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It isn’t entirely the fault of lawyers, but mostly it is. That was the mixed conclusion of a General Accounting Office report released July 28 on the economics of the medical-malpractice insurance crisis. The congressional investigative agency also noted that there is not enough information to say for sure why doctors’ premiums have been driven upward in the past few years, although losses on claims are a major factor. Doctors blame the premiums on jackpot malpractice verdicts. The price hikes have led to several one-day strikes by New Jersey doctors and a fierce lobbying effort demanding a $250,000 cap on noneconomic damages in malpractice suits. In turn, plaintiffs’ lawyers deny that claims have become suddenly worse. They blame premium hikes on the medical profession for not evicting bad doctors. The GAO report came a week after New Jersey Insurance Commissioner Holly Bakke announced she would hold hearings to look into Princeton Insurance Co.’s decision to stop writing new policies on Aug. 21. Princeton, which insures 53 percent of the state’s doctors, has had difficulty obtaining reinsurers for certain policies. The 67-page document, on how the crisis occurred and what can be done about it, covers seven state markets — but not New Jersey — and appears likely to fuel the debate rather than end it. Advocates on both sides say its conclusions bolstered their previous opinions. “Losses on medical malpractice claims — which make up the largest part of insurers’ costs — appear to be the primary driver of rate increases,” the report said. That finding, however, was heavily qualified. The complicated and difficult nature of balancing unpredictable future losses against revenue may be “exacerbating” the crisis, the GAO said. Ultimately, the GAO’s analysis came up short, the report admits, because insurance companies have not released breakdowns of payments on claims. “Data that would have allowed us to analyze claim severity at the insurer level on a state-by-state basis or determine how losses were broken down between economic and noneconomic damages were unavailable,” the report says. That information is crucial, as it will show whether premium increases are being driven by huge jury verdicts for emotional distress, or whether those damages have stayed steady while insurers’ revenue declined through their own mismanagement of premiums and investment revenue. “We’re working at a national level with the National Association of Insurance Commissioners” to get that information, says Bakke. “In New Jersey, no one organization has all of the data that’s needed to fully assess the situation.” The state Assembly in mid-July gave itself subpoena power to force the same information out of local insurers. LOSSES LEAD TO BLEAK PREDICTIONS Among the findings of the report, “Medical Malpractice Insurance: Multiple Factors Have Contributed to Increased Premium Rates,” are these: � Eighty percent of medical-malpractice insurers’ investments are in bonds, which did not enjoy huge run-ups like stocks in the late 1990s and have made only minimal gains in the recession years. (In New Jersey, 89 percent of the insurers’ investments are in bonds, according to a report by the Medical Society of New Jersey.) � Decreasing investment income puts more pressure on insurers to cover losses with revenue from premiums. � Premium prices — and the revenue they generate — are driven down as insurers compete for doctors’ business, leading to sudden price increases in later years when insurers need to cover unpredicted losses. � Years of steep losses plunge insurers into a downward spiral, as they use those losses to predict future losses. Loss-prediction thus becomes bleaker, leading to increased pressure to raise premiums to cover them. � As embattled insurers withdraw from markets, competition is reduced and pressure to hold down premiums is further relaxed. � As hospitals and physicians’ organizations leave insurers to become self-insured, they save money in the short term but take on greater financial risks and liabilities. When those liabilities occur, insolvency is more common. “I don’t think it’s anything of a surprise,” says Raymond Cantor, director of government affairs for the Medical Society of New Jersey. “Adverse awards are the primary cause driving up insurance premiums … our own actuary came to a similar conclusion a few months ago.” ATLA SAYS, ‘OPEN THE BOOKS’ Predictably, plaintiffs’ attorneys take the opposite view. “The report indicates there’s clearly no support for caps on damages,” says Bruce Stern, the immediate past-president of the Association of Trial Lawyers of America-New Jersey, and a partner at Princeton’s Stark & Stark. “They don’t have enough information from the insurance industry to really look at the problem. … That’s why the Assembly passed the resolution for subpoena power, you’ve got to get the records and open the books for the insurance companies,” he adds. The report joins a small library of surveys and research efforts that have failed to close the debate. In March, the medical society released a similar economic analysis that concluded losses on claims drove premium prices. Like the GAO effort, that one also did not break out the noneconomic damage component. In January, the Administrative Office of the Courts released numbers indicating that medical-malpractice claims declined between 1997 and 2002. This was hailed by the plaintiffs’ bar as proof that it was investment failure, not frivolous claims, which triggered the crisis. The doctors’ lobby contended that while filing frequency may have decreased, verdict size had increased. Bakke has yet to take a position on whether her department supports a cap on noneconomic damages. “Without a breakdown [of damage awards] it’s hard to understand how caps would change the picture,” she says. She also notes that caps tend to be implemented with a package of tort reforms, and so she cannot endorse one position or the other without knowing how the various reforms would interlock. In the short term, Bakke supports subsidizing doctors’ premiums to prevent physicians from leaving the field. Bakke does sound one note of caution on the caps issue, however. She says it is not a “silver bullet” to fix the issue. “It wouldn’t have an immediate impact. If we put a cap in New Jersey tomorrow, premiums would not decrease the day after.”

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