A study of medical malpractice premium rates and claims payments has drawn criticism from two physician insurance organizations, including the Arizona company that provides malpractice insurance for most physicians in the state.

At issue is a study by Weiss Ratings, an independent, Florida-based financial ratings firm that compared medical malpractice premium rates and claims payouts between states with caps on non-economic damages — pain and suffering, for example — and those without caps.

Based on its study of premium rates over the past 12 years, the firm concluded that 32 states without caps, including Arizona, showed a slower increase in the cost of medical malpractice premiums, but a higher increase in insurer payouts for damage claims.

In 19 states that implemented caps from 1991 through 2002, Weiss reported, medical malpractice premiums rose 48.2 per cent, compared with a 35.9 per cent increase in non-cap states.

“By merely looking at caps versus no caps, it [the study] fails to account for other important contributors to claims costs and premium pricing,” said Dr. James Carland, president and CEO of the physician-owned Mutual Insurance Company of Arizona.

“MICA believes that caps on non-economic damages would be beneficial, but only if part of a package of reforms,” such as proposed in federal legislation, he said.

Proposed tort reforms in House Resolution 5, which are supported by President Bush and opposed by the American Trial Lawyers Association, include a $250,000 cap on non-economic damages, limits on punitive damages, incremental rather than lump sum payouts, proration of damages by degree of fault and sliding scale attorney fees.

The Weiss study concluded, however, “Caps on non-economic damages have failed to prevent sharp increases in medical malpractice insurance premiums, even though insurers enjoyed a slowdown in their payouts” in states with caps.

The study, released June 2, was reported in various national business publications and was quoted in a feature article on malpractice in the June 9 edition of Time.

The Arizona Constitution prohibits limits on both economic damages, such as for loss of income and medical expenses, and on non-economic damages resulting from personal injury or death.

Martin Weiss, the study firm’s chairman, warned against legislative moves to cap non-economic damages.

“Legislators must immediately put on hold all proposals involving non-economic damage caps until convincing evidence can be produced to demonstrate a true benefit to doctors in the form of reduced medical malpractice costs,” he said.

In response to a question posed by Sen. Barbara Leff, R-Dist. 11 — who commissioned the study? — Weiss spokeswoman Melissa Gannon said the firm finances its own studies and is independent of any special interest group.

“Weiss Ratings is not necessarily against the implementation of caps on non-economic damage awards,” she said. “Our position is simply that caps alone will not solve the problem.”

Leff To Introduce Malpractice Bill Next Session

Several ballot measures to cap non-economic damages in Arizona have failed over the years, and, with one exception, bills aimed at calling for tort reform in the area of medical malpractice have had no success.

Governor Napolitano signed into law a bill that removes physicians and certain other health care professionals from malpractice liability under the state’s Adult Protection Act. As a compromise for support of the bill from the Arizona Trial Attorneys Association, Sen. Linda Binder, R-Dist. 3, withdrew a bill to abolish punitive damages.

Dr. Carland said, however, “Punitive damages play a very small role in medical malpractice in Arizona …”

Ms. Leff said she will try to get a bill through in the Second Session of the 46th Legislature to include medical malpractice in current law, which requires an affidavit of merit before a professional malpractice case can move forward.

In the meantime, Robert Cannell, D-Dist. 24, a Yuma physician, Sen. Carolyn Allen, R-Dist. 8, and Ms. Binder said they will use the summer to study the ramifications of this month’s Arizona Supreme Court ruling that administering a drug against a patient’s wishes is criminal battery, rather than malpractice.

Study Criticized

Larry Smarr, a spokesman for Physician Insurers Association of America (PIAA), said the Weiss study was “fatally flawed” because it used median statistics rather than averages and did not take into account the different cap levels among states. He said caps work.

“The bottom line is that the Congressional Budget Office, the Joint Economic Committee and the Department of Health and Human Services have all issued well-researched studies that document the direct relationship between tort reforms, lower payouts and, over the long term, lower premiums,” Mr. Smarr said.

An additional flaw in the Weiss report, Dr. Carland said, was that the firm based its study on premium costs for low risk internal medicine and much higher risk specialties of general surgery and obstetrics.

