CORRECTED CORRECTED CORRECTED
ARIZONA STATE LEGISLATURE
RURAL PHYSICIANS STUDY COMMITTEE
Minutes of the Meeting
Wednesday, September 18, 2002
10 a.m., Senate Hearing Room 1
Members
Present:
Senator Marsha Arzberger, Cochair Representative Edward Poelstra, Cochair
Senator Edward Cirillo Dr. Jim Carland
Chris Cronberg Dr. Brian Grogan
Alison Hughes
Members
Absent:
Representative Mark Clark
Staff:
Pete Wertheim, House of Representatives Health Committee Analyst
Tracey Landers, Senate Health Committee Assistant Analyst
Chairman Arzberger called the meeting to order at 10:02 a.m. and introduced the members of the Committee.
Julie Keane, Senate Health Committee Analyst, explained that the charge of the committee is to: 1) examine federal and State programs relating to malpractice insurance pools and premium sharing; 2) examine the effect of the cost and availability of malpractice insurance on the practice of obstetrical medicine in hospitals and community health centers in rural Arizona; and 3) review any other information relating to the availability of obstetrical services in rural Arizona. The Committee is required to submit a written report of its findings and recommendations to the Speaker of the House of Representatives, the President of the Senate, and the Governor on or before December 31, 2003 and provide a copy of the report to the Secretary of State and the Director of the Arizona State Library, Archives and Public Records. The Committee is repealed on December 31, 2003.
Jim Dickson, Chief Executive Officer, Copper Queen Hospital, distributed a handout (Attachment 1) and provided an overview of the medical malpractice problem facing rural hospitals. He pointed out that the majority of rural Arizona is classified as a medically underserved area and a healthcare professional shortage area failing to meet minimum federal standards for patient physician ratios. He emphasized that access to healthcare is becoming a critical problem in many Arizona rural areas.
Mr. Dickson noted that hospitals have supported and subsidized physician practices because the rural hospitals and doctors servicing those hospitals are very much integrated. However, as hospital margins decline, they are unable to subsidize these practices.
Mr. Dickson explained that the national percentage of uninsured is 16% while Arizona's uninsured rate is at 23%, which means almost one in four patients does not have insurance. He added that when measuring the uninsured, it does not include the transient population crossing the Mexican border. He noted that Arizona ranks 17th in managed care penetration, which reduces income to the physicians because they must negotiate rates. The margin of uninsured and managed care causes suppression of physician income. When there are increases in expenses, physicians have no way to recoup them.
Mr. Dickson stressed that it was devastating when over 40% of the medical malpractice insurance carriers stopped providing coverage for Arizona in November, 2001. This forced hospitals and physicians to look elsewhere for malpractice insurance, causing them to pay huge sums for "tail coverage." In Cochise County, 80% of the physicians lost their malpractice coverage. He mentioned that hospitals have had to close their obstetrics departments and the surgery programs are also in jeopardy. There are only two remaining general surgeons in Cochise County. Many physicians have left the area because of the increases in the malpractice insurance.
Mr. Dickson emphasized that there are not enough healthcare dollars in the rural areas. There are too many uninsured, underinsured, and transient population wearing away at the physicians' normal base of income. He noted that there has been an inordinate growth in the use of emergency rooms, which is the most expensive way to give healthcare. He added that with decreased availability of physicians, the emergency room volume rose from 250 a month to over 550 a month during the last year.
Mr. Dickson next discussed their recommendations: 1) implement the various aspects of tort reform; 2) preserve Arizona Health Care Cost Containment System (AHCCCS) funding; 3) enhance primary care through federally qualified healthcare clinics (FQHC); and 4) continue lobbying the federal government. He referred to an attachment in his handout, the Medical Malpractice report issued by the United States General Accounting Office (GAO), which covers tort reforms in depth. He pointed out that the FQHC receives additional funding from the federal government. He suggested that the State should encourage more FQHC in the rural areas in order to assist physicians who cannot afford the malpractice insurance.
