As a one-year mandatory medical malpractice rate freeze is setto expire at the end of June, interested stakeholders wait to seeif state leaders will come up with a plan to address the state'sworsening market.

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For the few remaining medical malpractice writers in the state,the problem remains a challenging legal environment coupled withrates that have been kept artificially low by regulators.

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For medical professionals in the state, medical malpracticeinsurance is too expensive, even with rates at their currentsuppressed levels.

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In an editorial board meeting with National Underwriterin 2007, State Insurance Department Superintendent Eric Dinallomentioned medical malpractice as an area he was ready and willingto address.

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On July 2, 2007, the department announced it was approving a 14percent rate increase, which was lower than what insurancecompanies had sought, but much closer to the companies' requeststhan in years past going back to 2002-2003.

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The department said the increase was "necessary to avoid furtherfinancial deterioration of the companies and perhaps anirreversible crisis in an already severely distressed market."

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In the same announcement, the department said then-GovernorEliot Spitzer had formed a new task force, headed by SuperintendentDinallo, to "confront the fundamental drivers of high medicalmalpractice costs." The task force consisted of interestedstakeholders from physician and hospital associations, theinsurance industry, consumer groups, health plans, trial lawyersand the legislature.

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It was to report back to the governor by the end of 2007.

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Describing the issues that faced the task force, and the issuesthat have plagued New York's medical malpractice arena, EdwardAmsler, vice president of Medical Liability Mutual InsuranceCompany (MLMIC), which writes over half of New York's medicalmalpractice liability coverage, said carriers face diminishedsurplus because of increasing claim severity coupled withinadequate rates.

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Additionally, he said all medical malpractice insurers mustparticipate in the Medical Malpractice Insurance Pool (MMIP), whichinsures risks the private sector will not.

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According to the department, as of March 31, 2007 MMIPaccumulated a deficit of approximately $525 million, "a sum that,by law, must be shouldered by the few companies selling malpracticeinsurance in the state, exerting further pressure on insurancerates."

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Mr. Amsler noted the irony with MMIP, stating that primarycarriers choose not to write certain risks and then are required towrite those risks anyway through MMIP.

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He said years ago, the state used the Medical MalpracticeInsurance Association (MMIA) as the insurer of last resort, whichrequired the participation of the entire property-casualtyindustry, rather than strictly medical malpractice insurers. TheMMIA, Mr. Amsler said, had a surplus in it, but the stateappropriated that surplus.

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The department, demonstrating an understanding of the problem atthe time the task force was formed, explained, "Between 1992 and1997, the state appropriated $691 million from the reserves of theMedical Malpractice Insurance Association...to close gaps in thestate's operating budget. Had MMIA's reserves been preserved andallowed to grow by collecting interest over the years instead ofbeing so severely depleted, New York's medical malpractice insurerswould be in a much stronger financial position today, and theproblem confronting New York would be far less serious," thedepartment said in the July 2007 announcement.

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Showing that it also understood the causes and severity of themedical malpractice problems facing the state, the department saidfurther in 2007, "As a result of artificially low rates, combinedwith the failure to effectuate needed reforms to address the rootcauses of high medical liability costs, insurance companies nowface the real prospect of insolvency while physicianssimultaneously face the reality of soaring insurance costs."

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However, despite an understanding of the problem and awillingness to address the root causes, the task force stoppedmeeting in 2008 with no report issued.

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The departure of Mr. Spitzer as governor played a role, Mr.Amsler said. The task force did a great deal of work over manymonths, he said, but with Mr. Spitzer leaving, "the whole thinglost focus and never resulted in a report from the task force."

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Gary Henning, assistant vice president, Northeast for theAmerican Insurance Association, said the department, to its credit,raised the main issues facing the market, but he added that twoinfluential interest groups with different views--trial lawyers anddoctors--could not agree on a reform agenda.

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Paul Magaril, regional manager and counsel for the PropertyCasualty Insurers Association of America, went a step further,stating he had been told medical professionals and the trial barwere not only unable to agree on an agenda, but were still movingin opposite directions when the task force stopped meeting. Medicalprofessionals, he said, were looking to limit liability costs,while lawyers were looking to expand liability.

