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The Perfect Storm:
The Current Medical Malpractice Crisis

by Terence McCoy, M.D., FMA President

What's worse than seeing your professional liability insurance rates increase by 50 percent? Receiving a nonrenewal notice despite having a clean malpractice record. What's worse than being nonrenewed despite a clean record? Seeing your professional liability insurance carrier become insolvent and realizing that you are, in essence, bare.

If all this sounds too scary to be true, it's not. The above scenario is happening all over the country, but nowhere more dramatically than in Florida. In the past 36 months alone, seven carriers doing business in Florida have either been liquidated, forced into rehabilitation, or have decided to stop selling medical malpractice insurance altogether. The insurance companies formerly known as Unisource, Gulf Atlantic, Caduceus, Frontier, and PHICO have all gone the way of the dinosaur, while Scottsdale and Fireman's Fund have decided to get out of the medmal line of business. An eighth carrier, St. Paul, has decided to severely curtail providing insurance to several specialties, including emergency medicine, general surgery, and OB/Gyn. In addition, three more carriers have been bought out by another company (PPTF by ProNational, ProNational by Medical Assurance, and Medical Protective by General Electric).

In the mid 1990s, carriers were flooding into the state of Florida. Today, there is a mass exodus. Three years ago, there were five professional liability insurance carriers headquartered in Florida. Today, only one remains: FPIC. During those three years, rates have increased on average by 50%. In the past year alone, the average rate increase by all carriers still operating in Florida is more than 25% and rate increases in 2002 are expected to be in the 25% range once more.

What is causing this third malpractice crisis to hit the country since 1975?

According to Cliff Rapp, Vice President of Risk Management at FPIC, the following scenarios have converged at once to provide "the perfect storm":

• Erosion in patient loyalty attributed to the increasing presence of managed care
• Seeing more patients and spending less time with each patient has severely decreased communication between patient and physician - in fact, 82% of the motivating factors behind claims are attributed to communication failures
• As a result of managed care, there has been a shift from cases tried for committed acts to a world where omitted acts are equally important - in fact, failure to diagnose cancer has become a leading cause of malpractice claims
• There are more lawyers today than ever before
• Jury panel selection criteria has changed - a potential juror now only needs to be 18 years of age and have a driver's license
• Shows such as "Who Wants to be a Millionaire" have lessened the aura of a million dollars
• In tandem with increased federal and state regulatory and statutory causes of action, the average malpractice settlement in Florida has increased dramatically
• Jury verdicts are the yardstick by which all cases for settlement are measured and the average jury verdict has increased 57% in the last five years nationally, from $2 million to $3.5 million

Adds Bob White, Executive Vice President and COO at FPIC, "The professional liability industry has been in a soft market for the past 12 years. At the height of the soft market, many PIAA companies chose that time to go public - the worst possible time to do so. After becoming publicly traded companies, these carriers ventured outside of their core competencies by writing lines of insurance they were unfamiliar with and outside of their geographic comfort zones writing business in states that were foreign to them. In order to secure market share in new lines of business and new geographic regions these carriers deeply discounted their rates. This forced the competition to lower their rates even further. In short, the entire medical professional liability industry has been charging less than adequate rates while its age old nemesis, severity, continued its upward spiral."

In fact, rates have been artificially low for so long that in just the past five years most carriers have seen their combined ratios climb over 130 percent, and some have even risen to levels above 140 and 150 percent, which means for every dollar a company takes in, they are spending anywhere between $1.30 to a $1.50. All this in an industry that has historically enjoyed combined ratios in the 90 percent range. FPIC is one of only two carriers operating in Florida that has an average combined ratio over the last five years under 100 percent.

Other factors contributing to the malpractice crisis, according to Mr. White, include:

• Reinsurers took a beating in the soft market and are just beginning to take rate increases to recoup their losses and are tightening up the terms of their participation
• Returns from investment income have fallen dramatically
• Politicians seem less inclined to deal with tort reform issues for doctors

Mr. White believes that the problems in Florida are a continuation of the original malpractice crisis of the mid-seventies. He feels the legislature misdiagnosed the original problem and treated the symptoms of the condition, the crisis of availability and affordability, without treating the condition itself. Like all misdiagnosed and untreated conditions, the symptoms may abate but when they return they are more difficult to treat. Mr. White feels that Florida needs to implement changes that will control the rate at which claims severity is advancing by capping non-economic damages.

So, with all this bleak news, what's a physician to do?

For one thing, joining organized medicine could assist in lobbying the government for tort reform. FPIC, along with the FMA, County Medical Societies, and specialty societies have been doing just that for the past several years, and will continue to do so until we are able to get runaway jury awards under control, thereby lowering your malpractice premiums.

Another important thing to do is become insured with a stable carrier that will be with you during the good times and the bad. FPIC has been the only continuous carrier in the state of Florida since 1975 and is now the only carrier still headquartered in the state. As David Rader, President and CEO of FPIC says, "When we say 'Here Today, Here Tomorrow' we mean it."

In addition to stability, you want a carrier who will fight for you in the courtroom and defend you against frivolous lawsuits. At FPIC, 85% of all cases are settled with no indemnity payment and 80% of all cases taken to trial are won. In the past two years alone, FPIC is 67-10-3 (87%) in the courtroom, far and away the leader in taking cases to court in Florida.

Finally, you want to be insured with a carrier who will assist you in protecting yourself from ever receiving a notice of intent in the first place. FPIC prides itself in its Partners in Prevention Program, whereby a highly trained and specialized risk manager will provide free office surveys. The Program also has more than 35 specialized risk management programs that can be targeted to a specific specialty, geographic region, or large group or IPA.

Formed as a reciprocal by the FMA during the first malpractice crisis in 1975, converted to an independent company during the second malpractice crises in 1985, and now a stock company during the third malpractice crises, FPIC, the endorsed carrier of the FMA, exists to provide physicians with the most comprehensive professional liability insurance coverage and the most protection, both inside and outside the courtroom. FPIC: Here Today, Here Tomorrow.

For more information on the pending malpractice storm, or to find a port of shelter, please contact Gary Izzo, Vice President of Marketing at FPIC, at 800-741-3742, extension 3056.