SJR 394/HJR 704 - Joint Subcommittee Studying Risk Management Plans for Physicians and Hospitals (Legislative Record 2005)

The third meeting of the second year of the joint subcommittee featured insurance data from the State Corporation Commission and the perspective of the Virginia Association of Defense Attorneys.

A representative of the Property and Casualty Division of the Bureau of Insurance of the State Corporation Commission (SCC) reported on: actuarial reports on rates, economist's reports on competition in the market, implications of requiring prior approval for certain specialties and closed claim reports.

Actuarial Reports on Rates
According to the Bureau's actuaries, the rates charged by the major licensed writers of physicians' and surgeons' professional liability coverage in Virginia appear to be adequate and not excessive, which means that the premiums charged are supported by the underlying data. The Bureau's actuaries provided estimates of the average malpractice rates paid by five specialties (neurosurgery, ob/gyn, orthopedics, emergency medicine and anesthesiology) under the file and use system of rate regulation, as requested in SJR 394/HJR 704 (2005). The average rates shown are average premiums for each of the specialties and, as such, do not take into consideration factors such as the limits of insurance carried by the physician, any deductible, the location of the physician, differences in practices, and loss histories. [Exhibit 1] Estimates of what the rates should be are provided as benchmark rates with a low and high estimate. Within all five specialties, the average rate paid falls within the benchmark ranges of what it is estimated the premiums would be under a prior approval system of rate regulation using only Virginia-specific loss data.

Competition in the Market
The Bureau's consulting economists updated the report produced in November 2003, titled "A Report on the Level of Competition in Virginia Relating to Medical Malpractice Insurance." The update concludes that competition is an effective regulator of rates for physicians' and surgeons' malpractice insurance and that the rates for this class should continue to be regulated under a file and use system of rate regulation. This finding is based on the following factors: the five-year rate of return on equity earned by insurers for physicians and surgeons is 5.2%; that insurers writing physicians and surgeons medical malpractice insurance have earned negative returns on equity in two of the five years; there are 15 insurers aggressively seeking new business; and Virginia has the most favorable indicators of market concentration in the country.

Probable Effects of Prior-approval
SJR 394/HJR 704 also asked the Bureau to assess the probable effects on the availability and affordability of medical malpractice insurance for the five listed specialties if Virginia were to require prior approval of the rates for those specialties rather than continuing to regulate these rates under existing file and use rating laws.

In 2004, 66% of all medical malpractice insurance in Virginia was written either by companies not subject to the Bureau's rate regulatory or form approval jurisdiction (recognized risk retention groups, captives domiciled outside of Virginia, and approved surplus lines insurers), or by companies that have an approved risk purchasing group domiciled outside of Virginia where they can write Virginia business. Therefore, if a change were made to Virginia's file and use rate regulation methodology for medical malpractice insurance, the change would only impact approximately 34% of the premiums written in Virginia. Moreover, if the system were changed to a prior approval system, it is possible that those companies not currently using risk purchasing groups would quickly and easily establish an approved purchasing group and move even more business outside of the Bureau's authority to oversee premiums. Subcommittee members expressed concern about limited state regulatory control under the Federal Risk Retention Act.

It was reported that the Bureau's economists opined that changing the current file and use system to a prior approval system would have no material impact on the affordability of medical malpractice insurance in Virginia and could make medical malpractice insurance less available in the long run, particularly for physicians and surgeons.

Closed Claim Reports
Exhibits 2-5 do not represent every claim closed in Virginia during 2002 to 2004, as they include data only from companies required to report or that voluntarily report in order to help provide as credible a statistical picture as possible. There are sufficient numbers to provide credible summary statistics and other useful information. It is not possible to determine how many claims were made per specialty. Subcommittee members expressed an interest in receiving detailed information on claim outcomes and were told that another level of analysis (number settled, mediated or jury verdicts) will be conducted on the data. The crisis manifests itself in a number of ways, including restricting the availability of medical care, driving doctors out of business and, in some large law firms, prohibiting lawyers from defending medical malpractice cases. While every medical malpractice plaintiff is facing a family tragedy and has had a failure of expectations from the medical system, the cases are psychologically, personally and economically devastating for the physicians who are sued.

Exhibit 4.
Average Payment by Specialty Claims Closed with Indemnity Payment 2002-2004

