Malpractice Costs Jeapordize Care Access
Over the past several years, rates for medical malpractice insurance have risen dramatically. These increases are anecdotally blamed on greedy plaintiffs’ insurance company profits, the tort system, the cyclical nature of insurance and incompetent doctors. Regardless, the effect on the delivery of public health services is profound — patients are denied access to necessary care when doctors leave or limit their practices. But this health care availability crisis is not new to the nation.
In the 1970s, Nevada experienced a similar situation. Many fami-ly practice physicians, traditionally obstetricians, could no longer afford to provide their services due to the effect on their malpractice premiums. They referred pregnant patients to specialists for third-trimester prenatal care and delivery. This change was not acceptable to most expectant mothers. Many chose to forgo prenatal care and delivered their babies in emergency rooms.
To address this situation, former Gov. Mike O’Callaghan (D) directed the establishment of the Nevada Medical Liability Insurance Association to provide medical malpractice insurance to physicians denied coverage in the voluntary insurance market. The creation of NMLIA achieved its intended purpose, stabilizing premiums and eliminating discriminatory practices. With some refinements, such as the addition of a medical legal screening panel in the mid-1980s, Nevada’s medical malpractice market was stable until just recently.
In May 2001, a new crisis emerged when the St. Paul Companies requested an 83.6 percent rate increase, primarily in the Las Vegas area. The company said it would withdraw from Nevada if the filing was denied. After lengthy negotiations, the company was granted a 70 percent increase for Clark County, to be phased in over six months. St. Paul then rescinded its notice to withdraw. In December 2001, however, St. Paul announced it would withdraw from the medical malpractice market in all states. In Nevada, withdrawals would begin with policies renewing on May 1, 2002, and thereafter. At the time, St. Paul insured up to 60 percent of Nevada’s physicians.
In January 2002, I met with various doctors’ associations to discuss their concerns. In February, I ordered Insurance Commissioner Alice Molasky-Arman to convene a hearing to determine the availability of medical malpractice insurance. After the hearing, Molasky-Arman determined that this essential insurance was unavailable. Subsequently, I directed the commissioner to establish an essential insurance association.
With support from the state’s emergency fund, the Medical Liability Association of Nevada was created. MLAN issued its first policy April 15, 2002. MLAN, like its predecessor, achieved its intended purpose. By 2003, new companies had entered the market, existing companies were writing new business, and rates had generally stabilized. [IMGCAP(1)]
MLAN was created to address availability problems, but we needed to address the issue of affordability. I convened the leadership of the medical, legal and insurance communities to study the problem and suggest solutions. When this group was unable to reach a consensus, I called a special legislative session in July 2002. Legislation was enacted which capped noneconomic damages (with limited exceptions), shortened the statutes of limitations, revised the collateral source rule, and limited joint and several damages. The bill also abolished the medical legal screening panel, which was seen by many to be a detriment to timely and efficient resolution of malpractice claims.
By exercising the full range of executive authority, Nevada’s malpractice insurance market was resurrected. The market, however, contains systemic problems, which do not readily respond to governmental intervention.
Medical malpractice insurance policies are, by nature, different than other policies. For example, many obstetric policies include discounts for delivering fewer than 125 babies. To restrain costs, many obstetricians artificially limit their practice to no more than 124 deliveries, resulting in doctors earning less money, while at the same time expectant mothers go without care. The practice of medicine as a business enterprise is unique. Costs are determined by free-market factors, and revenues are generally regulated. The overwhelming majority of a doctor’s practice consists of patients financially supported by insurance (generally through HMOs or PPOs) or public sources, such as Medicare and Medicaid. Reimbursement rates established by these institutional payers are inflexible in the short-term, not responding in a timely fashion to increased costs. Costs, being subject to traditional market pressures, are very flexible in the short-term. The upward volatility of costs, including personnel, overhead and insurance, squeezes the physician against the ceiling created by regulated reimbursements. For another example, doctors in private practice who work part time in emergency rooms or trauma centers are discouraged from performing this valuable public health service because of additional premiums charged. In July 2002, Nevada’s only trauma center in the southern part of the state closed temporarily because of rising insurance rates. Something is wrong with the relationship when insurance standards determine the availability of health care. As long as cost increases have no connection to revenue levels, the business of medicine will continue to be a difficult economic enterprise.
The state is also a payer for both Medicaid and its employees. Increased medical malpractice premiums paid by physicians and other health care providers are ultimately reflected in higher reimbursements paid by the state. If reimbursement rates are not increased, access to care suffers.
Recent attempts to reduce Medicaid surgical rates illustrate the point. Nevada paid some of the highest Medicaid surgical rates in the nation. Attempts to bring those rates in line with other Western states led to a wholesale exodus of pediatric surgeons from the program. Physicians repeatedly said that medical malpractice premiums forced them to evaluate Medicaid’s fee schedule against their practice costs, even though it represented a small portion of patient revenues for most doctors.
Beyond its financial impact, the spike in medical malpractice costs jeopardizes access to care. When physicians and other providers start limiting their practices, low-income and uninsured patients are the most vulnerable. This was seen last year with the impact of medical malpractice rate hikes on obstetricians. Although the number of obstetricians who actually closed their practices in Nevada is subject to debate, there was a real impact on access for many pregnant women.
Every state is experimenting with ways to preserve the public health system in the face of the medical malpractice pressures. The 2003 Nevada Legislature recently enacted measures to reward physicians who implement risk- management systems, empower the State Board of Medical Examiners to impose new licensing and disciplinary standards to hold physicians accountable for their actions and require insurers to implement programs of loss prevention and control. Other states are exploring no-fault pools, patient compensation funds and tort reforms modeled after California’s Medical Injury Compensation Reform Act of 1975. The Bush administration has introduced federal legislation modeled after MICRA. The goal of these efforts is to protect the delivery of public health services by encouraging physicians to practice without economic restraint. This can be achieved through partnerships consisting of physicians, attorneys, government and consumers dedicated to taking the profit out of unfortunate medical outcomes.
Kenny Guinn (R) is the governor of Nevada.