Senator Arzberger asked for a clarification that the FQHC are not receiving additional funds for border crossers. Mr. Dickson replied no, however, the federal government reimburses the physician at cost and is paid regardless of how many patients he gives care to. Senator Arzberger said that she was not aware that any of the border crossers were taken to an FQHC by border patrols. Mr. Dickson replied that is correct, the border crossers actually are walk-ins. The border patrol does not take anyone to a clinic because the individual would be in custody and they would have to pay.
Senator Cirillo questioned if Cochise County has benefited from the University of Arizona (UA) scholarship program. Mr. Dickson responded that he was not aware of any benefit from that program. He added that it is extremely difficult to recruit in the rural areas because of the adverse climate. Admissions in both hospitals in the area are down by 50% and the hospitals are financially in jeopardy.
Senator Cirillo indicated that the Arizona Trial Bar is flush with money supporting legislators who will block tort reform. He emphasized that he has supported tort reform for many years and feels it is important to pursue or the State will face many problems.
Mr. Dickson stressed that malpractice insurance is hurting Arizonans. The lack of physicians in healthcare will hurt more people and cause more damage to the health of Arizona citizens than any malpractice rights that are preserved. This is a critical issue that is getting worse.
Dr. Carland commented that he agrees with much of what Mr. Dickson has discussed; however, he feels these issues are not limited to the rural areas. Maricopa County falls well under the Bureau of Health Professional standards and the Graduate Medical National Advisory Committee levels for physicians per 100,000. Cochise County has more physicians per 100,000 than Maricopa County. Mr. Dickson responded that the problem with Cochise County is the mal-distribution of physicians.
Ms. Hughes indicated that there are a number of J1 visa physicians practicing in Cochise County and asked for an explanation of what a J1 visa physician is and how the malpractice issue is affecting their capacity to practice. Mr. Dickson replied that they have the same environment as all other physicians. There are specific areas of the State that are designated as medically underserved and healthcare professional shortage areas. The federal government will allow visas for foreign doctors to practice in those areas and will allow them to stay in America once they have completed their medical service under the J1 visa. Currently, there are two or three J1 physicians in Douglas and none in Bisbee. However, once they complete the J1 visa, they will leave the area.
Mr. Cronberg mentioned that he is aware that several of the hospitals in Cochise County have closed their obstetric programs recently and wondered what the burden has been on the Sierra Vista hospital and physicians. Mr. Dickson answered that the Sierra Vista hospital is overburdened and they are expanding their obstetrics unit. He mentioned that one specific problem in Cochise County is that there is no prenatal care given to mothers, with many babies born in emergency rooms.
Dr. Grogan asked if the FQHC are opened 24 hours a day seven days a week. Mr. Dickson replied no. Operation of the clinic is up to the clinic's board and administration. They can stay open longer hours which would alleviate the need for patients to seek healthcare in emergency rooms.
Dr. Grogan questioned if these programs are going to compete with private practice physicians. Mr. Dickson replied absolutely. Five to ten years ago, Cochise County had excellent healthcare availability; however, it has totally collapsed. He suggested that if the malpractice insurance premiums continue to increase, he does not know how physicians will be able to stay in business.
Dr. Mari Rowe, Copper City Physicians, discussed how the malpractice issue affects her practice. She explained that she has been a physician in Douglas for 16 years and has never been sued nor had any problems before the medical board. She indicated that she came to Douglas because she wanted to live and work in a small town and wanted to feel that she was helping people in an underserved area. She stressed that most doctors in these areas want to be there. She noted that malpractice issues have affected her in many ways over the years, not only in her daily decisions but on major concerns such as who she practices with and how. Her first practice was with one other doctor; however, that doctor was unable to pay for her "tail coverage." She spent ten years in a larger group of doctors where they could afford to pay the "tail coverage." Four years ago, she joined several of those doctors in forming their own practice and each year progressed financially. However, this year their malpractice insurance company decided to leave the state. Going to a new company increased their premiums and they had to pay the "tail coverage" from the old premium. It was extremely difficult to stay in business; however, with a small bank loan, they were able to do so. It now appears that their malpractice insurance will double again next year and they probably will not be in a position to pay it. They have been negotiating with the hospitals to assist them but they are unable to help.
