Critical condition: State hearing to focus on mounting costs of malpractice insurance

Stacy J. Willis

Friday, March 1, 2002 | 4:56 a.m.

WEEKEND EDITION

Many physicians are taking the day off Monday and insurance company representatives are flying in from across the nation to attend a hearing in Carson City on the state's medical crisis.

The hearing, requested by Gov. Kenny Guinn last month in response to escalating complaints about the mounting costs of malpractice insurance, is expected to produce at least a temporary salve to what has become a critical situation.

Nevada Insurance Commissioner Alice Molasky-Arman will preside over the hearing, which will be a video conference via closed-circuit TV in Las Vegas.

Physicians say they are on the verge of leaving Nevada because they can't afford malpractice insurance; University Medical Center officials say they may may cut service at the state's only trauma center; and the public may soon face widespread unavailability of quality health care.

The finger-pointing has begun.

Everyone is struggling to frame the controversy in a way that best suits them: Is the issue medical malpractice: Is there an increasing rate of doctors causing harm to patients or a failure of doctors to regulate themselves? Or is it a judicial issue: Are plaintiffs' attorneys and juries to blame for pushing meritless claims and handing out huge awards? Or are big insurance companies simply soaking doctors?

Whichever spin prevails, this is not a new, nor unpredictable, public health crisis.

"Nevada has historically been a very difficult venue to successfully write medical professional liability insurance," reads a memo from Physicians Insurance Co. of Wisconsin to the Nevada Insurance Division, dated Feb. 27. The company calls the current situation "inadequate."

At Monday's hearing, Insurance Commissioner Alice Molasky-Arman will need to determine, based on testimony from Physicians Insurance and other insurance companies serving Nevada, the extent of the crisis. She is expected to take quick action to temporarily solve the issue.

But long-term resolution will involve much more.

"We have been through this issue before," Bill Bradley, Nevada Trial Lawyers Association lobbyist, said. "We addressed it in 1975 and 1985, and here we are again."

Ultimately this will be a test for Nevada policymakers -- one that could turn into the familiar saw of tort-reform lobbying wars or, given a broader effort, could be an opportunity to improve the quality and availability of health care in Nevada.

At stake is the state's ability to recruit young, qualified physicians and, subsequently, provide stable, quality, affordable health care for residents.

But the potential for losing sight of the issue in a political pushing match is high. All sides are preparing for a fight: Physicians have formed the Nevada Medical Liability Physicians Task Force and hired a public relations firm. Trial lawyers are making the rounds to local newspapers and prepping lobbyists. Insurance companies are preparing presentations for the state. And lawmakers are drafting tort-reform bills.

State officials are trying to collect and analyze information, "but we really don't have the facts yet," Peggy Dehl, state Insurance Division spokeswoman, said. "The information is not compiled yet."

Yet some pieces of the puzzle have been in the news for a long time.

* Medical malpractice is the eighth leading cause of death in the United States and accounts for more deaths than those caused by AIDS, traffic accidents or breast cancer, according to the Institute of Medicine, a subsidiary of Washington-based National Academy of Sciences, in a 2000 report.

* Median malpractice jury awards nationwide rose from $375,000 in 1994 to $800,000 in 1999, according to Jury Verdict Research Inc. of Horsham, Pa.

* U.S. doctors have seen medical malpractice rates rise in recent months -- most more than 20 percent. But Nevada is one of eight states whose physicians saw increases of more than 30 percent by at least two carriers, according to the American Medical News. The other states are Texas, Arkansas, Connecticut, Illinois, North Carolina, Ohio and Pennslyvania.

Economic problems

Nationwide, insurance companies have blamed the economy. In the bull market, companies subsidized premiums with money made on investments of their reserve funds, according to Medical Liability Monitor, a Chicago-based industry newsletter.

The recession and millions of dollars in claims from the Sept. 11 terrorist attacks, combined with a growing number of malpractice lawsuits nationwide, weakened the companies' ability to offer low rates, industry groups say.

