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Malpractice Insurance Is a Growing Concern for Academic Medical Centers

Managing Editor
Scott Harris
sharris@aamc.org

Staff Writer
Elissa Fuchs
efuchs@aamc.org

The Price to Practice:

Malpractice Insurance Is a Growing Concern for Academic Medical Centers

By Suria Santana

In 1990, the West Virginia University School of Medicine paid $200,000 in malpractice insurance premiums. In 1992, the rate was 10 times that amount, at $2 million. Today, a decade later, the school is paying $7 million in malpractice premiums.

West Virginia is not alone. Medical schools and teaching hospitals across the nation are grappling with skyrocketing medical liability insurance premiums that, together with other budgetary pressures, have caused health care leaders to wonder whether these fiscal problems could eventually compromise academic medical centers' educational and patient care missions.

Recent malpractice insurance premium hikes have accompanied similar increases in malpractice jury awards, which can often top $1 million. While some blame the legal system for the current crisis - citing huge jury awards that have forced medical liability insurance companies to raise rates - others believe insurance companies are to blame. These companies, they argue, kept premiums artificially low for years, counting in part on investment income to make up for losses. Along with burgeoning awards, the recent economic downturn and consequent losses incurred by insurance carriers have forced them to substantially raise rates to keep their businesses afloat.

Much like West Virginia, Pennsylvania State University College of Medicine has also seen dramatic liability insurance premium hikes in the past few years. "In 1997, we paid $4.4 million to cover all of our clinical faculty and the hospital, and now we are paying $24 million in premiums," says Michael Weitekamp, M.D., chief medical officer at the Milton S. Hershey Medical Center and professor of clinical medicine at Penn State. "In our next budget year, we might have to pay as much as $30 million."

The large increases have added to the medical school's budgetary woes, forcing officials to institute measures including reducing faculty salaries. "We also had to cut a few programs that were underperforming in terms of revenue and redesign many programs to make them more cost efficient," explains Dr. Weitekamp.

Pennsylvania's quandary

The University of Pennsylvania has taken similar measures to make ends meet. "Because of budgetary pressures, some of our marketing and development programs had to be postponed or canceled," says Robert Martin, Ph.D., CEO and COO of the University of Pennsylvania Health System.

The state of Pennsylvania is in a particularly difficult situation. The state constitution prohibits limits on compensation for non-economic (pain and suffering) damages, and partly as a result of that, jury verdicts against physicians and hospitals in Pennsylvania have skyrocketed. The state legislature has tried to provide some relief to Pennsylvania physicians, and in March, both chambers passed the Medical Malpractice Reform bill, allowing malpractice damages to be paid over time. Pennsylvania Gov. Mark Schweiker (R) signed the bill into law on March 20. Although it doesn't cap non-economic damages - which include pain and suffering in malpractice cases - the bill sets higher standards for expert witnesses, establishes a patient safety authority, and phases out a jury award pool into which Pennsylvania physicians have had to pay.

State health care leaders are skeptical about the bill's efficacy. "Tort reform may have to happen at the federal level before we see improvements in Pennsylvania, considering the fact that the state's constitution sets no limit to non-economic damages," says Dr. Weitekamp.

Federal reform might already be on the way, as a bipartisan coalition of representatives introduced last April the Help Efficient, Accessible, Low Cost, Timely Healthcare (HEALTH) Act - a tort reform bill that attempts to ease the economic burden on physicians and hospitals around the country. Among the bill's provisions is a $250,000 cap on non-economic damages.

The AAMC-supported legislation had 58 cosponsors as of mid-June. The House succeeded in passing similar legislation, but Senate support failed. Momentum against the legislation primarily comes from the American Trial Lawyers Association, which has lobbied successfully against past liability reform legislation.

The malpractice crisis has deeply affected subspecialists in high-risk practices. "Physicians in areas such as neurosurgery, obstetrics and gynecology, and orthopedics, that have malpractice insurance premiums in some cases exceeding $100,000 a year, have been hit the hardest," says Dr. Weitekamp. "Three of our 12 obstetricians will no longer deliver babies in order to cut the premium they have to pay."

M.D. 'out-migration'

In West Virginia, subspecialists have seen their premiums triple or quadruple in the past few years, according to Robert D'Alessandri, M.D., dean of the School of Medicine and health sciences center vice president.

