James H. Blume Jr., a West Virginia physician, received an all-too-familiar message from his medical malpractice insurance carrier in January: Your policy has been canceled.
The letter marked the third time in four years that an insurance carrier bailed on him. The first one went bankrupt. Another pulled out of West Virginia all together. And in January, Washington-based NCRIC Inc. said it wanted out of the state as well.
"A lot of people are trying to paint [NCRIC] out to be the bad guys but I don't think so," said Blume, who opened a family practice in the tiny community of Forest Hill 13 years ago. "They thought they could not make money in this market, so they want to leave. Who can blame them?"
NCRIC's decision put the company in the middle of a heated debate on the affordability and availability of medical liability insurance in West Virginia. Last month, NCRIC decided to stay in West Virginia after state insurance officials agreed to let it raise the fees charged to doctors for coverage.
Across the country, states are struggling with similar issues. In Maryland, a request by the state's largest malpractice insurer, Medical Mutual Liability Insurance Society of Maryland, to raise premiums an average of 41 percent has triggered a fierce debate. Maryland Senate President Thomas V. Mike Miller Jr. (D) called for the General Assembly to hold a special session this fall on rising costs. Gov. Robert L. Ehrlich Jr. (R) has set up a task force onthe issue.
Several thousand Virginia physicians marched on the state Capitol in February, calling for tougher caps on "pain and suffering" awards and stiff limits on plaintiff lawyers fees. And D.C. Mayor Anthony A. Williams (D) has advocated changes in the District's medical malpractice laws, which have no caps on damages against doctors or hospitals.
Malpractice carriers argue that high jury awards mean premiums don't cover claims. NCRIC said it paid out $1.07 in claims for every $1 it got in premiums last year.
An obvious quick fix for the industry: raise premiums, which is what NCRIC and its competitors have done. But that, according to the American Medical Association, has resulted in a liability crisis in 20 states and "problem signs" in Virginia, Maryland and the District.
The medical community cites anecdotes about doctors dropping "risky" procedures, such as delivering babies, or practicing without insurance, as doctors at Prince George's Hospital Center sought to do.
Who is to blame?
Insurers and doctors accuse trial lawyers of manipulating the courts so they can pocket huge awards. "The trial lawyers are virtually the only people who are fighting to preserve our out-of-control liability system because they are feeding at its trough," said Mark S. Seigel, president of the Maryland State Medical Society and a practicing obstetrician/gynecologist in Gaithersburg.
Trial lawyers point the finger at bad doctors and poor investment decisions by insurers. Insurers invest the bulk of the money they raise through premiums in bonds and stocks, and when those investments falter, insurance companies have less money to pay out. "The crisis is manufactured by the insurance industry for the benefit of the insurance industry, and too many doctors have been conned into advocating the cause of insurers as opposed to the cause of their patients," said Carl Carlton, a spokesman for the Association of Trial Lawyers of America.
Insurers disagree that their investment strategies are the problem. "Two thirds of our investments are in bonds," said Robert P. Hartwig, chief economist at the Insurance Information Institute. "Even if our investment situation had stayed stable, we still would have been losing a lot of money because of the rising awards and settlements and other tort-related costs."
Whatever the cause, the result has been that since the mid-1990s, medical malpractice carriers have been squeezed. Many that haven't been forced out of the business retrenched dramatically or abandoned it voluntarily, including St. Paul Cos., once the nation's largest medical malpractice carrier.
Against this backdrop, NCRIC struggles to regain its footing in an industry it entered 24 years ago, in a climate similar to the one today. In the mid-1970s, the average cost and number of paid claims skyrocketed and commercial carriers cut back on issuing policies.
States responded by tightening laws that govern malpractice lawsuits. And doctors began forming their own insurance companies, such as NCRIC, which was created in 1980 by the Medical Society of the District of Columbia.
NCRIC expanded into Maryland and Virginia when a growing number of D.C. residents moved to the suburbs and D.C. doctors began setting up offices to serve them. Last year, it collected 33 percent of its premiums in the District, 32 percent in Virginia, and 12 percent in Maryland.
Malpractice carriers struggled in the mid-1980s because of a surge in lawsuits, but in the early 1990s, the business environment improved dramatically. Claim rates were relatively stable or even declining a bit, settlement and verdict amounts were growing but not rapidly, and investment income was high.
