Everyone’s concerned about the rising cost of healthcare. You probably hear it whenever you prescribe medications for your patients. Either the patients or their insurance company keep asking for generic drugs instead of brand-name drugs. The patient’s cost for brand-name drugs can be much higher for those who have insurance, and overall prices are definitely much higher for those who do not have insurance. You must be cautious before you consent to those requests for generic drugs. It is not simply a matter of substitution of a cheaper drug for a more expensive one — they are not always 100% identical.
Physicians and patients often ask about the safety and efficiency of generic drugs, when they are substituted for brand-name drugs. The USFDA generally approves a generic substitute if it has proven to be “identical, or bioequivalent” within a certain percentile to a brand-name drug in dosage form, safety, strength, route of administration, quality, performance characteristics, and intended use. Pawel Lewek, MD and Przemyslaw Kardas, MD, PhD, in their article on generic drugs in the November 2010 issue of The Journal of Family Practice, recommend that, when in doubt, physicians check the FDA’s Orange Book: Approved Drug Products with Therapeutic Equivalence Evaluations, online at http://www.accessdata.fda.gov/scripts/cder/ob/default.cfm.
Many articles recommend that physicians monitor some generic drug substitutions closely. In particular, Drs. Lewek and Kardas feel that the most caution should be taken with antiepileptic (anti-seizure) drugs. Martin Sipkoff, in his article on generic substitution in Modern Medicine magazine dated March 2010, adds immunosuppressants, psychotropic agents (antidepressants), thyroid drugs, antiarrthythmic drugs, and modified-release formulations to the list that needs careful monitoring once a switch is made to generic drugs.
While brand-name drug manufacturers can update their warning labels on brand name drugs if they uncover new evidence of danger, generic makers don’t have the same authority. A ruling by the US Supreme Court last year limited lawsuits against generic manufacturers for failing to provide updated warnings.
Drs. Lewek and Kardas performed a literature search and the generic drugs are in general less safe or effective then the equivalent brand drug. There are strict standards that exist to maintain the quality of the generic equivalents. The doctors looked at 47 studies covering nine subclasses of cardiovascular medications with no evidence that the brand drug performed better than the generic. Plus the generics cost 30% to 60% less than the brand drug in most cases. Lower co-pays for the generics also improved patient compliance to remain on medication.
In most cases, there is no “evidence-based” reason to choose the brand drug over the generic. But when in doubt, check the Orange Book at the above link.
Beth Thomas Hertz, in her article “Damage Control,” reported that there is a proliferation of many new online sites for reporting medical experiences and rating doctors, such as Vitals.com, DrScore.com, HealthGrades.com and RateMDs.com. These web sites allow patients to tell the whole world via the Internet about their medical experiences. Even if most of your reviews were positive, the negative ones can cause damage to your practice. This article is a quick overview of a few things that you can do to improve your on-line ratings in this new age of instant information.
Many patients are using the Internet to research their healthcare and insurance companies are surveying patients to review their provider network. Thus, decent reviews from your patients are becoming important. Many of the negative ratings are usually due to lack of courtesy and professionalism of the office staff. Ms. Hertz offers ways to reduce and deal with bad reviews. While some review items actually rate the physician; other survey items could refer to indirect issues as lack of parking. You should use the feedback to determine what you are doing right, determine how you can provide the “extra” value that patients want and what areas in your practice need improvement.
Daniel O’Connell, a PhD in psychology, consults with physicians and recommends that doctors pay special attention to whether they clearly explain matters to patients, or whether patients are included in the decision making process. If you score low on any these issues, ask yourself how you can act differently to show you care. Ask such open ended questions as “What do you think is causing this problem?” or “Was there something special you wanted me to do today for you?” or “What concerns you most about this problem?” At the beginning of a visit, ask the patient if they have any other concerns besides the main reason for the visit. Then you will be able to budget your time during the visit rather than getting surprise concerns at the end of the visit when you are out of time.
Improve patient satisfaction by explaining the medications prescribed, spell the name if they wish to research it, explain why you are prescribing this medication and the dosage and any possible side effects. Inform the patient how they can determine that the medicine is working.
Ms. Hertz also reported that patients are more satisfied if they are included in the decision-making process. If applicable, provide a choice of treatments involving the patient and negotiate the best one.