"Some private physicians in subspecialties have seen their rates go up from $40,000 to $150,000 in just a couple of years," he says. "The ones who were covered by St. Paul [an insurance carrier that recently closed its health care division] are being charged for tail coverage. Many are looking to leave the state now."

This out-migration has caused many local providers to turn to the medical school for help. "We're getting calls every day from different parts of the state from health care providers asking us if we can send them a surgeon," Dr. D'Alessandri says. "We also get calls from people asking us to insure them. Panic is definitely beginning to set in."

In addition to the physicians who are leaving certain states, others are choosing to retire early or to close high-risk sections of their practices. As a consequence, many teaching hospitals end up getting a heavier-than- usual flow of patients, particularly more high-risk patients.

In Mississippi, for example, "many physicians are either leaving, choosing not to continue to practice, or are reducing the scope of their practices," explains Frederick Woodrell, associate vice chancellor for integrated health systems and director of hospitals and clinics at the University of Mississippi Medical Center. "As a consequence, more and more critically ill patients get sent to us, and that has significantly changed our patient mix.

"Many of the critically ill patients under our trauma programs don't have the resources to pay for the services, so we end up absorbing their costs," he continues. "This situation got exacerbated in the last two years. Now, our clinical care units are full all the time, which causes us to go on diversion from time to time because we can't accommodate all the patients."

Similarly, West Virginia's teaching hospital is dealing with a drastic increase in neurosurgical cases. "We are doing almost 2,000 neurosurgical cases this year, up from 800 last year," says Dr. D'Alessandri.

Dodging the bullet in Nevada

Nevada, another state where the cost of malpractice insurance has increased dramatically, is also dealing with an out-migration of M.D.'s. "Within the last four weeks, two OB/GYNs I know have left Nevada for places where it's cheaper to practice," says University of Nevada School of Medicine Vice Dean Michael Harter, Ph.D. "Insurance companies in Nevada began to place limits on the number of babies that an obstetrician can deliver. For example, obstetricians get to pay a certain rate if they deliver 125 babies or less. If they go over that amount, the rates increase significantly."

But the larger of the school's concerns grew when, in December 2001, St. Paul announced it would drop its health care division after losing more than $700 million over the past four years. St. Paul was the second-largest malpractice insurance provider in the country, and besides insuring the state's only medical school, it covered close to 60 percent of the physicians in Nevada, according to Dr. Harter.

The school risked losing malpractice insurance coverage altogether if it didn't find a replacement before its St. Paul policy expired at the end of June. At press time, the school was evaluating three different proposals for replacement coverage and was close to reaching a decision.

"We have managed to dodge the bullet," says Dr. Harter, even though the rates of the new insurance proposals they have received are significantly more expensive than the ones the school paid under St. Paul. "We were paying St. Paul $1.3 million, and I would guess we will probably be in the $2.1 million range when we sign the new contract," he says.

"At this time, the hospitals where our residents practice have agreed to pay the increased costs for the residents' insurance, and we are asking the state legislature to help us with the increased cost for our physicians," says Dr. Harter. "We'll be able to manage for next year. But if we get another increase, we'll be in a lot more difficulty than we are now."

Dr. Harter foresees that besides budgetary problems in the case of liability insurance price increases, the medical school could also have difficulty attracting residents from certain specialties in the future. "I heard from some medical students who are interested in either obstetrics or surgery that they will do their residencies outside of the state and probably not return," he says.

West Virginia's Dr. D'Alessandri has heard similar concerns on the part of residents and medical students. "This is the first time in my almost 13 years as dean that I hear students talking about concerns regarding medical malpractice," he says. "Fewer students stay in in-state residencies than ever before. To some extent, that's due to their concerns about the medical malpractice crisis in the state. We have residents who told us that they had initially intended to stay in the state, but don't want to deal with the crisis."

Rural implications

West Virginia has a community-based education program that requires students to spend three months at rural communities with local physicians, where, besides enriching their educational experience, students get to hear the physicians' perspectives.

"When the students come back from the program, they tell us that many community physicians are demoralized, unhappy, and are telling our medical students, 'You don't want to stay here, you want to go practice somewhere else,'" says Dr. D'Alessandri. "So if they are telling our medical students that, they are probably also telling our college and high school students the same thing. If this crisis, and the demoralization that comes from it, goes on much longer, we will eventually see a decline in medical school applications."