The new federal healthcare law brings insurance coverage to tens of millions of previously uninsured Americans. As it unfolds, there will likely be many changes both in demand for medical services and in how that demand is met. But the expected scenarios may not be realized. Even as the law was being signed, Republicans were promising an effort to modify or repeal it.
Whether the law goes forth as passed, or is modified by political challenges, one thing remains clear: Physicians and hospitals will continue to need coverage for their professional activities, said Professional and Management Liability Broker Christian T. Hamlin, in the Burns & Wilcox Los Angeles office. Complete federal indemnification for medical professionals was never on the table, and even the proposed tort reform caps failed to make it into the new law. Medical malpractice coverage remains as important as ever.
Accessing the Medical Malpractice Market
According to Hamlin, “the term ‘Medical Malpractice‘ or ‘Med-Mal’ is traditionally used for individual physicians and surgeons, but technically it encompasses professional liability for anyone or any entity providing direct-patient medical care.” While some insurance carriers will insure only physicians, surgeons and sometimes dentists under their medical malpractice definition, others will cover licensed medical-service providers like nurses, physical and occupational therapists and physician assistants, as well as facilities like hospitals and even ambulance companies.
Medical malpractice insurance tends to be so specialized that even standard medical malpractice risks usually are handled only by retail agents who do a lot of this business and have the expertise and especially the insurance carrier relationships to place med-mal accounts with standard market insurers. Small and mid-sized agencies have used wholesale brokers like Burns & Wilcox to help them place their non-standard malpractice business.
Burns & Wilcox is now working with General Star, a subsidiary of General Reinsurance Corp. that is owned by Berkshire Hathaway, to provide both standard and non-standard risks in the admitted and nonadmitted market. “Policies are provided on an agency-bill basis, which allows retailers to retain more control over their renewals than with the more common practice of carriers billing the client directly each quarter,” said Hamlin.
Second Vice President John Morris, who manages General Star’s Health Care and Physicians practices, said that his company’s distribution model focuses on “the retailer who is not large or specialized and goes to a wholesaler who has medical professional expertise. The wholesaler can then channel the business to us. General Star works only through wholesale brokers like Burns & Wilcox.”
“Standard market access is especially important to agents in this soft market because market conditions affect classification,” Morris said. Generally, 10 to 20 percent of the physician population has a claim history or, to a lesser extent, a history of drug or alcohol impairment that would otherwise put them in a nonstandard category. Right now, however, “there are a substantial number of hard-toplace risks that have trickled down into the standard market because carriers have relaxed their underwriting standards.”
Medical malpractice lawsuits are typically expensive and complex to bring and to defend, involving significant fact-finding, costly expert witnesses and a dizzying array of state laws. These lawsuits can take four years to settle, according to a 2004 study by the National Association of Insurance Commissioners. Thus, plaintiff attorneys tend to be selective about the lawsuits they bring and the jurisdictions in which they file.
Medical malpractice is generally defined as the failure to properly diagnose an illness or injury, the failure to provide the acceptable standard of care for a condition or negligence by taking an unreasonable amount of time to provide the care that will prevent further injury or death. “To win a malpractice lawsuit, a plaintiff needs to show the medical care afforded was not up to accepted medical standards for the area, and to show that the negligence resulted in injury,” said Hamlin.
Which actions or inactions constitute negligence vary from state to state, as do the statutes of limitations on when a lawsuit must be filed. In most cases a California plaintiff must file a lawsuit within three years; in Michigan, it generally is two years. Some states require expert witnesses to be in the same healthcare field being examined, others require proof of appropriate education, while still others have no restrictions on expert witnesses. In addition, many states limit awards recovery when there is contributory negligence by the plaintiff, but some, like West Virginia, have no such limitation.
Medical Malpractice Rates
Ahead of the congressional debate, “medical malpractice rates have been going down rather dramatically, a combination of the general soft market and tort reform in certain states,” said Vice President Mary T. Hogan, manager of Professional Miscellaneous Health Care at General Star. Similarly, the 2009 study of “U.S. Tort Costs Trends” by Towers Perrin shows a drop in 2008 of $640 million in total malpractice costs to $29.76 billion; the first drop since 1985.
Hogan and Morris agree that this trend can change quickly. For example, in February the Illinois Supreme Court struck down tort reform for the third time, giving rise to speculation that Cook County’s infamously large malpractice verdicts—voted the third worst “Judicial Hellhole” in the American Tort Reform Association’s 2009-2010 report—would again drive malpractice rates up in that jurisdiction.
Morris has observed that claim frequency, the other side of the loss cost equation, also is definitely on a downward trend, a phenomenon he attributes to improved peer review practices, better risk management, standardization of monitoring and sophisticated technology. Technology, for example, has helped improve the monitoring of anesthesia levels during operations, bringing that specialty from an extremely risky to a moderately risky classification.
In almost every jurisdiction, though, physicians and surgeons are required to carry malpractice insurance, and most hospitals require the coverage for physicians with privileges and purchase it for certain groups of hospital employees. Regardless of what happens in Washington D.C. or in the nation’s statehouses, demand for the coverage is not going away.