FROM THE CHAIR OF THE BOARD

Size: px

Start display at page:

Download "FROM THE CHAIR OF THE BOARD"

Hannah Rice
5 years ago
Views:

1 HEADLINES Agreement Reached with Insurance Commissioner Agreement allows company to keep prices flat in 2008 for Insureds. Decline in Claims Frequency Reported Although caution is still needed, a decline in claims frequency is welcome news. New Risk Management Seminars Announced Brochures on 2008 program to mail in February. Caution Needed on Third Party Contracts Hold Harmless provisions can create an unintended additional liability risk exposure. FROM THE CHAIR OF THE BOARD February 2008 Dear MEDICAL MUTUAL Member: I am happy to report, as I am sure you noticed in your renewal invoice, that the price you paid for your policy did not increase in We ultimately reached an agreement with the Maryland Insurance Commissioner on a renewal plan that allowed this encouraging result. Good news concerning medical malpractice insurance has been in short supply in recent years. Therefore, even if a word of caution must be added, it is especially noteworthy to have this opportunity to talk to you in this newsletter about some positive changes in our environment. Claims frequency has materially declined from the level that led to the Maryland General Assembly s passage of its premium subsidy legislation. Interestingly, the number of claims reported and the claims inventory have dropped even as the number of Doctors insured by MEDICAL MUTUAL has grown. There is no consensus on the reason for this decline. It is likely there are a number of factors working in tandem to suppress claims frequency. While this development is certainly welcome, there is a significant area of concern. The cost of litigation has climbed from the longstanding average of $250,000 per claim to almost $400,000 by year-end Still, for the present, the reduced frequency of claims filed has given Maryland Physicians some relief from escalating premiums. We hope this trend continues. In November, the Maryland General Assembly addressed some of the state s budgetary issues and continued focus on policy matters is anticipated in the current session. This includes the largest challenge facing Physicians: keeping our practices economically viable. Because there is little to no chance of tort reform in the present environment, we must concentrate on improving Physician reimbursements. The Task Force on Health Care Access and Reimbursement has held regular meetings since September to examine a variety of issues related to health care access and provider reimbursement in the state. At the December meeting of the Task Force, the Maryland Physician Workforce Study was released by the MedChi and the Maryland Hospital Association. This study highlights the critical shortage of Physicians in Maryland, most notably in the expanding rural areas of our State. But, as the study predicts, an increasing shortage of Physicians is anticipated in most regions of the state by 2015 as the Physician community experiences more retirements, a decreasing number of residents trained in Maryland opting to practice in the state, and lagging Physician reimbursement. We must put our finite political capital to work with our political leaders on (continued on next page)

2 the reimbursement issue as it directly impacts Physicians and is something the Governor and the General Assembly are willing to consider. Across the nation, we are seeing reports of inadequate Physician reimbursement rates causing Physicians to decline to accept new patients. This dangerous situation is amplified in states that have enacted universal comprehensive health coverage. It is important that all Physicians keep this topic front and center as we approach members of the General Assembly to gain support for higher reimbursement rates. From the medical community s perspective, there are many vital issues left to be resolved. Legislators still need to find far-reaching answers to the myriad problems within Maryland s health care system. But, for now, it is clear Physician reimbursement is our most pressing issue. Sincerely, Letter from the Chair of the Board (continued) George S. Malouf, Jr., M.D. Chair of the Board Agreement with Insurance Commissioner Allows 2008 Prices to Remain Flat On November 20, 2007, the Maryland Insurance Commissioner issued his final Order on how the law affects any dividend we issue to doctors in That Order requires the state to be fully reimbursed for all monies paid through its subsidy program since about $84.1 million -- before any dividend dollars can go to our insured Doctors. He also expressed concern over the very nature of a dividend and expressed his desire for a rate decrease. The Commissioner s final Order ended a legal disagreement that began when we declared a $68.6 million dividend in September. The purpose of the dividend was to keep the price our Doctors pay for coverage from increasing due to a scheduled reduction in the state subsidy our Doctors have been receiving. As we interpreted the laws, this dividend was adequate to reimburse the state and also keep Physician premiums flat in Unfortunately, the final Order from the Commissioner stated otherwise. He did, however, allow 30 days to find a better solution. On December 12, 2007, we reached an agreement with the Commissioner on a plan to go forward with a dividend -- albeit at a higher level -- to a) reimburse the state, b) issue a dividend to our Doctors, and c) keep premiums for our Doctors level in The Commissioner was firm in his interpretation of the subsidy laws, but he did come to terms with the wisdom of utilizing a dividend -- made possible by our recent good claims experience -- to mitigate the price our Doctors pay in Consequently, we issued a dividend in the amount of $98.7 million, which has favorable tax implications. Of this amount, $84.1 million was returned to the state. The remainder funds a 12% dividend credit for 2008 to our Insureds. We further agreed to take an 8% base rate decrease, effective January 1, The combination of these adjustments, which are in lieu of participating in the diminishing state subsidy program, make it possible to keep prices flat for While we were not comfortable supporting a rate decrease when we made our original proposal in September, the legal dispute resolution process afforded us more time to evaluate trends during the year. As a result of continued improvement in our results, we were able to support such a decrease. We do not believe this rate decrease or payment of the dividend will have a negative impact on our financial stability.