The rising rates were made worse nationwide when St. Paul Cos. of St. Paul, Minn., announced in December that it planned to pull out of the malpractice market.

St. Paul insured 42,000 doctors, 750 hospitals, 5,800 other health care facilities and 72,000 nurse practitioners nationwide.

The company reported it had to leave the market because it was paying out $1.43 for every dollar of premiums. It posted a $940 million loss in its medical malpractice business in 2001.

In Nevada, St. Paul insured about 1,400 of the 4,000 doctors.

Nevada physicians, particularly specialists such as surgeons and obstetricians, are paying as much as $200,000 in annual premiums, and expect the renewal rates to go up, according to Larry Matheis, executive director of the Nevada State Medical Association.

More than 200 physicians will be "structurally unable" to get malpractice insurance in Nevada, and will be forced to leave before the end of the summer unless some relief is provided, he said.

Specialists are in demand nationwide and can find lower rates in other states. In California, where there is a $250,000 cap on malpractice jury awards for pain and suffering, rates are an average of two-thirds lower, Matheis said.

Dr. Robert Wiencek, a 43-year-old cardiovascular surgeon, told the Sun that he is putting his house up for sale because his malpractice rates, which are already 11 percent of his income, are expected to double.

UMC Trauma Unit Director Dr. John Fildes said at a news conference last month that one surgeon has already left the hospital and others are considering leaving, which may cause the hospital to limit trauma center hours.

Similar troubles have arisen in other states, although Insurance Division officials haven't determined a common cause.

The Memphis (Tenn.) Commercial Appeal reported in January that hospital emergency rooms in the Tennessee-Mississippi delta region might be closed because of skyrocketing malpractice rates -- a situation that mirrors UMC's.

In West Virginia, lawmakers were called into special session after St. Paul -- that state's largest carrier -- announced its withdrawal from the market. Lawmakers came up with a state-run medical malpractice insurance plan, but doctors are not satisfied and vow to push for tort reform in the regular session.

Now Nevada physicians have recruited the consultant who worked on the West Virginia solution to work on Nevada's.

Seeking answers

Molasky-Arman wants answers from the 15 insurance companies licensed in Nevada. She sent them a list of questions about the market two weeks ago, along with a mandate to attend Monday's hearing.

Responses typically focus on Nevada's lack of a cap on jury awards for malpractice.

"In our view, juries in Nevada, primarily in the Las Vegas venue, have demonstrated a tendency to view pecuniary damage issues associated with plaintiff verdicts in a liberal manner," Timothy Morse, managing director of CNA Insurance Cos., wrote.

Physicians couldn't agree more. Matheis says the premiums are higher here because of the state's allowance of high pain and suffering, or "noneconomic," damages.

"It's primarily because we don't have a cap on noneconomic damages," Matheis said. "We've got a rapid growth population here, and we've got a growing and aggressive legal community in Southern Nevada.

"And in the rapid-growth physician population, you've got physicians who don't have long-established relationships with patients, or with each other for referral purposes. That can make for communication problems. And that can make for malpractice claims."

Twenty-one states have caps on noneconomic damages, Dr. Raj Chanderraj, a representative of the Nevada Medical Liability Physicians Task Force, said.

Medical malpractice claims in Clark County doubled in the last six years, according to District Court records. Plaintiffs were awarded more than $21 million.

But, as this has played out in many political forums, trial lawyers say malpractice premiums are not a judicial problem.

"We don't believe it is caused by frivolous lawsuits," Bradley said. "It is caused by poor investment handling in the insurance industry. When economic times are good, everybody wants to write insurance to invest the premiums in the stock market. Now that the economy has changed, that has changed."

Bradley said there have been 22 plaintiff verdicts in six years in Clark County. "There's 1.5 million people there. That statistic does not seem out of the norm."

