New North Shore-LIJ business aims to lower MDs' malpractice premiums

By KATHLEEN KERR | kathleen.kerr@newsday.com

5:04 PM EST, February 15, 2008

Dr. Lucelle Del Rosario, a Huntington obstetrician-gynecologist, says medical malpractice insurance took a $175,000 bite out of her income last year.

The state Insurance Department last year approved a 14 percent hike in malpractice rates paid by physicians statewide. And doctors fear another double-digit rate hike, for 2008-2009, will be announced by July.

Rising rates have meant no recent raises for Del Rosario's office staff as well as packing more patients into an already tight schedule. "Our income has really been impacted [by the rate increases]," she said.

In an interview, Martin Schwartzman, director of policy initiatives for the New York State Insurance Department, urged doctors not to "jump to conclusions" about potential rate hikes. The department's goal, he said, "is to minimize any increase."

As rates rise and some doctors threaten to leave New York or scale back their practices here, the North Shore-Long Island Jewish Health System has taken action aimed at making malpractice policies less expensive. It recently jumped into the insurance business, forming an insurance company.

North Shore-LIJ -- one of a few New York health systems that has launched what's known as a risk retention group -- will offer the approximately 7,000 doctors who have admitting privileges at its 15 hospitals malpractice insurance at rates about 17 percent less than those charged by the two major insurers, Medical Liability Mutual Insurance Company (MLMIC) and Physicians Reciprocal Insurers (PRI). (Doctors employed by North Shore-LIJ have malpractice policies that are paid for by the health system.)

Malpractice rates had remained stable in New York from 1996 to 2003, climbing 1 percent or less annually. From 2004 until 2006, they rose faster, but still less than 10 percent per year. Then last year, they shot up.

One explanation for the hike comes from Eric Dinallo, superintendent of the state Insurance Department, who has said Gov. George Pataki's administration kept malpractice rates artificially lowby limiting rate increases, causing financial problems for insurers who are now seeking to make up for those years.

Doctors who choose to join the North Shore-LIJ plan could see the 17 percent decrease in their premiums even if a rate hike is enacted.

Risk retention groups operate by insuring member-owners who are engaged in similar business activities. Doctors who buy the North Shore-LIJ insurance will become shareholders, too. Because risk retention groups do not have to be licensed in the state where they operate, they're freed from rate regulation by their own state.

The North Shore-LIJ risk retention group is licensed in Vermont, as are many other risk retention groups. (One risk retention group, MCIC Vermont, represents some major New York medical centers: Columbia Presbyterian Medical Center, Weill Cornell Medical Center and Strong Memorial Hospital affiliated with the University of Rochester.)

Because New York State cannot influence North Shore's rates, the hospital network anticipates being able to keep prices down.

Additionally, while the North Shore risk retention group is technically a for-profit operation, Haber says it won't be seeking to make profits, another move that could help save money. North Shore has invested $2.5 million.

Haber says the risk retention group is the result of two years of study by a committee and hospital executives of alternatives to traditional malpractice insurance.

To determine rates for risk retention group members, Haber said: "We look at previous payments, lawsuits, claims, stuff that's traditionally reported to insurance companies."

Haber cited the rates for two high-risk specialties: Long Island neurosurgeons currently pay about $275,000 in annual malpractice premiums, while obstetricians pay about $177,000.

"Obstetricians are dropping down to gynecology only," he said. "Surgeons are wanting to leave New York. Physicians at some point are going to decide they don't want to do this."

Dr. Richard Peer, immediate past president of the Medical Society of the State of New York and a member of a task force formed by Gov. Eliot Spitzer to examine malpractice rates, said the North Shore-LIJ's initial investment of $2.5 million is "minuscule" and could pose problems if claims need to be paid in the short term. Still, Peer said, the North Shore-LIJ risk retention group "clearly presents an alternative."

Haber said it's too soon to know how many doctors will abandon their insurance plans to sign up with the risk retention group. In part, that's because the new program can't offer everything traditional insurers do.

For instance, members of risk retention groups are not entitled to an extra $1 million of free coverage that doctors receive when they buy a certain level from traditional insurers, said Schwartzman of the state insurance department. Additionally, doctors with risk retention group coverage aren't eligible for help from a state guarantee fund that covers them if traditional insurers can't pay claims because of financial problems.

Schwartzman said the cost of premiums is driven by the frequency and severity of claims against doctors, and right now "severity is the cost driver in the system."

Del Rosario says she's considering joining the new program, but hasn't made up her mind. Likewise Dr. Thomas Mauri, a Great Neck spine surgeon who is on the oversight board for the North Shore-LIJ risk retention group, hasn't decided if he'll switch from his current carrier, MLMIC.

"When the rates go up, I may well avail myself of this," Mauri said. "I'm just not sure it's right for me right now." "The [current] premiums are just prohibitive," said Peer of the state medical society. "People in those specialties [such as neurosurgery and obstetrics/gynecology] are frantic."

Dr. Mitchell Kramer, a Huntington obstetrician/gynecologist who pays $175,000 for malpractice insurance, was a member of the committee that explored the possibility of a risk retention group for North Shore-LIJ. Kramer said he needs to perform 64 deliveries to pay for his insurance.

"It \[the risk retention group\] is certainly a way of helping reduce our premiums," Kramer said. But he expressed concern that the new coverage of current malpractice insurers and "has the potential to go bust or not have enough funding."

Even North Shore-LIJ President Michael Dowling concedes the risk retention group will not solve what many doctors see as a malpractice crisis -- that a systemic change in the way medical liability cases are settled will be necessary to reduce costs.

But he says the risk retention group will be able to offer short-term relief.

"If it's successful, we'll keep on building it," Dowling said. "This was not intended to fix the malpractice crisis. It's meant to be a practical solution, not an ideal one, for the larger problem."