3 Favorable claims experience continues year-to-date Positive impact on Medical Mutual and Insureds The moderation in frequency of claims, reported in our November 2006 issue of Notes, continues. Even though the average amount paid on claims is still high, the decline in the number of claims has reduced our overall claims payout. Our Insureds and MEDICAL MUTUAL are seeing the benefits of this positive development. Considering the years when we were only able to report negative news, this is certainly a welcome change. How It Started When the medical malpractice insurance crisis first appeared nationally in 2000 and 2001, there were hopes that it would not spread to Maryland. Unfortunately, skyrocketing jury awards that were characteristic of the crisis did, in fact, move into our state. After increasing only 2% from 2001 to 2002, the average paid claim for MEDICAL MUTUAL jumped almost 42% from 2002 to (See Graphic A) Maryland hospitals and other medical malpractice insurance companies experienced similar increases. Average Indemnity Payment $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 Claims Costs Graphic A As a result of this larger number of claims with paid indemnity, and an increase in the average amount paid per claim, our total claims payout (including paid defense costs) soared from $56 million in 2002 to more than $93 million in This was a 66% increase in just one year. (See Graphic B) The unavoidable consequence of such a large increase in claims payout was that MEDICAL MUTUAL asked the Maryland Insurance Administration for approval of large rate increases for medical liability insurance premiums in 2004 and These rate increases, combined with no dividend relief, caused personal hardship for our Physican Insureds and put tremendous financial pressures on their practices. $100,000,000 $90,000,000 $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,000,000 Total Claims Payout (including MedGuard) Graphic B $93,673,264 $78,899,165 $65,081,065 $56,350,698 $53,732,139 $49,927,934 $48,672,533 $47,875, Compounding the problem, other insurers exited the state as the malpractice insurance crisis gained ground in Maryland, leaving many Doctors without coverage. Legislative Relief In response to this growing crisis, MEDICAL MUTUAL stepped up and provided an insurance home for more Maryland Physicians. MEDICAL MUTUAL also joined with MedChi and other groups in seeking medical liability reforms (Continued on next page)

4 (continued) from the Governor and Maryland legislators. Regrettably, because of stiff opposition by plaintiff attorneys, no meaningful legislation was achieved before the end of the 2004 session. In a December 2004 special session, legislators passed a bill that made minor changes to the rules and procedures applicable to medical malpractice litigation in Maryland and created a loss-funding mechanism that was later deemed unworkable by the Maryland Insurance Commissioner. Most important, in the regular 2005 legislative session the General Assembly provided much-needed financial relief for Maryland Physicians. It removed the loss-funding mechanism and replaced it with a Rate Stabilization Fund. This fund comprises two accounts: (1) The Rate Stabilization Account, intended to subsidize the phasein of the 2005 rate increase over a four-year time period, and (2) The Medical Assistance Program Account, intended to increase rates for health care providers participating in the Maryland Medical Assistance Program. The Rate Stabilization Account mitigated price increases for our insured Doctors by providing premium subsidies totaling some $84.1 million between 2005 and Stress on the Company Despite a huge increase in Policyholders, MEDICAL MUTUAL s business operations carried on. We remained open to Maryland Doctors needing coverage, offering the same aggressive claims defense and high-quality services we have provided for 32 years. The rapid growth in the number of Insureds did put a financial strain on the company. This was noted by A.M. Best, the leading source of insurance company ratings and information. All insurance companies must maintain a certain ratio of capital to support their written policies. The sudden influx of Policyholders moved our ratio outside of desired parameters and jeopardized our A- (Excellent) A.M. Best rating. A drop in our rating by A.M. Best could have had severe implications on our business -- Policyholders unable to accept our coverage, deteriorating reinsurance availability and costs, and a weakening of our position in the marketplace. To prevent this undesirable result, we borrowed $20 million at year-end 2004 to add to our capital. This initiative allowed us to keep our A- rating, but A.M. Best downgraded our outlook from stable to negative. Improvement in the Situation As these events were unfolding, we began to see early indications of a positive shift in medical liability trends. After many years with little change, our frequency of claims declined. This decrease continued Number of Insureds Insureds and Reported Claims Insured Count Reported Claims Graphic C Number of Reported Claims through 2006, with a significant decline from the claims level that existed when legislators passed the premium subsidy law. Interestingly, this decline occurred even as the number of our insured Doctors grew. (See Graphic C) This development has helped MEDICAL MUTUAL return to financial stability. We have paid back the $20 million we borrowed to support our surplus and we were able to take an 8% rate reduction in Thus, in the spring of 2007, A.M. Best acknowledged the company s renewed strength when it reaffirmed our A- (Excellent) rating and reinstated our stable outlook. (Continued on next page)