Matheis argues that insurance companies are holding reserve funds to cover whatever the most recent jury-award benchmark is: In Clark County that mark is $6 million, paid out last year in a case that involved a brain-damaged child.

"The insurance industry says that because there is no limit on noneconomic damages they have to reserve as if every case goes to the benchmark. And if there was a predictable limit, they could change their reserving policies," Matheis said.

Legislative relief

Because the Legislature already has limited noneconomic damages against public agencies to $50,000, physicians say it's a small legislative leap to cap noneconomic damages for the entire sector.

"The Legislature has already bought the principle when it affects public budgets, and our case is to show that the public can be hurt if a sector as important as the health care industry suffers from the same problem," Matheis said.

Bill drafts are already rolling in. Sen. Ray Shaffer, D-North Las Vegas, is sponsoring a bill that would limit liability without imposing a cap. Instead, it would limit pain and suffering to an amount equal to 10 percent of economic damages awarded. However, it would disallow punitive damages.

But trial lawyers say the state already has several mechanisms to prevent frivolous lawsuits and doesn't need more.

The 1985 Legislature created the Medical-Dental Legal Screening Panel. It is composed of three doctors, three lawyers and the occasional hospital administrator. All are assigned new for each case from Nevada's medical association, trial lawyers association and hospital association. It reviews and votes on the merits of every medial malpractice lawsuit before it goes to District Court. The panel meets in private -- no one, not even the plaintiffs or attorneys involved -- are allowed into deliberations.

It's decision about whether the case has merit is forwarded to the Board of Medical Examiners. If the panel decides a case doesn't have merit, it is not precluded from being tried; however the panel's judgment may be admitted as evidence in a jury trial where "it has teeth," attorney Gerald Gillock said. If it decides it doesn't have merit, and the plaintiffs proceed, but ultimately lose, they are responsible for all court costs.

"So we already have a true loser-pays system in Nevada," Bradley said. "That is a form of tort reform right there."

In 2000, 217 claims were filed with the panel, and fewer than 25 percent went to trial, Bradley said.

However, several insurance companies report the panel is an ineffective regulating arm.

"(The panel's actions) do not accomplish what they were intended to do, that is, to resolve cases short of protracted litigation and weed out frivolous claims," James Hinton of Health Care Indemnity Inc. wrote in his answers to the Insurance Division.

Answers awaited

Molasky-Arman's main job Monday will be to determine, in accordance with state law, whether any essential coverage in Nevada is "not readily available," and whether the public interest requires the availability of such insurance. If she determines this is the case, she can ask insurance companies to prepare plans to facilitate making it available.

The short-term solution may be forming a physician-owned insurance company to stabilize Nevada's situation. In the mid-1970s doctors did just that: They formed a company called Nevada Medical Liability Insurance Co. St. Paul later bought the company.

But beyond the short-term crisis, Matheis and Bradley agreed, the overarching question for Southern Nevadans is: Will the quality of health care keep pace with the population growth?

The community has been overwhelmed with news about overcrowded emergency rooms, a lack of children's emergency care, a lack of mental health care, a shortage of nurses and other health care quandaries. Medical malpractice insurance rates open the door to looking at the system as a whole, including its relationship with the judicial system and the financial markets.

"The long-term problem is that we've got a civil justice system that envisions a health care model with a single person in control," Matheis said. "But the modern health care system is a complex system with a lot of different players. Our legal system still holds the doctor accountable for what happens with the patient. But sometimes that is pinning the tail on the wrong donkey."

Chanderraj said the long-term goal "is to put an end to this cycle, or a lot of people won't get the kind of care they need. First, we have to see what the trial lawyers will do -- they will put on a big fight."

Bradley said trial lawyers are confident the problem will be resolved without tort reform, but they are prepared to negotiate.

"The responsibility lies with all of us to form a solution," Bradley said. "Physicians and Nevada trial lawyers will work together. We need to sit down and analyze the problem. It has to be done."

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