Extension of a state program that subsidizes doctors' malpractice insurance premiums appears unneeded in the face of $68.6 million surplus accumulated by the state's largest malpractice insurer, a key legislator said yesterday.
Sen. Brian E. Frosh, chairman of the state Senate Judicial Proceedings Committee, said the subsidy had allowed the state's doctors to "weather the temporary storm" brought on by skyrocketing insurance premiums but won't need to be continued after it expires next year.
"It doesn't look like it's necessary, based on this," Frosh said, referring to the extra money reported this week by Medical Mutual Liability Insurance Society of Maryland.
Frosh, a Montgomery County Democrat, said the latest trends show the lawmakers acted correctly in 2004, passing a four-year subsidy but resisting other proposed changes to the malpractice claims system, which Frosh said would have limited the rights of plaintiffs.
Frosh's comments came a day after state Insurance Commissioner Ralph S. Tyler ordered Med Mutual not to proceed with its plans to pay out the $68.6 million as a dividend until he can review its calculations on how much would be returned to the state and how much would be credited to physician policyholders. Tyler's order scheduled a hearing for Oct. 5.
Med Mutual's planned dividend stands in sharp contrast to the situation just a few years ago when the state's medical establishment rallied legislative support to resolve what was termed a malpractice crisis.
Rising claims payments led to rate increases of 28 percent and 33 percent in 2003 and 2004, pushing annual premiums for obstetricians, the highest-risk specialty, to $150,000.
The General Assembly convened in emergency session over the 2004 Christmas holiday, voting a subsidy for premiums beginning in 2005. Since then, however, claim payouts have dropped each year in Maryland and nationally.
In the meantime, the state has spent almost $80 million in subsidies, with about three-quarters of the money going to Med Mutual, by far the largest insurer in Maryland.
Dr. Martin Wasserman, executive director of MedChi, the state medical society, said yesterday that the Med Mutual surplus would color how the 2008 legislative session would view malpractice issues.
While MedChi still intends to press for changes in malpractice rules, Wasserman said, "I don't think we'll be able to come in and say, 'The sky is falling.'"
"But it was falling four years ago," he said.
Wasserman said he understood that Med Mutual intends to follow state law in determining how much of $68.6 million in extra funds will be returned to the state and how much will be distributed to doctors as a dividend. He said he hoped lawyers for the insurer and for the state could agree on the split between the state and the doctors, heading off a potential dispute.
Neither Med Mutual nor Tyler has said what portion of the extra funds the insurer plans to pay to the state and how much to the doctors.
Wasserman, who said he had discussed the issue in general terms with officials of the insurer, said he didn't know the amounts involved, but he thought the intended payback to the state would be substantial.
Frosh said he hadn't had an opportunity to review the Med Mutual plan, but he thought the existing state law would be sufficient to cover how the distribution should be handled.
As for whether the state should claim a larger share than was contemplated in the 2004 legislation, Frosh said, "I'm sure somebody will say that that, especially when we're looking for a billion and a half [dollars - the state's estimated budget shortfall]. But you would have to make a case that something extraordinary has happened to go back and change the law."
Frosh added that, although he believes the subsidy will not be needed going forward, he doesn't believe the state should repeal the 2 percent levy on HMO premiums enacted to pay for it. The amount of the premium subsidy declines in each of the program's four years, and an increasing share of the revenue is directed to the Medicaid insurance program for the poor. If the tax were repealed, he said, the state would face a shortfall in funding Medicaid.
Malpractice claims payouts reached a peak in 2003 and have declined each year since then, said Gregory Larcher, an actuary in the Columbia office of Aon Consulting, who conducts an annual study of medical liability claims. The number of claims paid in Maryland had dropped 32 percent in the past three years, he said, compared with a national decline of 21 percent. Since the average claim payment was increasing slightly during that time, Larcher added, the total dollars paid for claims in Maryland has declined 28 percent from 2003 to 2006, while the dollars nationally dropped 18 percent.
Larcher said the reasons were not clear for the spike in claims in 2002 and 2003 - or for the decline since. He attributed at least some of the decline to efforts by hospitals and doctors to analyze patterns of medical errors and to improve training and equipment to prevent recurrences.
Med Mutual was created by the state in 1975, at another period when claims payouts were rising and some malpractice insurers were leaving the state or going out of business altogether.
As a mutual company, it is owned by its policyholders, the doctors. And, for many years, Med Mutual generated extra money and returned it to those owners through dividends.