Dr. Richard Anderson, CEO of the Doctors Co., a physician-owned medical malpractice insurer, was named chairman of PIAA, the insurance industry trade association that represents medical professional liability insurance companies and risk retention groups. The former Scripps Memorial Hospital senior oncologist talked recently with Modern Healthcare reporter Lisa Schencker about the challenges facing medical liability insurers and doctors amid increasing provider consolidation. This is an edited transcript.
Modern Healthcare: In May, you were named chairman of PIAA. What will your priorities be in that role?
Dr. Richard Anderson: One of the most important priorities that is useful, both in terms of the context of professional liability and also constraint of healthcare costs, is taking full advantage of the Affordable Care Act to reduce the cost of professional liability coverage. The mechanism for doing that is through the use of the ACA to calculate the value of future medical benefits. So, instead of having these inflated costs of tens of millions of dollars of future medical costs that plaintiff lawyers are so fond of pleading in malpractice litigation, we strongly believe that the appropriate benchmark for the cost of future medical care is the cost of future healthcare insurance as provided by law through the ACA. The second priority is to bring PIAA closer to PIAA International. We have PIAA International and it exists as a sister organization, but largely separate. I feel strongly that there is a confluence that’s taking place in First World healthcare in which we can learn an awful lot from each other about experiences with other countries as we, in the U.S., go through our own healthcare transformation. And the third priority, as always, is to continue to fight for legal reforms that make the professional liability litigation system, medical legal jurisprudence in the U.S., more equitable, more predictable, and the kinds of reforms that are necessary to sustainably, actually bend the cost curve for American medicine.
MH: What do you think are the biggest challenges facing medical professional liability insurance companies right now?
Anderson: The biggest challenge is the transformation and consolidation of American healthcare. Small practices face a very difficult environment for survival. Practice organizations are getting larger and larger, and integrated delivery systems are becoming more and more common. More and more physicians are working as employees of hospitals or integrated delivery systems. Now, consolidation can be good or bad. Most studies, academic studies, almost inevitably conclude that consolidation in American medicine has led to higher pricing, which is, of course, the inverse, or the least desired outcome of consolidation right now. And so for me, the battle for American medicine, and therefore the battle for those of us who support American medicine by providing professional liability protection, is whether we have consolidation alone or whether we have transformation in the context of consolidation.
MH: In recent years, the numbers of malpractice claims and rates for medical liability insurance have been declining. To what do you attribute those decreases?
Anderson: I have no doubt that a major contributor to the decline is the patient safety movement throughout the U.S., leading to much greater system awareness of medical error. We’re beginning slowly but surely to migrate away from the shame-and-blame culture. Another is physician risk aversion. In other words, physicians are much less likely to take risks to provide care. Now, some of that is good, in the sense that you certainly don’t want a physician or surgeon who hasn’t done a particular kind of operation since he or she was in medical school, to try it for the first time 15 years out.The flip side is you have well-qualified physicians who may be reluctant to take on a challenging case in a context in which they may be the only physician available for many miles or many hours, or you have a situation where it’s difficult to get specialty coverage for emergency rooms because specialists are reluctant to assume the liability for patients they don’t know. The third aspect, which is harder to quantify, is that civil litigation has been declining throughout the U.S. over the past 10 years, and so, we’re seeing similar kinds of declines in the frequency of litigation in areas outside of medicine. The other question that it leads to is where is it going? We’re pretty certain that the decline in frequency has bottomed out.
MH: What about the rates? To what do you attribute the rate declines in recent years?
Anderson: Two-thirds of America’s doctors are insured by PIAA companies, like the Doctors Co., and we are owned by our members. So, if we’re owned by our members, we basically charge the cost of the coverage and any excess funds that are collected go back to the members in the forms of either dividends or rate reductions or surplus allocations, capital allocations. And so we don’t have an independent profit motive. Most of the PIAA companies, like the Doctors Co., are owned by our own members.
MH: Why do you think that states should cap non-economic damages, even with those rates decreasing?
Anderson: Despite the fact that non-economic damage is capped, economic damages continue to go up inexorably. Despite the fact that frequency has come down, severity has continued to go up, severity being the cost of the average claimant. And so, if you eliminate a cap on non-economic damages, you’re basically saying to the insurance industry you need to provide coverage for infinity. We need you to provide coverage for losses that can’t be calculated. One jury can say the non-economic damages are $250,000. Another jury could say the non-economic damages are $250 million. How can you price an insurance policy to cover that kind of range of indemnities? It’s literally impossible. There has to be some rationality to the system.
MH: You’ve written quite a bit about defensive medicine, the practice of doctors ordering services or making medical decisions mainly designed to protect against potential lawsuits. How big of a problem do you think this is and what can be done about it?
Anderson: I think it’s a major problem. I think that physicians, understandably, regard the medical-legal system as broken. There really is no other profession on Earth that I am aware of that is sued as frequently as physicians. You have to remember that even with today’s decline in frequency, 6% to 8% of all the physicians in the U.S. are sued every year. So physicians feel justified in doing whatever they think is necessary to help keep them out of court. It’s very, very important that we get a medical-legal system in the U.S. that doesn’t end up targeting virtually every physician.