Stories like these are not unique. Mitchell Wolfe, M.D., and Richard Parkey, M.D., two family physicians in Henrietta have stopped providing obstetric care, leaving their entire county without this service. The horror stories don’t stop with obstetrics. Physicians at every level and specialty are being affected, from neurologists to emergency medical personnel, from internists to general surgeons. An area that has been particularly hard hit is nursing home care.

Lloyd Van Winkle, M.D., a past president of TAFP, serves as the medical director for Harvest Care Center of Castroville, a 100-bed facility in the community where he maintains a private practice. He says he has not been insured in his capacity as medical director since February of this year, placing his family’s assets at risk, because he’s been unable to find anyone willing to write a policy for a physician serving as a nursing home medical director. He says he had been insured through the nursing home, but when the facility’s policy came due for renewal this year, the price was too high and the home had to drop its coverage.

“Well, I could certainly quit being medical director,” Van Winkle says, considering his options. “But if I quit being medical director, my community is without a nursing home, because nursing homes must have a medical director.”

This problem has become a statewide epidemic, according to Penny Anderly, executive director of the Texas Medical Directors Association, which estimates that over 45 percent of Texas nursing homes are operating without liability insurance. The Legislature has mandated that by Sept. 2003, all nursing homes must have insurance, a deadline Anderly doesn’t see as realistic. “The rates are so exorbitant that they simply cannot afford them,” she says.

“We are averaging three calls per week from nursing home medical directors and administrators unable to get medical malpractice liability insurance for the medical director role. In fact, now these doctors are being told by their carriers that not only will they not provide insurance for that role, but that if they continue to practice as nursing home medical directors, the carrier will not insure them in any capacity,” Anderly says. “We actually have reports from some small towns that they cannot even get a doctor … to come to their nursing home.”

Representatives of retirement communities and nursing homes came forth one after another voicing these same concerns at the Senate special committee hearing in August, describing how they had reduced resident services, cut staff benefits and laid off employees just to cover their increased insurance premiums. On that day, Sen. Jane Nelson of Flower Mound, chair of the committee, expressed the crux of the matter when she said, “The issue is, are the people of this state having access to the health care they need.”

According to a recent TMA survey, more than 50 percent of physicians are considering early retirement because of the current liability crisis. Like Dr. Garza, many physicians are dropping high-risk procedures to limit liability, and others are fleeing more litigious regions of the state, like the Rio Grande Valley.

 A national study by Harris Interactive says 79 percent of physicians order more diagnostic tests than they feel are necessary, thereby driving up the cost of health care. The same study says 51 percent of physicians report ordering more invasive procedures like biopsies than they thought were medically necessary. Eighty-three percent of doctors polled said they do not trust the justice system to achieve a reasonable result to a lawsuit, and 59 percent of physicians believe the fear of liability discourages open discussion of ways to reduce and evaluate medical errors.

 The Texas Department of Insurance reports that at least 12 insurance carriers have pulled out of the medical liability market in Texas, leaving just five including the JUA to cover Texas physicians. José Montemayor, the state’s Commissioner of Insurance, says these withdrawals have left more than 6,400 doctors looking for coverage. Under his direction, the JUA has increased the number of physicians it covers more than 10 fold, but he says the JUA doesn’t have the capacity to take care of everyone.

According to TDI, medical liability carriers in Texas lost $229 million in 2000, up from $103.5 million in losses in 1999. Montemayor says these losses are driven primarily by increases in the frequency of malpractice claims and the severity of jury awards in malpractice cases. In the Rio Grande Valley, claim frequency is the main problem. Seven out of 10 doctors in the Valley have had claims filed against them, according to the Dallas Morning News, and the total number of claims filed in that region last year increased 60 percent from the year before, which was 60 percent higher than the year before that, says Montemayor.

Officials with the state’s largest medical liability carrier, Texas Medical Liability Trust, say well over 80 percent of claims filed are closed with no indemnity paid, but defending against even the most frivolous of claims costs money. Each claim costs an average of $10,000 to defend.

In the rest of the state, the severity of jury awards and settlements drives premium increases. According to a study of TDI’s closed claim reports by the Texas Alliance for Patient Access, the average medical malpractice verdict in Texas rose from $472,982 in 1989, to $2,104,653 in 1999. Jury Verdict Research, a research institution in Pennsylvania, reports that the average jury award across the country for medical malpractice tripled to $3.5 million from 1994 to 2000.

In this unpredictable and volatile environment, insurance companies say they haven’t been able to make a profit, so they have either raised rates dramatically or they’ve pulled out of the market. “For all measures of profitability, including underwriting profit and return on net worth, Texas ranks last over the 10-year period of 1991 through 2000,” Montemayor said in a written statement to the Texas House Committee on Insurance this May. “Under these market conditions, it will be very difficult for Texas to retain or attract medical malpractice insurers.”