As the business grew more profitable, companies with excess capital wanted to invest more aggressively and mutual companies began to de-mutualize. Among them was NCRIC Group, NCRIC's parent company. It went public in 1999, raising $8.4 million, and then raised another $39.5 million in 2003 in a second offering.
The company moved into Delaware in 1997 and West Virginia in 1999. The idea was to create a "contiguous presence" in the mid-Atlantic region, said R. Ray Pate Jr., NCRIC's president and chief executive.
But then the collapse of the stock markets and falling interest rates, along with medical inflation and litigation costs, hurt the balance sheets of most medical malpractice insurers. NCRIC reported $4.2 million in losses last year, compared with $742,000 in profit the previous year. Revenue grew to $61.3 million compared with $42.7 million.
In the quarter ended June 30, it posted $437,000 in losses, compared with a profit of $542,000 at the same time last year.
Adding to the company's woes, earlier this year, a D.C. Superior Court jury sided with the defunct Columbia Hospital for Women Medical Center and returned a $18.2 million verdict against NCRIC. The court case arose when NCRIC tried to collect $3 million in premiums allegedly owed by the hospital. The hospital countersued, charging that NCRIC overcharged and encouraged doctors to practice elsewhere. The company has asked a trial judge to overturn the jury's verdict. The company said it has not accounted for this verdict in its financial statements because it thinks it will prevail.
In addition, an NCRIC agent committed fraud by collecting premiums from a Northern Virginia health care provider and pocketing the money. When the incident was discovered, the agent was prosecuted and put behind bars. And although the agent is responsible for restitution, NCRIC paid $1 million to cover two claims filed by the health care provider -- $600,000 of it in the second quarter.
Despite NCRIC's losses and other problems, A.M. Best Co., which tracks the insurance industry, gives NCRIC an A- or "excellent" rating, the fourth highest ranking out of 15. The rating takes into account the adequacy of the company's reserves, the market value of its assets and the competency of its management.
Last year, NCRIC asked West Virginia officials for permission to increase its premiums by 35 percent effective Jan. 1, Pate said. In January, state insurance officials instead approved a 9.8 percent increase.
Lynette Maselli, spokeswoman for the West Virginia Insurance Commission, said the agency had its actuaries and analysts review NCRIC's request. "We could not see how a 35 percent increase was justified by the rate filing they submitted, Maselli said. "We have to allow companies to remain solvent but we also have to afford consumer protection and we can't allow them to charge rates that are excessive or discriminatory."
NCRIC immediately notified all 250 doctors it covered in the state that it would not renew their plans.
"It is the first and only time that we have decided to leave a state," Pate said. "We spent a lot of energy trying to get over that decision. In a sense, we felt we had failed even though it was a regulatory issue, not a failure on our part . . . We were being asked to take a huge financial risk."
Without NCRIC, doctors who lost their coverage had only one place to turn: the West Virginia Physicians' Mutual Insurance Co., a nonprofit that opened July 1.
Up until that point, hundreds of the state's doctors were insured by a state-run program created in 2001 after St. Paul Cos., West Virginia's largest insurer, and other insurers left the state. In July, the state legislature decided to transfer all 1,400 state-covered doctors to the mutual in an effort to reinvigorate a private malpractice marketplace.
"But no one ever intended for the mutual to cover all the state's doctors," said David Rader, president and chief executive of the mutual. "We welcome competition."
In August, NCRIC got the state's insurance officials to approve a 9.5 percent increase in premiums effective this month, on top of the already approved 9.8 percent that took effect in January. As a result, NCRIC returned to West Virginia.
Blume hoped that NCRIC would reinstate his coverage, and NCRIC offered to. But at too steep a price: $18,502.19 for the year, said Blume, and that was the discounted rate for part-time doctors.
Even before NCRIC returned, Blume had sought insurance from the West Virginia mutual. But it rejected him, possibly because he had three claims against him, all filed by patients who had no insurance. He was acquitted in one case, dropped from another and settled out of court in the third, Blume said.
By Thursday afternoon, Blume said he was leaning toward practicing insurance-free. Going without insurance means he will have to give up his privileges at area hospitals and nursing homes.
"I've just decided to go bare, that's what I'm thinking at the present time," Blume said. "We'll take care of whoever comes to our door, anyone that's sick, but that's it. I'll be saying goodbye to my nursing home patients in the next few days."