Physicians Insurance Looks to Rate Reduction with Cap for Non-Economic Damages

Physicians Insurance A Mutual Company (PI), Washington’s largest professional liability insurer, announced in a letter to Washington state legislators that it will reduce its premiums by at least 10 percent effective Jan. 1, 2005 if the legislature approves a cap on non-economic damages and other tort reforms this session, and voters approve a related constitutional amendment this fall. Physicians Insurance insures some 5,900 physicians in Washington state.

According to Dr. Richard Seaman, chairman of the board of PI, “We must stem the rising cost of medical malpractice premiums in order for patients to continue to have access to their physicians and medical care in this state. It has been proven time and time again that the only way to reduce rates is through comprehensive tort reforms that are fair to all concerned.”

In his letter delivered to legislators in Olympia Wednesday morning, PI President Tom Myers said:

“Based on the company’s current circumstances, Physicians Insurance can commit to at least a 10 percent reduction in its basic premium effective January 1, 2005 should:

1. The 2004 legislature pass a tort reform bill that includes at least a $250,000 cap on non-economic damages and a provision for true periodic payments of ongoing economic damages, and passes a resolution to amend the state’s constitution; and,

2. An amendment to the state constitution to allow the legislature to enact a cap on non-economic damages is approved by the state’s voters in the November, 2004 general election.” “The Washington State Medical Association (WSMA) is glad to see this action from PI,” said Dr. Jeff Collins, president of the WSMA. “We’ve seen rates fall in other states after similar reforms, and we’ve seen insurance companies that had left those markets come back and start insuring doctors. We’re confident such reforms will work in Washington too.”

Dr. Collins added, “Let’s be clear what we are talking about. Reform supporters are not advocating for a cap on all damages. We are not advocating for limitations on the recovery of lost of income, medical expenses or any other economic damage – past, present or future. We support the cost of making things right. We want to preserve a patient’s day in court. A cap on non-economic damages has been proven to hold rates down in other states. Keep in mind that the cost of liability insurance is based on risk and exposure. If you get the risk and exposure within reason, then you will get a reasonable premium.”

Physicians Insurance, the WSMA, state hospital association and other members of the Liability Reform Coalition (LRC) are urging state lawmakers to pass a meaningful tort reform bill, including a $250,000 cap on non-economic damages and changes in the law to allow for periodic payment of ongoing damages over $50,000 in value.

The rate reduction would be implemented only as approved by the Washington State Insurance Department. The company proposes to set aside at least 10 percent of 2005 medical malpractice insurance premiums for the benefit of their insured physicians until the 2005 policy year can be evaluated to determined that the anticipated savings materialized.

According to Tom Myers, CEO of Physicians Insurance, “We’ve structured this time table based on other states’ experiences of being flooded with suits prior to their reforms taking effect.”

A cap on non-economic damages has reportedly met resistance in the state legislature, even though 72 percent of voters support such limits. Added Dr. Collins, “Our members and our patients are frustrated by attempts of some legislators to prevent a vote by the citizens of Washington on this issue in November.”

“This issue is all about access to health care services. Without these fundamental – and fair – reforms, this state faces a looming crisis that will only worsen if the legislature does not act,” he added.

A study of cases reported in Jury Verdicts Northwest since 2000 reportedly shows 47 settlements or verdicts (more are not reported due to confidentiality agreements) with a total value of $80.1 million. The total represented by non-economic damages – 76.3 percent. The total savings that would have been realized if a $250,000 cap on non-economic damages were applied to these 47 cases – $53.5 million.

“Savings in reduced premiums will help more physician practices stay open to serve their communities. In addition, these reasonable reforms should reduce the prevalence of defensive medicine, thus spread our finite health care dollars further for the benefit of all,” Dr. Collins concluded.