Repeat after me. Medical malpractice insurance rates are falling. Medical malpractice insurance rates are falling. Medical malpractice insurance rates are falling.

After years of watching medical malpractice rates soar in Florida, and the state hemorrhage of doctors due to high insurance costs, all eyes are on the market where rates have fallen for the third consecutive year in 2007. However, a funny thing happened on the way to a stable market. Despite the legislature's move to enact major reforms and a number of constitutional amendments approved by voters, doctors are still not buying into the fact the market has improved. Indeed, a wide divide remains between the downward trends in rates and doctors' perceptions of the market.

Prior to the 2003 reforms, thousands of doctors decided to go bare and drop their coverage altogether despite the risk of facing a medical malpractice lawsuit. But even as the reforms have caused many new insurers to enter the market, which has become highly competitive and offers lower rates, doctors still list medical malpractice costs as the number one issue they face in the state. It is also the main reason doctors refuse to treat emergency room patients and those covered under Medicaid.

All of this despite a newly released report by the Office of Insurance Regulation on the state of the medical malpractice market, which found that the average approved rates filed in 2006 called for a 5.3 percent decrease. Insurance Commissioner Kevin McCarty praised the return of the market and the willingness of public policyholders to hammer out the difficult issues the market faced. “The Florida legislature has been vigilant in its oversight efforts to control the costs in the medical malpractice insurance industry,” he said. “This report shows that the Florida legislature's efforts to control the costs have been successful.”

Reforms and Constitutional Amendments

In 2003, state lawmakers held three special sessions to address the medical malpractice crisis. At issue for health care providers was the need to place the brakes on litigation costs, which the Florida Medical Association and the Florida Hospital Association argued was the main driver behind the upward pressure on rates. Going into the reform debate, doctors demanded a $250,000 cap on non-economic or pain and suffering awards in jury trials. Lawmakers opted to set the cap at $500,000 with the exception of emergency room services. Lawmakers also responded to the Academy of Florida Trial Lawyers call for bringing more accountability to doctors' and hospitals' services.

Unsatisfied with the results, the medical professionals and the trial bar sought to take their case straight to Florida voters through the constitutional amendment process. Voters approved a “three strikes and you're out,” amendment whereby a doctor could lose his or her license if found responsible for three medical malpractice cases. Another amendment would allow consumers to access doctors' and hospitals' records under certain circumstances, and another amendment would have restricted attorneys' contingency fees. Specifically, patients would receive 70 percent of the first $250,000 in awards and 90 percent of any subsequent awards. Despite the plain language of the amendments, however, the legislature largely gutted them when they approved the necessary enacting bills.

For example, even though the cap on attorneys' fees as approved by voters, the legislature agreed to forgo any action on the amendment despite arguments that it could reduce the ability of medical malpractice victims to secure counsel. The amendment was also designed to reduce that portion of a victim's awards claimed by attorneys under a contingency agreement, which often falls between 30 and 40 percent. Lawyers opposed the measure saying they often have to fund expenses without the promise of collecting any money. Then there was a constitutional argument of whether the legislature could dictate an agreement between two private parties.

Healthy Market Draws Carriers

The OIR study bluntly stated that “It would appear the 2003 changes to the law have benefited policyholders, the industry, and assisted with the solvency of the medical malpractice carriers.”

That should add up to good news for doctors who are finding they have more and more options when searching for coverage. Matt Gracey, of the Delray Beach-based Dana-Gracey firm that brokers medical malpractice programs, said doctors should have no trouble finding companies that will write to them. “Every company I know of is aggressively looking for new business because the frequency of claims has plummeted in the past three years and is at a historic low in relationship to the number of doctors,” he said.

While rates have not fallen to levels prior to 2000, Gracey said in some cases, rates have fallen by 15 to 20 percent and a similar drop is expected this year. As a result, the total number of medical malpractice insurance premiums written dropped to $847 million last year from $850 million in 2005, the third consecutive decline.

According to the OIR report, the average return on surplus for carriers in the state leaped to nearly 20 percent in 2006, up from 14 percent in 2005, and 10 percent in 2004. In 2003, the industry had a negative return of 12 percent.

