Many view the health care industry as the most poorly managedbusiness sector in America today. Not only is the cost of qualitycare a serious problem, but more than 44 million Americans arewithout medical insurance.

In the meantime, there are steps that can be taken to improvecare and reduce costs, especially in states such as New York,Pennsylvania and New Jersey, where skyrocketing medical malpracticeinsurance rates are causing older doctors to retire and youngerones to move away.

In addition, fear of malpractice litigation prompts the practiceof “defensive medicine,” resulting in relatively unproductivetreatments to protect the practitioner. The additional cost ofdefensive medicine attributable to the medical liability system isestimated to range from 3-to-7 percent, which equates to $12billion at the low end of that estimate.

One solution might be risk retention groups–mutual insurancecompanies that provide liability coverage authorized by the FederalRisk Retention Act. These insurers are offering doctors attractivenew markets for essential malpractice coverage. In just the lastfew years, physicians and surgeons have begun to take control bybanding together to form RRGs that assure them available,affordable malpractice coverage.

In New York, doctors are being further squeezed. The stateinsurance department just approved a 14 percent rate increase–thelargest in a decade–for medical malpractice insurance. Doctors'groups protested.

With the just-approved premium increase, the New York MedicalSociety pointed out that a neurosurgeon in Long Island would now becharged $309,311 for one year's coverage, while an OBGYN inBrooklyn or Queens would pay $173,061.

New York Insurance Superintendent Eric Dinallo acknowledged thedilemma, calling it the worst of both worlds–physicians who cannotafford to practice medicine, and insurers whose financial conditionis rapidly eroding. In New York, for example, mono-line,traditional med-mal insurers at the end of 2005 reported anoperating ratio of 136 percent compared with 84 percent for theirpeers across the country.

How can new mutual companies, organized as RRGs, compete whenthe giants are teetering on the brink of bankruptcy? Again, theanswers are simple.

Recently formed RRGs are not burdened by major past liabilities.Well-capitalized RRGs offer a fresh start. By selectiveunderwriting–accepting only doctors with clean records–they cancontrol losses. By mandating professional risk management, theyimprove care while reducing claims. And with aggressive claimsmanagement, they cause trial lawyers to look elsewhere for deeppockets.

RRGs are not subject to assessment by the state guaranty fund,so they don't have to share the cost of losses built up over theyears by the traditional insurance industry. This means RRGsoperating in New York will not be assessed for nearly $1 billion indeficits that have accumulated at the traditional med-mal insurancecarriers. Recent studies indicate that these deficits are growingat the rate of $30-to-$50 million per month.

In addition, leading RRGs are well-capitalized and covered bycomprehensive reinsurance programs to protect policyholders and thecompanies against catastrophic losses.

As shareholders in RRGs, doctors have an additional incentive toprovide the best care because it will help reduce their insurancecosts. RRGs generally retain recognized administrators with manyyears of successful underwriting and claims experience to managethe companies under the watchful eyes of directors and shareholderswith a stake in providing the best protection at reasonableprices.

Although the long-term solution to the med-mal crisis is tortreform, malpractice reform has been slow to gain traction. Thestates that have enacted limits on noneconomic damages, however,have seen premiums go down and doctors move in. Texas, Florida,California and West Virginia have become increasingly attractive tophysicians and surgeons as a result of tort reform.

While opposition to the recent rate increase in New York mayfinally cause the legislature to cap pain and suffering awards, itwould be folly to underestimate the trial bar's influence as thisinflammatory issue is debated. However, even if tort reform is notenacted in the next few years, doctors with clean records can lowertheir malpractice insurance costs now by becoming shareholders inRRGs.

Some RRGs guarantee premium rates for three years and providecomprehensive coverage, plus initial purchase of shares at a costless than the premium rates charged by traditional carriers withall their liabilities and the risk of insolvency.

RRGs are authorized under the Federal Risk Retention Act of1980, amended in 1986, to write liability insurance exclusively.RRGs licensed in a single state are free to operate in other stateswithout additional licenses. They were created originally inresponse to the explosion of product liability litigation and thewithdrawal from liability lines by traditional insurancecompanies.

RRG premiums grew from $250 million in 1988 to $2.6 billion in2006 (according to the July 20, 2007 “Risk Retention Reporter”).Health care and professional services are among the dominant marketsegments served by RRGs today, with more than 31 of the current 248listed as med-mal carriers.

While state legislatures grapple with the politics of tortreform and the various proposals for universal health care aredebated, patients can receive better care from doctors who joinRRGs and follow the principles of professional risk management.

Doctors also come out ahead by lowering their medicalmalpractice insurance costs at the same time.