Lancet Indemnity Risk Retention Group, Inc. has earned a Financial Stability Rating® (FSR) of A, Exceptional, from Demotech, Inc. This level of FSR is assigned to insurers who possess exceptional financial stability related to maintaining positive surplus as regards policyholders, liquidity of invested assets, an acceptable level of financial leverage, reasonable loss and loss adjustment expense reserves (L&LAE) and realistic pricing.
FSRs summarize Demotech’s opinion of the financial stability of an insurer regardless of general economic conditions or the phase of the underwriting cycle. FSRs utilize statutory financial data based on insurance accounting principles prescribed or permitted by the National Association of Insurance Commissioners (NAIC). Since 1989, FSRs of A or better have been accepted by the major participants in the secondary mortgage marketplace.
About Lancet Indemnity Risk Retention Group, Inc.
Lancet Indemnity Risk Retention Group, Inc. was formed in 2007 by a group of Florida physicians to provide medical professional liability insurance. Lancet is a Nevada domiciled corporation with its corporate offices in Tampa, Florida. Lancet currently writes business in 14 states and insures all medical specialties.
Lancet Indemnity is a unique collaboration of ideas: a Physician Owned and Directed Professional Liability Insurance carrier specifically created to protect its policyholders. Lancet Indemnity provides traditional and innovative coverages for individual physicians, groups, captives and associations in an effort to manage today’s assets and tomorrow’s realities.
About Demotech, Inc.
Demotech, Inc. is a financial analysis firm specializing in evaluating the financial stability of regional and specialty insurers. Since 1985, Demotech has served the insurance industry by assigning accurate, reliable and proven Financial Stability Ratings® (FSRs) for Property & Casualty insurers and Title underwriters. FSRs are a leading indicator of financial stability, providing an objective baseline of the future solvency of an insurer. Demotech’s philosophy is to review and evaluate insurers based on their area of focus and execution of their business model rather than solely on financial size. This philosophy was the catalyst for the Demotech Company Classification System, which was published in Insurance Journal, in order to stratify and categorize insurers into operational categories.
Visit www.demotech.com for more information.
Medical professional liability (MPL) insur- ers have likely passed an inflection point in the market cycle. Its subtlety, however, may not be evident to the casual observer, especially when the industry is still reporting positive income results. Insurers’ continued strong financial posi- tion would typically allay all concerns. The problem is that a key measure of insurers’ profitability has started to show signs of deteriorating.
The index known as the calendar-year combined ratio— which measures insurers’ losses and expenses relative to their premium writings—jumped 4 percentage points, to 90%, in 2010. At this point in the cycle, most any increase would raise some eyebrows, but such a large jump has caught the attention of some analysts.
The 90% ratio is still far lower than levels reached at the height of the cycle, which led to the previous hard market when it topped 150%. Nonetheless, it seems to be rapidly approaching insurers’ underwriting break-even point of 100. Once the index moves above that level, insurers are losing money, from an underwriting perspective.
What may be even more of a concern is that MPL insurers’ current profitability largely stems from policies written years ago during the hard market of the early- to mid-2000s, when premiums adequately covered losses and then some. Over the four- to five-year period, industry premiums doubled to $10 bil- lion, as insurers increased premiums to cover burgeoning losses.
On the heels of the premium increases that insurers were implementing, claims cost unexpectedly began to fall. From 2003 through 2007, insurers’ claims frequency fell approximately 40%. The combined effect has been that the ultimate value of the losses for the policies written during the early to mid-2000s is much less than insurers’ initial estimate. The loss reserves that insurers built up during the beginning of the decade are now buoying their sagging underwriting results for current policies.
Richard B. Lord, MCAS, MAAA, is a Principal & Consulting Actuary with Milliman in Pasadena, California. Stephen J. Koca, FCAS, MAAA, is a Consulting Actuary with Milliman in Pasadena, California.
Reserve releases commence
Insurers first realized the redundancy of these prior-year loss reserves in 2005. Uncertain of the level of loss redundancy at that time, insurers moved cautiously, slowly releasing reserves, but momentum built in the ensuing years, and increased further in 2010. Based on data compiled by Milliman from a select group of physician MPL insurers, $5.7 billion in reserves were released over the six-year period, whereas the MPL industry as a whole released $10.2 billion in reserves over this period. While reserve figures are still evolving, the peak of reserve releases was likely reached in 2010, and insurers may have to start to put the brakes on the releases in the near future.