Of the 17 largest companies, all but three had a positive return on surplus. The average return on surplus was a whopping 28 percent in 2006 as compared to 13 percent in 2005. “It does appear that the trend causing significant industry concerns in the early 2000s has largely evaporated,” the OIR report said.

Rates are one thing, but claims are another. Carriers are witnessing a historic drop in the number of claims filed, which is lowering loss ratios. Why? Some experts attribute it to the cap on attorneys' fees that has slowed the number of claims. Others speculate that doctors are also practicing more defensively by ordering more tests and appointments to make sure no injuries or complications are overlooked. There is also the possibility that the public has lost some of its appetite to sue doctors, although there isn't any real evidence to back that up.

Regardless of the answers, there is plenty of evidence to back up the changing trend in claims. FPIC Insurance Group, which dominates the Florida insurance market, saw its number of claims drop by half to 1,631 claims in 2006, when compared to 2003. And it is not that fewer claims are being filed by patients, carriers are also reporting fewer claims. In 2006, the carriers reported 900 closed claims in Florida, down from 3,753 closed claims in 2005. Similar to prior years, most of the claims came from hospitals, doctor's offices, and emergency rooms. About a third of the claims involved a death, and of the closed claims, only about 45 percent resulted in a payout.

New Carriers Come Forward

Another indicator of the health of the market is the number of new carriers willing to write medical malpractice insurance in the state. In 2006, seven new companies entered the market. They include Centurion Medical Liability Protective Risk Retention Group, Cruden Bay Risk Retention Group, Guarantee Insurance Co, National Medical Professional Risk Retention Group, Physhield Insurance Exchange, Physicians Indemnity Risk Retention Group, and Samaritan Risk Retention Group.

Four companies are new to the list of biggest companies #7 Continental Casualty, #12 Physicians Preferred Insurance Reciprocal, #14 Florida Health Care Providers Insurance Exchange, and #17 Healthcare Underwriters Group of Florida. 17 companies in 2006 controlled 80 percent of the medical malpractice market, compared to 15 in 2005 and 11 in 2004. But that is a little misleading. Only two carriers write more than $100 million in premiums, FPIC and Health Care Indemnity Inc.

To anyone who has followed the medical malpractice market it should come as no surprise that the tide of the industry has turned with the stock market. When stocks were depressed in the early 2000s, the industry suffered. Now, with the Dow Jones Industrial Average topping 14,000, medical malpractice insurers are flying high again.

Nowhere else can this be better seen that at FPIC Insurance Group. “We are very pleased with our results for the quarter, which reflect the strength of our company,” John R. Byers, president and chief executive officer, said after the quarter ended June 30. The company's net income from continuing operations reached $10.1 million, or $1.01 per common share, up from $7.1 million, or $0.66 per share, from the second quarter 2006. In addition to fewer reported claims, the company now has just 3,900 open claims, down nearly a third from 2004.

While FPIC no doubt pats itself on the back for wise underwriting strategies during the crisis years, the newer medical malpractice carriers say their entry to the market is what has been an even bigger factor in the industry-wide turnaround. Healthcare Underwriters Group of Florida came into the market in 2003 during the heart of the crisis. Company officials say as a doctor-owned insurer it's helped bring some more competitiveness to rates.

“The competition has been the biggest thing,” said Nicole Denmon, marketing manager for Jacksonville-based HUG. While HUG is a fraction the size of FPIC, it provides coverage to 600 doctors; it's been able to hold its own. “We are in sound financial shape,” Denmon said. She also said, like FPIC, HUG has seen a drop in claims as well. The big question for medical malpractice carriers in Florida is when, or if, they will be able to draw back the thousands of doctors who dropped coverage and went bare. “The bare doctor movement has leveled off and some bare doctors are starting to call to inquire about prices,” said Gracey. “Many more doctors are waiting for prices to come down further.”

Special Reports /

Medical Malpractice: Doctors' Worry Despite Improvements in Rates

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