Out of Medicine

By Laura Bradford

It took Elizabeth Gromny six years and countless infertility treatments to conceive her first child. But her timing could not have been worse. The day she called to make her first appointment with her obstetrician, the doctor had just capped the number of deliveries she would perform. Why? The doctor's insurance bill would shoot up if she exceeded a certain number of births. Gromny was turned away not only from her doctor but also from others all over Las Vegas who face similar limits.

More pregnant women and other Americans in need of medical care are getting the same cold shoulder at hospitals and doctors' offices from Pennsylvania to Oregon, which are limiting their case loads--or going out of business--because of the high cost of insurance. Malpractice insurers have been hit by several years of soaring jury awards, even as the slumping stock market has ended the fat returns they used to get from investing premiums. As insurers try to make up for their losses by sharply raising rates, medical facilities are shuttering wards and doctors are dropping high-risk practice areas such as obstetrics and trauma surgery. Employers are shying away from the hardest-hit cities while doctors and legislators cobble together solutions that could change the face of medical care.

In some states, hospitals are closing entire clinics and rural communities are losing their only practitioners. Mercy Hospital of Philadelphia closed its maternity ward after annual insurance premiums for its group of four hospitals swelled to $22 million, from $7 million in 2000. In Arizona one woman gave birth by the side of the road before she reached the only remaining maternity ward in an area of 6,000 sq. mi. The sole trauma center in Las Vegas closed for 10 days in July, forcing critically injured patients to be helicoptered to California or treated in ill-equipped local emergency rooms.

Sommer Hollingsworth, president of the Nevada Development Authority, which works to attract employers to southern Nevada, observed that of about 350 firms his group sought to recruit over the past year, "we've never had anyone ask about the nuclear waste at Yucca Mountain, but client after client wants to know what we are going to do about the doctor situation. The quality of the medical system plays a big role for companies choosing to relocate."

Nevada has been especially hard hit because it's one of the states with the sharpest rise in malpractice costs. But those costs are climbing nationwide. According to one study, from 1999 to 2000 the median plaintiff's jury award in medical-malpractice cases increased 43%, from $700,000 to $1 million. Last year the MIIX Group, an insurer in 24 states, saw 26 claim payments of more than $1 million. This year it has faced an average of one new $1 million-plus claim every week.

St. Paul Cos., the nation's second largest medical-malpractice insurer, decided that it had had enough. As jury awards climbed, the company found in 2000 that it paid out $1.80 in defense costs for every $1 collected in premiums. The company lost nearly $1 billion in its medical coverage alone in 2001. "We just couldn't continue writing coverage with those kinds of losses," said spokeswoman Andrea Woods. "And looking ahead, the trend in jury awards was just going to continue to rise. We couldn't stay on for the ride and just hope that things would turn around." In December, St. Paul pulled out of the malpractice market completely, leaving doctors scrambling.

Like other major insurers, St. Paul depended heavily on investment gains throughout the 1990s. To gain market share in what was then a profitable specialty, most insurers pushed down prices on medical-malpractice policies. The companies funneled premium proceeds into profitable stock and bond investments that continued to rise even as covered losses began to mount. The increase in jury awards has come just as the bear market and low interest rates have eroded the investment cushion.

Companies like Interstate Insurance Group and Princeton Insurance Co. have discontinued coverage in states with the largest awards, such as Nevada and Pennsylvania. Three significant malpractice insurers fell into liquidation in the past year. The insurers left in the worst markets--often smaller, physician-owned companies--do not have the capacity to absorb all the cast-off practitioners.

To lower their risk, some companies are encouraging doctors and clinics to limit the number of patients they see. Several insurers in Las Vegas, including American Physicians Assurance Corp., offer a 25% discount to doctors who deliver fewer than 125 babies a year--half the number most local physicians deliver. Last month Nevada insurance commissioner Alice Molasky-Arman opened an inquiry into such pricing. Sheila Wright, a spokeswoman for American Physicians Assurance, said, "We don't have a choice. We are concerned about patients, but our rates reflect the risks that we take."

Unfortunately for doctors, they can't say the same. Because their reimbursement rates are often fixed by contracts with HMOs and managed-care groups, doctors cannot readily pass on their increased costs. To pay higher insurance premiums, some doctors have cut back on staff. But others are dropping high-risk specialties or retiring early. "I would be working just to pay my malpractice costs," said Debra Wright, a Las Vegas obstetrician who took a leave of absence this spring to avoid a premium increase to $180,000, from $50,000 last year. She hopes to resume her work if rates go down. Cheryl Edwards has stopped her obstetrics practice altogether and moved from Las Vegas to Los Angeles for a gynecology and cosmetic-surgery practice. "I was getting up in the middle of the night and losing money with every baby I delivered."

Some doctors are practicing without insurance coverage. Mark McCormick and Bradley S. Douglas, obstetricians in Boca Raton, Fla., elected to "go bare" after learning that their insurance, which last year cost each of them $35,000, would rise this year to $100,000. If sued, they will have to pay court costs and any judgments themselves.

Other doctors are forming their own insurance vehicles. Lewis Sharps, former president of the Pennsylvania Orthopedic Society, has applied to start a doctor-owned self-insuring group that will write policies only for orthopedic surgeons, in hopes of better managing risks and keeping court judgments and rates low.

Both doctors and insurers say the crisis will not abate until legislatures enact reforms. President George W. Bush and the American Medical Association have called for federal limits on recovery for pain and suffering in malpractice cases, and two states, Pennsylvania and Nevada, have already enacted similar reforms. In Mississippi the Governor has called for a special legislative session this month to consider the issue.

Reformers point to California, where jury awards for noneconomic damages, such as pain and suffering, are capped at $250,000 and malpractice rates have held relatively steady over the past year. With tort reform, says Ron Neupauer, a vice president of Medical Insurance Exchange of California, "you don't have the emotion-laden blockbuster verdicts." But plaintiffs' lawyers protest that curbing noneconomic damages will disproportionately impact women, children and the elderly, who typically suffer less "economic" harm, such as lost wages, when they are hurt.

Even when tort reforms are put in place, they can take time to bite. In Nevada, where liability caps were passed last month, most insurers have declined to lower rates until they see the change reflected on their balance sheets, which could take years. They may have a point: courts in six states have struck down as unconstitutional limits on a jury's ability to determine damages in malpractice cases, and lawyers in Nevada are readying a case against the new limits.

While the interest groups jockey, access to the courts is less urgent for most people than access to a doctor. After calling every day for weeks, Elizabeth Gromny finally persuaded her obstetrician to handle her delivery, but only because another patient in military service had been transferred out of state. But complications have forced Gromny to visit specialists, and many specialists have also posted signs in their offices warning that the insurance crisis might force them to close their doors. "I'm constantly worried about what could happen," says Gromny. "When you're pregnant, the last thing you want to have to worry about is your doctor."