5 (continued) Concerns Still Remain The decline in claims frequency is very good news. We are also pleased that our capital has improved and is now at an adequate level, a position that satisfies industry rating agencies. All our news is not upbeat, however. The cost per paid claim is rising. The cost to defend cases continues to increase at a moderate but steady pace. We are particularly concerned about the explosive volatility inherent in the malpractice insurance industry. Recently, a Baltimore City jury returned a verdict against an insured OB/GYN for $8.2 million in a case where we believed the medicine practiced to be good. Since there is no consensus on why claims frequency has declined and no reliable predictions as to whether this trend will continue, the improvements we have seen in recent years could abate. For this reason we are monitoring the claims situation carefully. Risk Management Seminar Topics Announced for 2008 MEDICAL MUTUAL is pleased to announce three new risk management seminar topics for 2008 and the return of the popular Specialty Specifics series. The Oral-Systemic Disease Connection, Medical-Legal FAQs and a panel discussion on GYN Cancers are the new offerings. Specialty Specifics will include seminars on Primary Care, Emergency Medicine, Ophthalmology, OB/GYN, Risk Issues in the Ambulatory Surgical Center, Pediatrics and Orthopaedics. All of the seminars are presented by medical, legal and insurance experts and feature an interactive format and printed course materials for long-term reference. MEDICAL MUTUAL-insured Doctors attending a Physician seminar can earn CME credits and a 5% premium discount on their 2009 professional liability renewal policy. A brochure with complete information on the 2008 educational program, Shaping Effective Risk Managment for Your Practice, will be mailed to all Policyholders in early February. At approximately the same time you will also receive a separate mailing with a brochure on our new Office Staff seminar, The Art of Successful Staffing. A registration form and postage-paid envelope are enclosed with each brochure. For even more convenience, you can register online 24/7 at where you can find the most current seminar availability information and printable driving directions to each listed location.

6 Caution Needed on Third Party Contracts Some of our Insureds, in the course of running their practice, may be entering into contract agreements with labs, clinics, or other third parties. These agreements could be constructed in a manner that creates an unintended additional liability risk exposure. Specifically, these contracts may contain indemnification or hold harmless provisions that impose a duty on the Physician to be financially responsible for amounts that the lab or third party is legally obligated to pay. In essence, if a Physician signs a contract containing indemnification or hold harmless language the Physician could be held legally responsible for the negligent acts of the lab or lab personnel even if the Physician had no knowledge of the negligent act or did not take part in the negligent act. This is especially true in situations where the lab has an on-site collection station. Your MEDICAL MUTUAL medical professional liability insurance policy excludes, with limited exception, any liability assumed by an Insured under any contract or agreement. Consequently, your medical professional liability insurance policy does not insure you for agreements that you make with third parties to indemnify them or hold them harmless. We strongly recommend having any contract you sign reviewed by your legal representative to make sure that you are not agreeing to more than you bargained for. FROM THE CHAIR OF THE BOARD February 2008 ISSUE Agreement Keeps Prices Flat in 2008 Decline in Claims Frequency Reported New Risk Management Seminars Announced Caution Needed on Third Party Contracts Box 8016, 225 International Circle Hunt Valley, MD FIRST CLASS U.S. POSTAGE PAID PERMIT NO BALTIMORE, MD

October 2, 2008 by Steven M. Goldman, Commissioner, Department of Banking and Insurance. N.J.S.A. 17:1-8.1, 17:1-15e and 17:29AA-1 et seq.

October 2, 2008 by Steven M. Goldman, Commissioner, Department of Banking and Insurance. N.J.S.A. 17:1-8.1, 17:1-15e and 17:29AA-1 et seq. INSURANCE DEPARTMENT OF BANKING AND INSURANCE OFFICE OF PROPERTY AND CASUALTY Commercial Lines Insurance: Policy Form Standards Defense Costs Within Policy Limits Adopted Amendment: N.J.A.C. 11:13-7.3