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Doctors and lawyers have traditionally argued about bettermedical practices versus capping lawsuits as the way to solvesoaring medical malpractice rates, Mr. Henning said.

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AIA, he noted, supports caps on non-economic damages, but hesaid something needs to be done weeding out bad doctors as well. Hesaid it should be easier to pull the license of a doctor who showsa pattern of malpractice, so that bad doctors are not driving uprates for good doctors.

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That said, Mr. Henning stated that medical malpractice lawsuitsshould not be "a lottery for malpractice victims." Victims shouldbe compensated, he said, but non-economic damages in themultimillions hurt the system.

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Mr. Amsler said he disagrees with the idea of increasing patientsafety through the legal system. He noted that claim frequency hasstabilized but severity is not diminishing at all. That statistic,he indicated, suggests the tort system is not the way to controlmalpractice.

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Standard of care is an issue in every state, according to Mr.Magaril, but he said that does not explain why New York's liabilitysystem is more challenging than other states.

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On Aug. 22, 2008, Governor David Paterson, recognizing thereality of soaring premiums and no solution to the state's medicalmalpractice liability crisis, signed legislation to freeze ratesuntil June 30, 2009.

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An agreement was reached on the rate freeze during a specialsession of the legislature, Gov. Paterson said in a press release."The bill will hold rates stable as the legislature and GovernorPaterson continue to work toward reforms that would providesignificant and long-term premium relief for physicians, enhancepatient safety and stabilize the medical malpractice insurancemarket," the release stated. "The state is hopeful that thesereforms can be finalized during the next regular legislativesession."

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Since the rate freeze announcement, though, experts who spokewith National Underwriter said they have heard very littleregarding possible long-term solutions.

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Mr. Magaril said he has not heard a word about medicalmalpractice in months.

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Mr. Amsler said the governor indicated in the press releaseannouncing the freeze that he would be addressing the issue thisyear, but there is no new information beyond that.

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Superintendent Dinallo is "re-energized on this issue" and wantsto do something in the way of reform, Mr. Henning said, but hedidn't have any specific information.

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The Insurance Department responded with a statement: "Thegovernor is committed to working with the legislature to find along-term, meaningful solution to this very complex issue. Lastyear, in partnership with the legislature, the governor imposed amoratorium on medical malpractice rates for physicians. Since then,the state has been working on creative ways to come up with acomprehensive reform package that will deliver real and long-termpremium relief for physicians, stabilize the medical malpracticeinsurance market and enhance patient safety."

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Spokespeople for the governor did not return calls.

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As for what insurers believe is necessary, both Mr. Magaril andMr. Henning said they would favor some form of tort reform, withMr. Henning specifically mentioning capping non-economicdamages.

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Mr. Amsler, too, said there needs to be some sort ofpredictability and limit on damages.

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Highlighting the current condition of the medical malpracticemarket in the state, Mr. Amsler noted that major writers includeMLMIC, with over 50 percent of the market; Physicians' ReciprocalInsurers, with around 20 percent; and no other carrier with morethan single-digit percentage.

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For the companies writing coverage, Kenneth Quintilian, chiefactuary of MLMIC, said they predominantly follow MLMIC'smodel--companies owned by their insureds. The market is difficultfor commercial carriers, he added, and Mr. Amsler said thecommercial insurance industry has essentially abandoned New YorkState.

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Mr. Henning supported that point, noting AIA-member market sharein New York is "miniscule."

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All who spoke with National Underwriter agreed acontinuation of the rate freeze or a continued suppression of rateswould further worsen the market.

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Mr. Amsler said suppressing rates further would be like puttinga lid on a pot of boiling water.

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Mr. Henning said freezing rates further would only hurt insurersthat already do not have enough capital and are essentiallyinsolvent except for a statute stating they are solvent.

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Mr. Amsler explained the statute, noting that in New York, if aninsurance carrier writes the majority of its business asprofessional liability, the superintendent does not have the powerto liquidate the carrier under traditional standards. He notedMLMIC has $300 million in surplus, but other companies continue towrite business despite not having enough capital to pay claims.

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