Using the three specialties, Weiss reported the median premium rate in Arizona was $38,571 in 2002, including MICA and at least two other malpractice insurance companies that cover Arizona physicians and hospitals.

MICA’s current premium rate for internal medicine is $14,247, compared with $44,005 for general surgeons and $57,593 for obstetricians. This would yield a median premium rate of $44,005, or $5,434 higher than Weiss reported. The average premium would be $38,615.

“The premium pricing alone does not support the implied premise that three specialties share risk characteristics,” he said.

If high-risk neurosurgery replaced internal medicine in the study, MICA’s average premium for the three specialties would be $68,532.

“Overall, by most measures, it appears Arizona’s average premium rates are above the national average,” Dr. Carland said, but added it is difficult to accurately compare premiums among states.

Arizona’s rates, however, are well below large cities with the highest premiums. For example, the average MICA premium for a neurosurgeon in Arizona is $100,301, compared with a national average among states of $71,200, as reported by two national neurosurgeon organizations.

In Chicago, however, the average premium for a neurosurgeon is $283,000.

According to the Weiss report, Arizona showed the smallest increase in medical malpractice premiums over the past 12 years — 2.6 per cent — but was 12.8 per cent above the national median in claims payouts — $169,240.

Dr. Carland said Arizona’s small increase in premium costs over the reporting period “is a function of timing,” rather than the absence of caps.

A sharp rise in losses in the mid and late 1980s resulted in a sharp rise in premiums, he said. The premiums in 1991 reflected the increase but, he said, “What the Weiss study does not reveal is the significant decrease in rates in the early to middle nineties when it was found that the actuarial trends, on which rates are forecast, overstated the severity of loss.”

From 1994 through 2002, MICA had five rate adjustments, averaging just over 3 per cent. It reported a 12.5 per cent increase for this year. The increases were consistent with rising claim payouts, Dr. Carland said in a previous interview.

The smallest premium increase has been for obstetricians and gynecologists at 19 per cent, MICA reported, but they are paying more than $57,000 this year for malpractice coverage.

Weiss reported the median claim payout in states without caps rose 71.3 per cent, from $87,553 in 1991 to $150,000 in 2002. By contrast, the median payout in states with cap
s grew by only 37.8 per cent, from $79,798 to $110,000, according to the study.

Median Payment in 2002 was $169,240

The Arizona Department of Insurance reported that MICA paid out $1.1 million in hospital claims and $53 million in claims against physicians in 2002. The Weiss study reported the 1991 median insurer payout in Arizona was $88,941, increasing to $169,240 in 2002 — almost 13 per cent higher than the median increase in non-cap states for the study period.

“Considering our weak statute of limitations, the severe [restrictions] our defense counsel works under, the ease with which a claim may be filed without an affidavit of merit, and not meaningful tort reform, our position at only 12.8 percent above the national median is remarkable and a testament to defense counsel in this state,” Dr. Carland said.

Tying the cost of malpractice premiums to claims payouts, he cited a study by Jury Verdict Research that showed the average award in a damage case is $3.9 million, compared to a mean value of $1 million.

“The median payout may show a little more movement despite substantial movements in average payout, a more accurate indicator of premium pricing,” Dr. Carland said.

State caps on damages have ranged from $250,000 in California to $1 million in West Virginia, and Mr. Smarr of Physician Insurers Association of America said the Weiss report mistakenly assumes all levels of caps are effective.

“It has been PIAA’s belief all along that any type of cap over $250,000 simply does not work …”

The Time article listed Arizona among more than 20 states “showing early symptoms” of a medical malpractice crisis, based on information from the American Medical Association.

Dr. Carland said he believes part of that assessment is based on the lack of obstetrical care in a rural county.

“While Arizona has experienced a restriction of obstetrical services in Cochise County, medical professional liability insurance is available in Arizona, though at an average cost above the national average, and premium increases are significantly less than seen nationally,” he said.

“In short, all states, including Arizona, are on the crisis list, the crisis list of states with declining access to care brought about in part by dramatic increases in tort claims,” Dr. Carland said. —