Tips for Curbing Malpractice Insurance Costs

CORONADO, CALIF. — As general counsel and director of risk management for Canton, Ohio–based Emergency Medicine Physicians, Dr. Michael Frank fields his share of calls from partner groups asking for insight on how to keep a lid on malpractice insurance costs.

“Any time you see another patient, that's going to expose you to more risk,” Dr. Michael Frank said at a meeting on reimbursement sponsored by the American College of Emergency Physicians. “The only sure way to eliminate your risk is to stop taking care of patients. But that's not going to be a very good solution.”

He offered three ways to save money on medical malpractice insurance:

▸ Sign up with the insurance carrier that offers the lowest premiums. “Be careful about doing that, because the history of medical malpractice insurance companies is littered with the stories of companies that tried to buy business by charging too low of a premium, and they're now bankrupt,” he said. “What do you wind up with? No coverage or coverage by a state guarantee association.”

▸ Set up shop in a state with effective tort reform. Each year, the American Tort Reform Association publishes “Judicial Hellholes,” a list of some of the nation's most “unfair” civil court jurisdictions in which to be sued (www.atra.org

According to the 2008–2009 edition, the current leading “judicial hellholes” include West Virginia; South Florida; Cook County, Ill.; Atlantic County, N.J.; Montgomery and Macon counties, Ala.; Los Angeles County, Calif.; and Clark County, Nev.

The publication's “watch list” includes Rio Grande Valley and the Gulf Coast of Texas; Madison County, Ill.; Baltimore; the city of St. Louis, as well as St. Louis and Jackson counties, Mo.

“Does tort reform really decrease medical malpractice premiums?” Dr. Frank asked. “California has one of the best tort reforms, limiting noneconomic damages to $250,000. The Las Vegas premiums we charge are about three times that of California. That's mostly because of what tort reform has done.”

▸ Start your own insurance company. Options include a “group captive,” an insurance company that is primarily owned and controlled by its policyholders, or a risk retention group, which is a type of captive authorized under the Liability Risk Retention Act of 1986. Captives can be created by either small practices or larger groups.

Risk retention groups are not subject to individual state laws that ordinarily apply to insurance companies. In addition, “once you are chartered in one state, you don't have to get permission to operate in any other state,” said Dr. Frank, who is also chairman of the board of trustees and an attending emergency physician at Summa Barberton (Ohio) Hospital.

He went on to note that, regardless of your business model, one surefire way to lose money on medical malpractice insurance is to not report claims promptly. “One of the first things the insurance company will do is to look for a way to deny coverage,” he said. “Try reporting after you should have done so. Almost every medical malpractice policy requires prompt reporting.”

Another way to lose money on medical malpractice insurance is to lose control of underwriting expenses. He spoke of one risk retention group that applies 60 cents of every dollar it earns from premiums into operating expenses. “Sooner or later that [group] is going to have to start charging higher premiums,” he said.

Buying too much coverage is another common way to lose money on medical malpractice insurance. Higher limits “are as much a target as they are a shield,” Dr. Frank said. “You have to be very careful about how policy limits are allocated, whether you have shared limits or individual limits. In our policy we have shared limits. Let's say Dr. X and Y were our employees and were named in a lawsuit. In our policy there would be $1 million in coverage for both. If they decided to name the medical group as well, it would still be only $1 million in coverage.”

On the other hand, if the policy limits were stacked, “that's like blood in the water to sharks,” he said. “The plaintiff attorneys who might be looking to settle for policy limits of $1 million would see coverage of $3 million and think, 'There's $3 million in coverage, and so that's what the case is worth.'”

Dr. Frank had no conflicts of interest to disclose.

'One of the first things the insurance company will do is to look for a way to deny coverage.'

Source Dr. Frank