Sharp insurance discounts not likely soon

Friday, Aug. 9, 2002 | 5:48 a.m.

WEEKEND EDITION: August 11, 2002

Insurance industry representatives say they do not believe a new law intended to keep doctors from leaving the state will cause significant decreases in medical malpractice rates over the next few years.

When lawmakers met in special session two weeks ago, they crafted a bill that placed caps on the amount of money a medical malpractice victim could receive in damages for pain and suffering. Lawmakers came away with hope that Assembly Bill 1 would keep physicians in Nevada by lowering medical liability insurance rates.

But insurers say that if the rates ever drop significantly, it won't be until after all potential constitutional challenges are resolved. They say they expect attorneys to challenge:

A provision that prohibits patients from recovering any civil damages from doctors who provide free medical care in government-run and nonprofit clinics.

A $50,000 cap that is applied to all trauma patients because it is less than what other patients can receive for pain and suffering.

A $350,000 cap that is applied to other patients because it limits what a jury can award.

Another concern expressed by insurance representatives is that the bill, which was signed into law Wednesday by Gov. Kenny Guinn, may have loopholes that can be exploited by attorneys. Among these are the $350,000 cap can be applied separately to individual defendants in malpractice cases that have more than one defendant and a judge will have the discretion to exceed the $350,000 cap.

Because of those concerns, no insurer believes the law will help lower rates anytime soon to the levels they were before they skyrocketed as much as 300 percent this year.

Even the most optimistic, who say rates should at least stay at existing levels, are unwilling to predict that rates will drop more than 5 percent to 20 percent over the next two to three years.

Insurance representatives say that rates for specialties such as obstetrics and neurosurgery, which are in the $125,000-$200,000 range, aren't likely to approach last year's levels of $40,000-$50,000 until Nevada courts reject all potential challenges to the law.

Because lawyers have already said they expect the law to be challenged after it takes effect Oct.1, insurers say it could take years for the legal issues to be settled.

"I really expect a constitutional challenge before the end of the year," Robert Byrd, chairman of the Medical Liability Association of Nevada, a state-created insurer, said. "I expect some softening of rates as we go through this process. I expect it to pass constitutional muster, but I can't guarantee it.

"If it does, there will be a significant rate reduction after that, maybe in the range of 25 (percent) to 50 percent. You'll also see a more competitive market, which will further reduce rates. If the bill passes constitutional muster, it will have a major impact on the market. But there's that 'if' there."

Byrd expressed optimism that all legal issues could be settled in two to three years. But Las Vegas attorney Tim Williams, Nevada Trial Lawyers Association president, said it could take five to 10 years for a challenge to work its way through the legal system.

It took 10 years after California adopted its medical malpractice tort law in 1975 for that state's high court to dismiss all constitutional challenges. It also took 10 years before the Nevada Supreme Court upheld the constitutionality of the Medical Dental Legal Screening Panel, which ironically is being eliminated with the new law.

"Somebody will challenge the law," Williams said. "There's no question. But you'll first have to take a case to trial, and that could take at least two years. It could also take at least two years for the appeal. The whole process could take anywhere from five to 10 years. That's why the insurance companies can't guarantee a reduction in premiums. We don't know if the law is constitutional, so how can you write premiums based on uncertainty in the law?"

'Victory for doctors'

When lawmakers passed the tort reforms on Aug. 1, the Nevada Medical Liability Physicians Task Force -- a coalition of nine medical organizations -- hailed it as "a victory for Nevada doctors." The legislation put a $350,000 cap on damages for pain and suffering for most patients. That amount can be increased to $1 million only for gross malpractice or if the court finds by "clear and convincing evidence" that there are "exceptional circumstances."

The law also will place a $50,000 cap on all noneconomic damages involving trauma patients, including those treated in emergency rooms as well as trauma centers. Doctors who provide care for free at any nonprofit or government-run health care facility will not be liable for any civil damages as long as gross negligence or reckless conduct is not involved.

"I have great hope that this will stabilize the situation and that doctors will stop leaving the state," said Ron Neupauer, vice president of insurer Medical Insurance Exchange of California. "But it's going to depend on how the courts interpret the law and how the juries and judges apply the caps.

"It's not what we have in California by a long stretch because we have a $250,000 cap with no exceptions. A few days into a new law it would be presumptive for me to draw conclusions about it. My crystal ball isn't that good."

While the insurance industry is applauding most of the Nevada caps, lobbyist Jim Wadhams of Las Vegas said he would not be surprised if each of those provisions faced challenges.

"By adding a $50,000 cap to trauma care there's a question as to whether that's constitutional because that's a huge change," Wadhams said. "Saying that physicians who provide free care are immune from liability, which could include patients covered under Medicaid, is also a huge change. The Legislature left an escape valve for 'clearly exceptional' cases that should protect the $350,000 cap from being unconstitutional.

"Until the judges tell the world how the law will work, the insurers won't know how much to charge for premiums. Until they know what they'll have to pay out, they won't know how much they will have to take in."

Even if the law passes constitutional muster, there are at least two provisions that bother insurers. One is the exception to the $350,000 cap that gives courts discretion to award up to $1 million for pain and suffering.

"The bill is a step forward in the right direction and should assist in lowering medical malpractice rates over a period of time, but I do have a problem with giving judges discretionary authority to exceed the $350,000 cap," said Bob Feldman, secretary-treasurer of the nonprofit Nevada Insurance Council.

