowest risk groups paid $1,000 more, the higher risks groups could be cut by up to l/3rd.


CONCLUSION. The MEMO has a good summary of what these recommended changes might do: “What now seems to be a looming crisis can be averted. All of the above options … will immediately reduce malpractice premiums to health care providers. Most importantly, they can accomplish that result without taking money from taxpayers, without triggering the additional expense of borrowing, without burdening future generations of health care providers, and without having to bar the door of the courthouse to those individuals having legitimate claims.” (c)2003 Herbert S. Denenberg All Rights Reserved.



Herb Denenberg is a former Pennsylvania Insurance Commissioner, professor at the Wharton School, and Pennsylvania Public Utility Commissioner. He is a member of the Institute of Medicine of the National Academy of Sciences and is a board member of the Center for Safe Medication Use. He is an adjunct professor of insurance and information science and technology at Cabrini College. You can write Herb at POB 7301,St. Davids, PA e-mail him at hdenenberg@aol.com or reach him at his two Web sites: thedenenbergreport.org or denenbergsdump.org
Louis J Sheehan
Posted by Louis J Sheehan