Md. lays claim to doctor dividend

Malpractice subsidy at issue in ruling

November 21, 2007|By M. William Salganik | M. William Salganik,SUN REPORTER

Insurance Commissioner Ralph S. Tyler directed yesterday that the state's largest medical malpractice insurer pay its entire $68.6 million dividend to the state, with none going to doctors.

He delayed his order for 30 days, however, to allow the insurer to work out a different way to use some of its surplus money to keep premiums stable for physicians.

If the insurer and the regulator can't agree, doctors could face a 22 percent rate increase Jan. 1 after three years of stability. The insurer, Medical Mutual Liability Insurance Society of Maryland, wanted to keep payments level by distributing a third of the dividend to physicians as a credit against 2008 premiums.

Med Mutual had proposed returning the remaining $44.2 million of the dividend to the state, as partial payback for three years of premium subsidies.

The state created the subsidy program three years ago after several hefty premium increases pushed the issue to the forefront of the political agenda. Physicians proclaimed a malpractice crisis and warned it threatened to force some doctors to retire or relocate. The insurer blamed the rate boosts on rapidly rising claim payouts.

Since then, however, claims payouts have cooled, dropping 28 percent in Maryland from 2003 to 2006, according to a study by Aon Global Risk Consulting. Talk of a crisis dissipated and Med Mutual was left with a fat surplus.

Med Mutual, which is owned by physicians, said yesterday that it was disappointed in the ruling and "must consider its available options," including a court challenge to Tyler's order.

"As Commissioner Tyler notes in his order, this boils down to a dispute over statutory interpretation," Jeffrey M. Poole, Med Mutual's executive vice president and chief operating officer, said in a statement.

While both Tyler and Med Mutual say they want to avoid premium increases, they disagree as to how to accomplish that. Each side says the law supports its interpretation; each also says its way of dealing with the money would have practical advantages.

Med Mutual says a dividend would save $24 million in federal taxes it would otherwise have to pay, leaving more money to cover claims.

Tyler, however, said Med Mutual could use its extra money to cut its premiums by enough to offset the declining subsidy.

A dividend paid to doctors would be credited only to those currently covered by Med Mutual, and new physicians would be hit by the 22 percent increase, he said.

Tyler envisions the next step as "sort of negotiation. Med Mutual would say, `Can we do this? Can we do that?' " according to Karen Barrow, a spokeswoman for the insurance administration. "There could be conversation and negotiation. It's really kind of open."

"It's a battle between the wills here, and the doctors and patients are stuck in the middle," said Dr. Carol Ritter, a Towson gynecologist who testified at hearings held last month on Med Mutual's proposed dividend.

Ritter said that a 22 percent increase could force some of her colleagues to do what she did nearly four years ago: stop delivering babies. As a gynecologist, she said, she now pays about $34,000 a year in premiums for malpractice coverage, about a third of what obstetricians pay.

"There are so many teetering," she said, "and this will put them over the edge."

Dr. Martin Wasserman, executive director of MedChi, the professional association for the state's doctors, urged Med Mutual to sit down with the insurance administration to try to find a mutually agreeable way to use the surplus to moderate premiums. "We're taken the position all along that it's much better to negotiate than to litigate," he said.

But Tyler's decision, if it stands, won't help physicians, he said.

Med Mutual, which as a mutual company is owned by policyholders, insures about 6,400 doctors, an estimated 70 percent of the state's physicians in private practice.

Tyler upheld the legal interpretation his own staff presented at October's hearings. The state insurance administration's staff had argued that Med Mutual, which had received $72.4 million in state premium subsidies, is legally obligated to pay back the state fully before it can distribute any dividends to doctors.

In his order, Tyler was sharply critical of the insurer for proceeding unilaterally.

The insurance administration, he wrote, "should have been consulted before [emphasis Tyler's] the society decided to declare a dividend. Presenting the [agency] with a completed corporate action, as the society did, is plainly not consultation, nor, as this case demonstrates, is it an approach that serves the best interests of the society's policyholders."

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