Reserve releases have kept insurers’ profitability on solid footing, at least on a calendar-year basis, but if we look at insur- ers’ results on what is known as a policy-year basis—results for just those premiums written during a given year, let’s say 2010, and any losses arising from those policies—we can see that the premiums that insurers are charging for their current writings are less than what actuaries expect the ultimate value of their future losses will be.
The effect of this underpricing can be seen in a 2010 policy- year combined ratio, which, when reserve releases are added back into losses, turns out to be 114%, an increase of 11 percent- age points over the past 2 years. While losses for the most recent policy years are immature, this jump in the index should not be taken lightly, as it is more likely than not that we will see further increases in subsequent years due to current trends in claims and pricing.
Reserve releases have bolstered insurers’ results in recent years, but they also created conditions that promoted a soft or buyers’ market for MPL insurance. One way to think of the mar- ket impact of reserve releases is in terms of pric- ing. If reserve releases averaged between 20% and 25% of written premium, as they have for the past several years, insurers need to charge insurance buyers only 80 cents on the dollar to break even on an underwriting basis. This means that insurers can take on business at an underwriting loss in a given year, when they are releasing reserves, and still report a profit because of their accumulated excess reserves.
Loss of premium revenue
How much premium revenue have insurers waved off? Annual written premiums have declined by around $1 billion since 2006, due primarily to the combined impact of lower average costs and reserve releases.
Time, however, may be running out on the profitability resulting from excess reserves: the reserve releases may continue for only another
three to four years, declining each year, if the current cycle unfolds similar to the previous one, which until now it has. In 1989, when the hard market just previous to the last
ended, the MPL industry reduced reserves by approximately $1.5 billion, and continued to generate excess reserves for some ten years afterward. The peak was reached in 1994, when reserve releases topped $2 billion or 46% of earned premium. Based on this timeframe and the pattern of reserve releases thus far, insurers are now approximately just past the midway point of the current reserve release cycle.
A challenging terrain
Unlike the previous cycle, however, insurers cannot rely on invest- ment income to offset pricing discounts to the same extent they did during the 1990s and, for that matter, the past 30 years when generous investment income allowed insurers to periodically write business at an underwriting loss. But record low interest rates on bonds, which typically comprise approximately 80% of insurers’ investments, have not provided the pricing subsidy that insurers once had. Moreover, many MPL insurers also sustained investment losses in 2008, which may have accelerated reserve releases in that and the following year, and may have also shortened the time over which insurers can use reserves to support income.
At the same time, claims cost inflation remains stubbornly high. Even though insurers are seeing significantly less claims than they did ten years ago when claims frequency began to tumble, medical cost inflation has greatly increased the cost of each claim. Insurers also no longer benefit from a declining claims frequency, which appears now to be level.
The other dark horse for insurers is the potential impact of the Patient Protection and Affordable Care Act on the MPL mar-
Record low interest rates on bonds, which typically comprise approxi- mately 80% of insurers’ investments, have not provided the pricing subsidy that insurers once had.
ket. On the surface, the law is likely to have little direct impact states. In February 2010, the movement was dealt a considerable
for one simple reason: the law does not address MPL in any meaningful way.
The law, however, could increase the cost of care, as more people enter the healthcare system and began to utilize services. As medical costs increase, so would the cost of MPL claims, or what is known as claims severity. The increase in the raw num- ber of people in the system—many of whom may not be as healthy as current healthcare users—would also increase expo- sure, which in turn could trigger a rise in number of claims or claims frequency. This situation—an increase in claims severity and frequency—is often toxic for MPL insurers.
In the long term, the increased numbers of people in the system cause medical costs to ease somewhat, as more people receive regular care, which promotes better overall health and lower costs. But over the next three or four years, the law’s potential drag on the MPL market lines up with a period when the cost outlook is already tenuous.
Whether this cost rationale becomes reality is a matter of considerable speculation, but it is plausible and contributes to the growing number of challenges facing MPL insurers.
