PRI testifies at State Hearing on Malpractice Reform

Dear PRI Member:

As you may know, the New York State Senate Committees on Insurance, Health and Codes, held a joint hearing on Medical Malpractice Reform on December 1, 2009 in Albany. I was fortunate to not only attend the hearing, but to give testimony on some of the critical issues that impact PRI and our member physicians and institutional insureds.

As part of PRI’s ongoing effort to keep you informed about the current state of malpractice insurance in New York, I wanted to share with you what I observed and what this hearing means for all of us.

Positive Signs

The usual issues, including tort reform and rising malpractice insurance premiums, were at the top of the list. However, I was pleased to see that the conversation appears to be moving to a level where real change is now possible. The Senate Committee on Insurance, chaired by Senator Neil Breslin, made a commitment to enact substantive change that will stabilize the market, and the dialogue included a number of new, innovative ideas that could help achieve this goal.

These included caps on non-economic jury awards, special courts for malpractice claims, protection of doctors' personal assets, and no-fault funds for babies born with neurological impairments. Testimony also addressed pre-screening of lawsuits to eliminate frivolous suits, as well as some protections for doctors who apologize to patients, which was a topic at PRI’s recent risk management conference. We applaud this review of thoughtful approaches that can lead to the kind of multi-faceted solution that’s essential to successful, lasting reform.

In any malpractice discussion, there is naturally some disconnect between the interests of trial lawyers and those of the medical community. The one thing that both parties do agree on is that low-risk doctors should not be penalized because of high-risk ones. This may require tiering of rates so low-risk doctors pay lower premiums and high-risk practitioners pay larger premiums. The bottom line is that the majority should not suffer for the few.

PRI’s Perspective

PRI was invited to give testimony at the hearing. One of the issues I addressed was what we believe is a misguided policy in regulating medical malpractice insurance that has increased rates unnecessarily. By balancing low rates with assessments and surcharges, and still insisting that insurers carry massive surpluses, the cost of healthcare and the expenses of all practitioners in the State have been driven up.

Another issue raised was the use of a more accurate financial model that better identifies insurance carriers’ true conditions, rather than applying actuarially-projected changes that may or may not come to pass. Unlike other lines of insurance, where unknown events like hurricanes hold potential for wide swings in loss patterns in short periods of time, medical malpractice losses are more moderated. We believe allowing rates to adjust moderately—upwards or downwards—on a regular basis is a better approach. Permitting these adjustments based on accurate assessment of carriers, steady loss development, and measured claims reserving would be much more effective than actuarial analysis in both modifying rates and assuring the financial soundness of the system over the long term.

Outside Threats

While a portion of my testimony addressed these somewhat complex New York regulations and policies, I also spoke about a threat from outside the state that affects our insureds more directly: “Risk Retention Groups,” or RRGs.

These groups, which are allowed to provide liability insurance through regulation-free pools, are coming into the New York market at a rapid pace. They are exempt from the state’s insurance regulations such as rate approval, form approval or financial oversight. Thus, an RRG doing business in New York is, for all practical purposes, an unregulated insurer and is not covered, in the event of insolvency, by New York’s Property and Casualty Security Fund.

Being largely free of regulatory oversight gives RRGs tremendous opportunity to offer lower rates—but with false security about their financial condition. The lack of insolvency protection can leave physicians or hospitals with no protection, and the lack of Security Fund protection can leave injured patients with no recourse.

There is also a significant potential threat to the stability of the system if the RRGs exit the market as losses start to mount. Any new players must show a commitment to the New York market and serving the needs of physicians and hospitals—not just to quick profits.

Closing Thoughts

We firmly believe that the “new norm” should be treating medical malpractice insurers in New York as they are: custodians of the financial resources that doctors and healthcare institutions can tap to defend against legal actions and to make payments to the injured.

In addition, we feel the deliberations on medical malpractice should not focus solely on the financial security of the carriers providing coverage. There should also be appropriate focus on the larger issue of the quality of medical care being provided, and efforts to reduce the incidence of adverse outcomes from negligent acts. We feel that there has been a positive shift in this direction.

As an interested party—and your advocate—we will continue to monitor the situation and provide you with additional updates as more details become available. If you would like to share your thoughts or have any questions for us about this matter, please feel free to email us at l.drew@medmal.com.

Thank you for your continued support.

Very truly yours,

Anthony J. Bonomo
Chief Executive Officer
Administrators for the Professions, Inc.
Attorney-in-fact for
Physicians’ Reciprocal Insurers