At least some of the blame for the current crisis can be placed on the boom-and-bust tradition of underwriting cycles. Under-writing is the process by which insurance companies adjust premium rates based on an assessment of current losses and projected risk. When market conditions are favorable, many companies come into the market. Underwriting guidelines are relaxed and companies take on more risk while competition keeps rates down.

Some companies price their products too low and find that their premiums don’t cover their losses, so they leave the market. Other companies raise rates to make up for losses and seek ways to limit future risk. In this way, the market transitions from a soft market to a hard market, and it has happened at least a few times to the Texas medical liability market.

When the market hardened in the 1970s, rates shot up as much as 400 percent. The crisis resembled the current situation, as family physicians in rural areas stopped delivering babies and many physicians retired.

Like the present, Texas wasn’t alone in its woes. California faced similar rate hikes and restricted access to health care. In 1975, California passed tort reform legislation that many today consider to be the model for a solution. The centerpiece of California’s Medical Injury Compensation Reform Act was a $250,000 cap on non-economic damages. Insurers say this measure allowed them to more accurately predict future losses thereby stabilizing the market. From 1976 to 2000, liability rates in California have increased 167 percent, while rates in the rest of the country have gone up 505 percent, according to the National Association of Insurance Commissioners.

In 1977, Texas passed legislation very similar to MICRA that was called the Medical Liability and Insurance Improvement Act. It was codified as Article 4590i of the Texas Revised Civil Statutes, and though the courts have altered it over the years, much of MLIIA still stands as state law. However, the component of the law physicians and insurers had hoped would bring stability to the market, a cap on damages, was struck down as unconstitutional by the Texas Supreme Court in 1988.

The Court held that it was unreasonable to limit an injured party’s recovery for damages in an experiment to see if such a cap would keep insurance rates stable. The Court also held that restricting damages with no regard for the magnitude of the injury was arbitrary and so the plaintiff’s constitutional right to seek redress through the courts had been denied. The case on point is Lucas v. United States, and in a concurring opinion, one justice said the damage caps could have withstood scrutiny if some alternative remedy had been offered, like a compensation fund for catastrophically injured plaintiffs.

 In 1995, the Legislature moved forward with several tort reform initiatives aimed at reducing frivolous or non-meritorious lawsuits. Tort reform had been an election issue in George Bush’s campaign for governor and once he took office, those reforms were at the forefront of his legislative agenda.

“The stars were aligned for reform,” says Tom Banning, TAFP Director of Legislative Affairs. “At the end of the day, the Legislature made significant changes to tort law in the areas of punitive damages, joint and several liability, cost bond and expert reporting requirements.”

As the legislative session wound down, expectations for a decrease in insurance premiums were high, though the carriers couldn’t say what the effects of the reforms would be. “That didn’t stop the Legislature,” Banning says. “They went ahead and mandated a rate rollback on all regulated lines of insurance.” This measure essentially forced all carriers including those not regulated by the state to drop their rates to stay competitive.

While many probably welcomed the rollback, some say it only exacerbated the problems facing the market today. TMLT officials wrote in a letter to policyholders that the rollback resulted in insurers receiving less premium income while the long-term benefits of tort reform had not been realized.

When Rep. John Smithee of Amarillo, chair of the House Committee on Insurance, addressed a gathering of physicians at the TMA Summit in September, he acknowledged that another rollback is a possibility, but that such a measure would make it even more difficult to attract more liability carriers to the state. “We need to get carriers back into the market,” Smithee said.

“We understand what the problem is … and the Legislature is going to be committed to finding a solution,” Smithee told the crowd before pointing out something many physicians wish weren’t the case. “If the Legislature makes changes to the tort system, it’s going to take time to see these changes come to fruition in the form of lower rates for malpractice insurance.”

At this summer’s TAFP Annual Session, talk of the liability crisis dominated policy discussion. “According to the most recent TAFP member survey, the greatest challenge facing family physicians today is the increased cost of running a practice while contending with the slow pay, low pay, no pay tactics of the managed care companies,” Banning says. “The major component of this increased cost is medical liability insurance.”

TAFP President Robert Hogue, M.D., appointed a task force to advise the academy legislative staff on reform proposals. Banning says the task force will address professional liability reform on three fronts: the tort system, the adequacy of insurance underwriting and claims practices, and professional discipline for physicians.

“In considering what tort reforms to support, the academy is trying to determine which are the most efficacious and sustainable reforms that will ultimately lead to decreased premiums,” Banning says, adding that for a long-term impact on premium costs, research shows that caps on non-economic damages is the most effective.