Also counted among that number is the stall, if not reversal, in tort reform, which not too long ago had been instrumental in limiting punitive and non-economic damages in a number of
Figure 2 Historical MPL Reserve Changes, as a Percent of Net Earned Premiums
blow by a decision of the Illinois Supreme Court, which ruled a cap on MPL awards unconstitutional. And while the course of court rulings has rarely been clear, even to the most astute legal observer, state legislatures have rarely been motivated to take up actions to support MPL tort reform when insurers’ capital posi- tion is unthreatened.
And MPL insurers may face an ever-dwindling market, as more and more physicians leave private practice for employ- ment in hospitals. Over the past several years, the movement that started some ten years ago seems to have gained traction and could accelerate when MPL insurers raise premiums. Rather than absorb double-digit premium increases, as many physi- cians did during the previous hard market, greater numbers may prefer to seek shelter under a hospital’s cover. This move would decrease MPL insurers’ market at a vulnerable time.
For now, the market is relatively calm. But it also seems that just as an array of positive factors converged during the beginning of the decade to propel MPL insurers toward prof- itability, negative forces are now gathering to disturb the market once again and send prices higher. How and when they take shape could greatly alter the trajectory of the cycle.
October 5, 2011 — In yet another plea for tough tort reform, organized medicine told the deficit-cutting Congressional super committee earlier this week that problems in the current medical liability system “contribute to the increase in medical liability insurance premiums.”
That assertion would be true — and yet also would be untrue.
Premiums indeed rose dramatically in the early part of the new century, but in 2011, they declined for the fourth straight year for 3 representative medical specialties, according to a publication called Medical Liability Monitor (MLM). Its annual rate survey, highly regarded in the field, was published this week.
Rates for obstetrician/gynecologists, general internists, and general surgeons decreased on average by a miniscule 0.2% this year after a 0.5% decrease in 2010. Rate decreases of 2.5% in 2009 and 4% in 2008 were more substantial. These declines have only partly erased premium increases from 1999 to 2007 that topped 80% for obstetricians/gynecologists and 100% for general internists and general surgeons, according to MLM.
Still, a downward trend is a downward trend, even though it is leveling out, and another upward trend is not imminent, said Chad Karls, a consulting actuary from a company called Milliman, who edits the MLM rate survey.
“Rates will remain flat in the foreseeable future,” Karls told Medscape Medical News.
MLM tracks hundreds of medical liability insurance rates charged by multiple carriers on a regional basis: an entire state, a portion of a state, or a single county. It asks insurers for the standard rates that they filed with state insurance regulators for policies with limits of $1 million for an individual claim and $3 million in any given year for all claims.
Rates listed in the survey, effective as of July 1, do not reflect credits, debits, or other factors that may tweak the cost up or down. Insurers have stepped up their use of credits, awarded for attending risk management seminars and using electronic health record systems, for example, and thus deepened the extent of rate cuts on the books with state insurance departments. So an average 0.2% reduction reported for this year could be closer to those seen in 2008 and 2009 (4% and 2.5%, respectively), when credits were not offered as freely, according to Karls.
The percentage changes in premiums cited by MLM apply to the 3 surveyed specialties on a nationwide, aggregate basis. The MLM report does not present national trends for each specialty. Karls notes that the medical liability insurance is a “state-by-state business.”
Of the rates that insurers quoted on a regional basis in 2011, 55% did not change from the previous year. Roughly 30% of the rates decreased, and another 15.5% increased. Most increases and decreases were lower than 10%, according to Karls. Last year, 67% of rates stayed flat, 19% were lower, and 14% were higher.
“Caps Can’t Be the Only Reason”
Karls attributes the recent downward curve in premium rates to several causes. One is a wave of tort reform legislation passed by various states in the preceding 10 years that, among other things, limits how much plaintiffs in a malpractice case could collect for noneconomic or pain and suffering damages. A $250,000 cap found in California, Texas, and other states is what organized medicine seeks on a national basis. Advocates of caps say they discourage frivolous lawsuits and prevent runaway jury awards.Those laws, Karls said, have led to fewer malpractice claims being filed, which in turn has lowered premiums — a pattern attested to by a number of academic articles. However, premiums also have decreased in states, such as Oregon, that do not cap noneconomic damages.