Description	Average Per Claim with Paid Indemnity	Number of Claims Closed
Thoracic Surgeon Dermatologist Gastroenterologist Infectious Disease Specialist Neurological Surgeon Cardiologist Nuclear Medicine Nurse Practitioner General Surgeon Emergency Room Physician Gynecologist/Obstetrician Cardiovascular Surgeon Anesthesiologist Pathologist OB/GYN Surgeon Chiropractor Urologist Orthopedist Nephrologists Pulmonary Disease Specialist Pediatrician Surgeon Family Practitioner (claim involves OB/GYN care) Other (not specified above) Internist Family or General Practitioner Urological Surgeon Physical Medicine and Rehabilitation Specialist Nurse Midwife Medical Facility (not otherwise specified) Orthopedic Surgeon Plastic Sun Group Practice Psychiatrist Radiologist Podiatrist Nursing Home Neurologist Pharmacist Optometrist Physical Therapist Psychologist Ophthalmologist Hospital Topologist Periodontist Hematologist Dentist Nurse Anesthetist Clinic Resident, Intern, or Medical Student Occupational Medicine Psychiatric Institution Oral Surgeon Laryngologist Orthodontist Medical Technician/Laboratory	$ 632,500 $ 608,333 $ 527,343 $ 475,000 $ 469,688 $ 466,429 $ 400,000 $ 400,000 $ 391,064 $ 383,575 $ 374,261 $ 371,755 $ 360,125 $ 346,717 $ 344,714 $ 320,000 $ 318,100 $ 311,268 $ 300,000 $ 298,294 $ 291,212 $ 274,328 $ 270,842 $ 261,286 $ 260,603 $ 251,667 $ 246,774 $ 243,750 $ 234,568 $ 234,411 $ 218,597 $ 198,281 $ 185,086 $ 180,114 $ 173,625 $ 157,888 $ 143,988 $ 136,195 $ 134,855 $ 133,673 $ 128,603 $ 127,750 $ 120,253 $ 106,469 $ 100,000 $ 85,000 $ 60,000 $ 58,863 $ 53,290 $ 52,239 $ 30,000 $ 25,000 $ 21,667 $ 14,645 $ 9,000 $ 4,000 $ 2,000	5 3 3 1 8 7 1 1 38 41 11 22 8 48 7 6 5 4 1 10 29 5 54 34 48 6 3 4 9 42 16 42 7 20 8 29 2 3 2 18 5 2 26 233 1 1 2 70 3 8 2 2 2 5 1 1 1

Source: Public Release Dataset V10-26-05.xls

Exhibit 5.
3-Year Combined Ranges of Paid Indemnity

3-yr Range of Paid Indemnity	Number of Claims with Paid Indemnity	Percent of Claims with Paid Indemnity	Total Paid Indemnity	Percent of Total Paid Indemnity	Average Paid Indemnity
.01 to $99,999	458	45.66%	$13,507,188	6.11%	$29,492
>$100,000 to $199,000	157	15.65%	$21,962,882	9.92%	$139,662
>$200,000 to $299,000	128	12.76%	$30,963,004	14.01%	$241,898
>$300,000 to $399,000	73	7.28%	$24,638,267	11.15%	$337,511
>$400,000 to $499,000	53	5.28%	$23,033,792	10.42%	$434,600
>$500,000 to $599,000	39	3.89%	$20,432,075	9.24%	$523,899
>$600,000 to $699,000	17	1.69%	$10,633,399	4.81%	$625,494
>$700,000 to $799,000	24	2.39%	$17,761,488	8.04%	$740,062
>$800,000 to $899,000	15	1.50%	$12,600,502	5.70%	$840,033
>$900,000 to $999,000	6	0.60%	$5,572,673	2.52%	$928,741
>$1,000,000 to $1,249,999	17	1.69%	$17,792,673	8.05%	$1,046,628
>$1.25 Million to $1,499,999	12	1.20%	$15,847,544	7.17%	$1,320,629
>$1,500,000	4	0.40%	$6,300,000	2.85%	$1,575,000
	1003		$221,009,263		$220,348

Source: Public Release Dataset V10-26-05.xls Total Indemnity Payments taken from field PMT1

VADA supports the establishment of medical courts as a way to regularize the accountability process. The ideal medical court would have a permanent panel of judges who bring a variety of talents to the process. Medical malpractice is the only professional liability claim that sounds in tort; the remainder sound in contract and are defined by the contract between the professional and the client. Because medical malpractice claims sound in tort they have the components of duty, breach, cause, and injury. Unlike other tort cases, in medical malpractice cases the duty is articulated by an expert retained by the plaintiff and it is difficult to know when there has been a breach of the standard of care, resulting in a contest of expert witnesses. The determination should be a scientific analysis rather than a contest. The scientific complexity of many cases is beyond the understanding of most juries and judges. The VADA anticipates that a medical court could remove the opportunity for advocacy regarding the standard of care. A system of medical courts would enable more money to be directed to compensating the true victims of medical malpractice rather than to other entities.

Senator Newman reminded the members that the state risk-management plan (SB 601) is scheduled to go into effect July 1, 2006, and the joint subcommittee must determine whether it should go into effect as is, be amended to revise the plan, delay implementation, or repeal the plan.

Senators Newman and Norment and Delegates Albo and Athey will be members of a work group to look at issues on increasing education regarding medical malpractice of the circuit court judges that will pilot health courts. The work group will seek the input of the Supreme Court.

SJR 394/HJR 704 - Joint Subcommittee Studying Risk Management Plans for Physicians and Hospitals

October 31, 2005