Malpractice insurer, Md. reach deal

Med Mutual to cut rates, pay dividend, fully reimburse state

December 14, 2007|By M. William Salganik | M. William Salganik,SUN REPORTER

In a sharp contrast to the crisis atmosphere in Annapolis that surrounded soaring medical malpractice rates just a few years ago, Maryland's biggest malpractice insurer said yesterday that it would use nearly $100 million of its reserves to cut premiums, pay doctors a dividend and reimburse state coffers for emergency subsidies.

Under pressure from the state's insurance commissioner, Medical Mutual Liability Insurance Society of Maryland said it will reduce next year's rates by 8 percent, return $84 million to the state and pay member doctors $13.8 million in dividends against 2008 premiums, effectively holding the cost of liability coverage flat for most physicians.

Without both the rate cut and dividend, doctors would have faced a 22 percent rate increase to make up for the end of the state premium subsidy program.

The action provides a coda to a clamorous dispute that climaxed with a special legislative session in the closing days of 2004. After sharp spikes in claims payouts -- jumping more than 60 percent from 2001-2002 to the following two years -- Med Mutual raised premiums 28 percent for 2004 and 33 percent for 2005.

Protesting doctors said the soaring rates would drive them out of state or out of practice, and they were backed up by then-Gov. Robert L. Ehrlich Jr. in their call for "tort reform" -- changes in the way liability cases were judged and tighter limits on claims payouts. In a bitter special session, the General Assembly rejected Ehrlich's proposals, saying the problem was cyclical, and instead voted for a four-year premium subsidy. Ehrlich vetoed the legislation but was overridden in the regular session that convened in January 2005.

Since then, nationally and in Maryland, the number of malpractice claims filed has been falling back. After peaking in 2003 and 2004, Med Mutual's payouts dropped to $54 million in 2005 and $65 million in 2006. Med Mutual kept premiums level in 2006 and cut them 8 percent for this year.

"We prescribed the right medicine, and the patient is healthy again," Montgomery County Democratic Sen. Brian E. Frosh, who chairs the Judicial Proceedings Committee, said yesterday. "What we did worked. What Governor Ehrlich proposed was unnecessary."

Insurance Commissioner Ralph S. Tyler said the drop in claims payouts reflected efforts for patient safety and also were "somewhat a function of the cycles in this industry."

It was Tyler who blocked Med Mutual's plan this fall for a larger dividend to doctors, a smaller payback to the state and no cut in premiums. Tyler ruled last month that Med Mutual had to fully pay back the state before it paid a dividend to doctors. (As a mutual company, Med Mutual is owned by the doctors it insures.)

The $84 million that Med Mutual will repay represents the entire amount of subsidies it received in the past three years and would have received next year.

Tyler delayed his Nov. 20 order blocking Med Mutual's plan for 30 days, giving the insurer a chance to try to craft an alternative that would meet regulatory approval. "And, indeed, a better solution has been found," Tyler said yesterday at a State House news conference.

The standoff between Tyler and Med Mutual over rates and dividends was resolved when, in private talks over the past few weeks, the insurer proposed to increase its total dividend to $97.9 million, enough to pay back the state fully for its subsidy and to give doctors enough of a dividend to keep their liability payments the same as this year's.

Jeffrey M. Poole, Med Mutual's executive vice president and chief operating officer, said yesterday that as the dispute played out, the insurer logged several more months of favorable claims trends, and it became comfortable with declaring a larger overall dividend, returning more to the state, and cutting premiums.

At the news conference, Gov. Martin O'Malley praised the deal as showing the benefits of a regulatory agency that is "proactive and calling the balls and strikes."

"This was good news," said Dr. Martin Wasserman, executive director of MedChi, the professional organization for the state's doctors. "This year, what we had wanted was stable out-of-pocket payments for doctors."

For the future, he said, "If -- when -- this problem comes up again, people can say, `We bailed the physicians out, and everybody acted responsibly, so let's do it again.'"

The state subsidy program was scheduled to end in 2008. It was financed by ending an exemption for HMOs to the state's 2 percent premium tax. As the subsidy ends, that money, and the $84 million returned by Med Mutual, will be used for the state's Medicaid program.

Med Mutual insures about 6,400 doctors, an estimated 70 percent of those in private practice in the state.

Other malpractice insurers generally use Med Mutual's claims experience in setting their own rates, and Tyler said yesterday that he would be reviewing the rates of the others.

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