“So caps can’t be the only reason,” Karls said. “I think the push for patient safety and risk management also has played a role” in reducing claims and premiums.
14-Fold Difference in Highest, Lowest Rates for Internists
Premiums for medical malpractice insurance within a given specialty vary widely by region, reflecting differences in not only state medical liability laws but also judges and plaintiffs’ lawyers, the willingness of injured patients to sue, the willingness of juries to award hefty damages, and the quality of medical care.
As in 2010, the highest quote for a $1 million/$3 million policy for a general internist is found in Miami-Dade County, Florida, where First Professionals Insurance charges $47,431, down 1% from the year before. The lowest quote is $3375 throughout Minnesota, offered by ProAssurance Wisconsin Insurance.
Miami-Dade County puts in another repeat performance as the most expensive place for general surgeons needing coverage: First Professionals charges them $190,926. On the other extreme, ProAssurance Wisconsin quotes $11,306 for this specialty in Minnesota.
Obstetricians/gynecologists in the New York counties of Nassau and Suffolk on Long Island continue to pay the highest rate in their field, at $206,913, as quoted by Physicians Reciprocal Insurers. On the low end is a quote of $15,484 for obstetricians/gynecologists in mid-California from Cooperative of American Physicians, a rate that rose almost 16% from the year before.
Rates for a particular specialty also vary widely within states, in part because of demographic differences among patients and juries. In Detroit, Michigan, a medical malpractice carrier called Medical Protective quotes $34,922 for a general internist, but if the same internist practiced on the other side of the state, in Kalamazoo, the Medical Protective rate would be $14,143, or 60% less.
When Will the Market Harden Again?
Medical societies use dramatic adjectives like “soaring” and “skyrocketing” to describe premiums for medical liability insurance. However, the American Medical Association and 98 other medical societies linked the milder adjective “rising” to premiums in their October 3 letter to the Joint Select Committee on Deficit Reduction, or the super committee, as it is called.
The recent debt-ceiling deal that averted a government default on its debt assigned this bipartisan group the task of finding $1.5 trillion in savings that Congress must enact by December 23. The medical societies urged the committee to include a set of tort reform measures, including a $250,000 cap on noneconomic damages, in its recommendation to Congress. Such tort reform, they write in their letter, would make healthcare less costly, reduce the federal deficit by $62.4 billion over the course of 10 years, and protect patient access to care.
When asked to comment on the recent downward direction of malpractice insurance premiums, an American Medical Association spokesperson told Medscape Medical News that “national premium trends do not mean much for physicians in states that have not seen medical liability insurance costs go down.” Despite improvements in this market, he said, the MLM data suggest that “premiums in many states remain much higher than they were before the liability crisis.”
The gradual flattening of rate decreases, from 4% in 2008 to 0.2% in 2011, might suggest to some that premiums are poised for another upswing in what insurance professionals call a “hard market.” Karls, the editor of the MLM rate
survey, said he does not envision such a turnabout for at least several years. However, several factors may be setting the stage for an eventual hard market.
In the current “soft market,” competition between insurers is stiff, causing them to loosen their underwriting policies for the sake of insuring more physicians. In other words, they undercharge physicians whose risk for medical liability warrants a higher rate, or even denial of coverage. When insurers go too far in such laxity, they may not take in enough premium dollars to remain profitable, which motivates them to jack up their rates again. Karls said the industry is not at a point of such a rate rebound, “but we’re headed in that direction.”
Likewise, Karls also sees indications of patients filing more malpractice claims. Several years ago, claims frequency was trending downward for all malpractice insurance carriers in their various regional markets, he said. Today, for about a third of these carriers there are signs of higher claims frequency.
“It’s too early to make a definite statement that frequency is on the rise, but it’s something we’re watching closely,” he said.
Yet another pressure on premiums is the rising cost of defending physicians accused of malpractice on a per case basis. Karls offers several possible explanations as to why:
- Plaintiffs’ attorneys are filing more medically and legally complex cases.
- Plaintiffs’ attorneys are spending more on expert witnesses and medical animation technology, raising the ante for the defense.
- With claims frequency declining substantially since 2003, malpractice carriers can devote more staff and time to defending each case.