"The judges in Nevada are definitely plaintiff-oriented and they're elected by contributions and publicity supplied mainly by plaintiff attorneys. They are highly beholden to plaintiff attorneys so I think it's inappropriate to give them authority to exceed the cap."

But Reno attorney Bill Bradley, Nevada Trial Lawyers Association past president, said anyone who believes judges are biased in favor of plaintiffs does not understand the court system.

"If it were up to insurance companies, there wouldn't be any judges, there wouldn't be any juries, and there wouldn't by any courthouses," Bradley said.

Applied separately

The other provision industry representatives say is troublesome is the fact that the $350,000 cap can be applied separately to each defendant in the case. They say that is an unfavorable departure from California's tort law, whose $250,000 cap is applied per case, regardless of the number of defendants.

Larry Smarr, president of Physician Insurers Association of America, a Rockville, Md., trade association whose members include three Nevada insurers, said the new law has some "good building blocks but there are also major flaws." One concern he stated was whether the $50,000 cap on trauma care afforded those patients equal protection under the law.

Smarr also said he was concerned about how the $350,000 cap may be interpreted.

"If you look at an obstetrical case, you will have at least two plaintiffs, the mother and the baby," Smarr said. "You'll also have at least three defendants, the OB/GYN, the anesthesiologist and the hospital. So, at a minimum, you'll have six $350,000 caps in that case.

"That may cause the plaintiff attorneys to shop for additional defendants. They may also come up with additional plaintiffs, such as the father. Trial attorneys will be quick to point out that this is one way to get around the cap."

But Wadhams also said it is possible that some doctors in a malpractice lawsuit that involves multiple defendants would avoid being liable for any pain and suffering damages. That's because any economic damages awarded to the plaintiff to cover medical expenses and lost wages count toward the policy limits carried by physicians, which is $1 million in most cases.

If the doctor is liable for at least $1 million in economic damages, they wouldn't have to pay anything for pain and suffering under Nevada's tort reforms. If they are liable for $800,000 in economic damages, the most they would have to pay for pain and suffering is $200,000. The only times doctors would have to pay out of pocket are cases where the economic damages, which aren't capped, exceed the limits of their policy.

Limited to percentages

A separate provision in the law limits a doctor's liability for pain and suffering damages to their percentage of the negligence. If a judge rules that a plaintiff is entitled to $1 million in pain and suffering from three defendants who had equal shares of the blame, each defendant would be liable for $333,333. If one defendant received only 10 percent of the blame, he would have to pay only $100,000 of the $1 million.

But insurers say the constitutional uncertainties and potential loopholes make it difficult for them to commit to significant rate reductions because they won't know how to set premiums until they can be sure what is covered in the law and how it will be applied.

The Nevada Mutual Insurance Co., formed earlier this year and owned by local doctors, is considering only a 5 percent rate decrease before the law takes effect, but that decision has not been finalized and is subject to change, officials said.

"We are doing an actuarial study to see to what extent we can reduce rates," Rich Bray, Nevada Mutual's chief executive officer, said. "We don't want to bring rates down just for perception. We want to do it prudently. These exceptions to the $350,000 cap are really the biggest problems we have."

Feldman said it is possible insurers will be more willing to defend malpractice cases in court rather than settling out of court because the cap will eliminate "some of the humongous jury awards." But Bray said the exceptions to the $350,000 cap "leave an open door because you don't know to what extent the judge will allow anything in there."

"Overall, I'm happy with the bill and I think physicians should be happy, too," Bray said. "The feeling throughout the industry is that we should have some savings on rates. The bill recognizes that there is a manageable level of expectation on a physician for perfection."

The Medical Liability Association board is meeting in Las Vegas on Monday to review the bill. Byrd said there is an outside chance that the association, which was also created earlier this year, will decide to lower rates at that time. But he said such consideration is more likely to occur at its September meeting.

"It puts us back on a level playing field with the plaintiffs' bar," Byrd said of the new law. "In the past we've been denied access to the courts. We now can more clearly predict what our expenses will be, whereas we could not do that before."

Dennis Coffin, Las Vegas agent for the insurer American Physicians Assurance Corp., agreed that the tort law should at least stabilize rates.

"It looks like a good deal because the most insurance companies know they will have to pay out is $1 million," Coffin said of noneconomic damages. "But I would say it will take at least three years before you see a difference in rates."

Coffin said part of the reason rates will likely remain high for the next few years is that insurance companies still may have to pay expensive jury awards for malpractice cases that were filed before the new law takes effect.

"Insurance companies have to collect premiums commensurate with existing claims," he said. "They still have cases to clear out and they need the premiums to pay for those."

Among the optimists is Sam Sorich of Sacramento, vice president of the 700-member National Association of Independent Insurers.

"This bill should restrain the increasing costs of medical malpractice lawsuits," Sorich said. "There are elements in the law that should help insurance companies better gauge what their expenses will be. Certainly on Oct. 1 you won't see rates plummet. It will take awhile for insurance companies to see how they're impacted.

"There are no guarantees that can be given but I do believe elements are in motion to increase competition for medical malpractice insurance in Nevada. There is hope that competition will help decrease rates. That's not a sure thing.

"But the Legislature had to do something and this was a good, strong step."

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