According to TDI and liability carriers, the severity of jury verdicts is the leading cause for the rate increases physicians are now experiencing, and at the heart of the severity issue lies the problem of non-economic damages. These damages include pain and suffering, inconvenience, mental suffering, loss of companionship, loss of consortium and other damages that cannot be quantified financially. Since 1990, there has been an explosion in the amount of money juries award for these damages. In 1990, non-economic damages on average accounted for 35.7 percent of a jury verdict, according to a study of TDI closed claim reports. By 1999, that number had risen to 65.6 percent. From 1989-99, the average award for economic damages increased from $230,829 to $364,126, while the average award for non-economic damages more than quadrupled, going from $318,666 to $1,379,203.

Non-economic Damage Cap
The most important tort reform that could be passed would be a $250,000 cap on non-economic damages, Banning says. Like in California, this would allow underwriters to better predict losses creating a more stable market. However, given the Texas Supreme Court’s ruling in Lucas, there is a constitutional hurdle cap proponents will have to clear.

“We’re exploring a number of avenues to ensure that any cap on non-economic damages will be constitutionally sustainable,” Banning said. Various cap proposals focus on three areas 1) passing legislation similar to that which was passed in 1977 and asking the Court to reconsider the previously overturned law in light of new, more compelling information regarding an erosion of access to care; 2)  passing legislation that would provide a quid pro quo or tradeoff to the public for limiting the amount of damages one could recover; or 3) passing a constitutional amendment.

Scheduled Payments
Another tort reform TAFP will be advocating would allow damages to be paid over time according to a schedule. This way injured parties receive the award as they need it, and should they die before the end of the payment schedule, the remaining payments would be cancelled. According to TMA, scheduled payments are “beneficial in stabilizing insurance premiums while still ensuring that appropriate compensation is available for the injured party.”

Collateral Source Reform
Under current law, defendants may not enter into evidence a plaintiff’s sources for financial recovery. For instance, if a health insurance policy covered part of the medical bills for a plaintiff in a medical malpractice case, the defendants can’t argue that economic damages should be limited to what the plaintiff actually paid out. Juries therefore award more money than the defendant needs to cover the economic loss. Allowing this information could help reduce the severity of claims.

Expert Witness Reform

The 1995 expert witness reforms required a lawyer who was filing suit to provide an affidavit of an expert witness or post a $5,000 bond before a case could move forward. However, the reform also gave judges discretion to waive deadlines or accept questionable affidavits.

“In parts of the state, some judges are taking advantage of their judicial discretion and are extending the life of non-meritorious cases, which drives up expense costs,” Banning says. “We need to close the loopholes and remove judicial discretion.”

Sliding Scale on Contingency Fees

Many believe that by setting limits on attorney contingency fees so that lawyers get a smaller percent of awards as the total amount climbs, attorneys will have less of an appetite for taking frivolous cases. Also, this measure would ensure that injured parties get to keep the majority of what a jury awards them.

In addition to these specific tort reform measures, Banning says other reforms could focus the adequacy of statutes affecting underwriting and claims practices of liability insurers. “Carriers could be required to file quarterly reports with TDI, so that we can see dangerous trends in loss ratios early on and deal with them in a more timely manner,” he says. Currently, insurance carriers are required to file closed claim reports with TDI and the Texas State Board of Medial Examiners annually. TDI could also be given expanded ability to review liability carriers’ rate setting to ensure that premiums are commensurate with losses.

“The third thing we’ve got to do is strengthen the Texas State Board of Medical Examiners so they can identify and deal with physicians who clearly shouldn’t be practicing medicine,” Banning says. Texas spends a little more than $5 million for the operation of the state’s medical disciplinary board, while California spends more than $39 million. One possible way to increase funding for TSBME would be to dedicate all physician licensure fees to the board.

As Dr. Garza from Uvalde told the Senate Special Committee on the Prompt Payment of Health Care Providers, many people in Texas are experiencing restricted access to the health care they need. Many rural areas don’t have access to obstetric care. Nursing homes are operating without liability coverage and their medical directors scramble to find their own coverage.

After Sen. Nelson listened to Insurance Commissioner Montemayor’s report to the Senate committee on Aug. 15, she asked him what would happen if the Legislature failed to take action. “A terrible denial of access to care for Texans,” he answered, “and that is what we cannot live with.”

To that end Banning adds, “Much like 1995, the stars are aligned for significant reform of Texas’ professional liability laws.  Both gubernatorial candidates are campaigning on the issue, the Legislature is keenly aware of the crisis, and physicians across the state are sharing their horror stories with their patients and the media.”

For many Texas physicians like Dr. Alvin Jones in Conroe, reform can’t come soon enough. These days, they’re working to keep the doors of medicine open. Until the Legislature has a chance to act, the question is for just how many Texans will access be denied.