Claims payouts jump: Malpractice insurance costs rising as result

Here's one symptom of how the spiraling cost of medical malpractice insurance has influenced the delivery of health care:

New doctors at MeritCare must take a course on communicating effectively with their patients. Happy patients, after all, are less likely to sue.

Now here's a much bigger sign: The sum MeritCare spends for malpractice insurance, both in premiums paid and reserves set aside, is expected to reach $7 million this year, up from $4.6 million last year -- more than triple 2001's $1.9 million.

"That's a fairly significant increase," said John Doherty, MeritCare's chief financial officer. He noted, however, that the health system's malpractice premiums previously had been stable for several years, at around $1.7 million.

"Now there's a little bit of catchup going on," Doherty said. "We're still not in that crisis range where some states are."

So far, the Upper Midwest remains relatively insulated from the medical malpractice insurance crisis that has led some doctors to quit or move from states including Florida, Pennsylvania and Nevada.

But indications suggest the malpractice epidemic is spreading to North Dakota. Consider:

- Average payments on malpractice claims more than tripled from 1991 to 2001, from $97,500 to $332,074, although the number of payments has remained stable. During that period, the highest payments rose from $295,000 to $1.95 million.

- The median malpractice insurance premium for North Dakota doctors last year was $16,238. Premiums rose, on average, 8 percent to 10 percent in 2001.

- A survey last year by the North Dakota Medical Association found that many doctors had experienced "significant challenges in obtaining affordable liability coverage, including significant premium increases."

- North Dakota's medical malpractice insurance market is highly concentrated among a few firms, and therefore noncompetitive. The top four carriers have held 59 percent to 77 percent of the market during the past six years, according to an analysis by state insurance regulators.

Bruce Levi, executive director of the North Dakota Medical Association, recently told the state's congressional delegation about growing concerns over the rising cost of malpractice insurance.

"Some physicians are indicating that they plan to limit their practice to lower-risk patients and are less willing to perform high-risk procedures," he wrote.

"There is also some concern about the future impact of these unsettling trends on patient access to medical care, and impacts on staffing and the ability to recruit and retain patients."

That's a worry for Jim Long, administrator of West River Health Services, based in Hettinger, N.D., which is trying to fill two physician positions -- a general surgeon and family practice doctor.

"Students coming out of school now seem to be more concerned about chasing the dollar rather than sticking around home," Long said.

Malpractice insurance for the medical center and its satellite clinics increased 16 percent last year, and West River has been told to expect another hike of 15 percent to 20 percent this year.

Those increases contribute to the cost squeeze in health care, making it difficult to offer competitive pay, Long said.

"Overall, North Dakota has a low loss ratio, but that doesn't seem to help us when we try to get insured," he said.

Medical malpractice insurers covering North Dakota paid out 82 cents for every premium dollar they took in during 2001, compared to a payout of $1.60 nationally.

One reason North Dakota has been buffered from the huge losses experienced elsewhere: malpractice payouts are capped at $500,000 under a law passed in 1995.

North Dakota is one of 19 states that restrict malpractice payments, according to a study by Weiss Ratings Inc.

But even caps can't hold the line on malpractice premiums. The median increase among the states that restrict payments was more than 48 percent, compared to an increase of almost 36 percent for states without caps, according to the study.

"Tort reform has failed to address the problem of surging medical malpractice premiums, despite the fact that insurers have benefited from a slowdown in the growth of claims," said Martin Weiss, chairman of Weiss Ratings.

He added: "The escalating medical malpractice crisis will not be resolved until the industry and regulators address the other, apparently more powerful, factors driving premiums higher."

Those underlying factors include medical inflation -- costs have skyrocketed 75 percent since 1991 -- and the insurance business cycle. Insurers are clamping down on underwriting standards and boosting premiums to make up for rising claims and investment income losses.

Jim Poolman, North Dakota insurance commissioner, is forming a task force to explore steps to curb malpractice rate increases. One goal is to increase competition.

"We're going to be looking at the marketplace and find some marketplace alternatives," he said.

One possibility is to see if North Dakota health providers can limit their risk by forming self-insurance pools. That way, they could avoid the higher escalating rates in other areas.

"We're seeing the upheaval of delivery of medical services in other states," Poolman said.

The task force, which will include health-care administrators, insurance industry representatives and someone representing trial lawyers, will try to forge consensus for recommended solutions.

Self-insurance and risk reduction pools have succeeded in the past, said Dr. Robert Montgomery, a pediatrician and medical director at MeritCare.

In the mid-1980s, during the last medical malpractice crisis, medical societies in Minnesota banded together to form an insurance company, which later expanded to become Midwest Malpractice Insurance Co., MeritCare's current carrier.

Levi maintains that the flareup in medical malpractice rates is a result of the national litigation explosion, and therefore requires a national solution.

Montgomery, who once served on advisory committees to insurance companies, believes there is no cureall.

"It obviously isn't a simple problem and probably doesn't have a simple solution," he said.

Readers can reach Forum reporter Patrick Springer at (701) 241-5522