Dr. Rowe pointed out that there is the federal program; however, most physicians are not happy working for them. Doctors need independence in their practice and want to make their own decisions, which is difficult in the federal programs. Another problem with the federal program is they heavily rely on nurse practitioners and physicians assistants. Most doctors feel uncomfortable working with the clinic's level of unsupervision of the nurse practitioners and physicians assistants.
Dr. Rowe indicated that aside from the financial concerns, there is a day-to-day affect of malpractice on how she practices. There have been many changes in medicine since she began practicing. Managed care and insurance changes have occurred, patients' expectations have changed, and doctors expect more free time. She commented that the problem with malpractice is not the fact that if she does something wrong, she has to pay for it. That is understandable. However, there is an arbitrary sense to malpractice that may occur even when a physician does not do anything wrong.
Dr. Rowe concluded that she does not see malpractice as an insurmountable obstacle that cannot be overcome. However, this is the first time she feels that she may not be able to continue to practice in Douglas. She stressed that it is an obstacle that she is not able to conquer on her own and needs the help of the Legislature and malpractice industry.
Ron Malpiedi, Vice President and Chief Operational Officer, Mutual Insurance Company of Arizona, (MICA), distributed a handout (Attachment 2) covering basic insurance principles. In response to Senator Arzberger's question, he noted that there are several malpractice carriers in Arizona. However, MICA insures 75% of the doctors in Arizona.
Mr. Malpiedi next discussed income and expenses of malpractice insurance carriers. Currently, overhead expenses are increasing and the investment incomes are decreasing. To date, MICA has been able to control their overhead costs. Reinsurance costs have significantly risen. Reinsurance costs are the costs for reinsuring what the primary carriers purchase to cover limits in excess of their retention. Reserves have increased, potential dividends have decreased, and claims indemnity and expenses have risen.
Mr. Malpiedi referred to several graphs and charts in the handout which shows the outcome of malpractice cases closed in 2001 and how they affected MICA. However, other things also affected the industry: 1) price competition resulted in inadequate premium and inadequate reserves for many companies; 2) growth in poorly understood markets added to loss severity; 3) stock companies were unable to generate the rate on equity sufficient to maintain stock prices; and 4) change in tort reform laws in some states created loss costs not contemplated in the rates.
Senator Cirillo asked what percent of cases are responsible for the increase of losses because of class action lawsuits. Mr. Malpiedi replied that he is unable to answer that question; however, he is aware that more defendants have been added to cases they have encountered. A jury's rendering of high dollar settlements drags many of the other losses to similar levels.
Mr. Cronberg questioned if rates are set based on a physician's individual practice. Mr. Malpiedi replied that they use Arizona specific data to set rates, reviewing the total loss pool by specialties.
Ms. Hughes mentioned that the Committee has heard from Dr. Rowe that her insurance had increased from $35,000 to $120,000 which is a dramatic increase. She questioned if MICA's losses are so high that such a huge increase was applied to the doctors across the board. Mr. Malpiedi replied that Dr. Rowe's insurance is with another carrier and he cannot address the issue. He indicated that the Department of Insurance (DOI) approves and oversees MICA's rates.
Mr. Cronberg asked if there are some type of controls in place monitoring how much a carrier can increase their premiums. Mr. Malpiedi replied that DOI evaluates the company's actuarial studies, reviewing any rate changes.
Dr. Grogan questioned if MICA anticipates any rate increases in malpractice insurance in the next five years in the rural areas. Mr. Malpiedi answered that he feels the overall rates will be going up. He indicated that they do not have a differentiation between rural or urban.
Representative Poelstra referred to the losses from lawsuits and questioned if there is any data available. Mr. Malpiedi replied that he could provide that information after the meeting.
Beverly Mahlmann, Chief Executive Office, Arizona Family Care Associates, explained that her association is a group of multispeciality physicians who serve Douglas, Bisbee, and Sierra Vista. The malpractice crisis hit the group in September, 2001. Their carrier left the State and they had to go to another carrier - American International Group (AIG). The previous premium was approximately $400,000; however, the new premium was approximately $900,000 and they had to pay a "tail coverage" of $800,000. She indicated that without tort reform, the availability of health services are in jeopardy. She also pointed out that Arizona businesses rely on "snowbirds." Without sufficient healthcare, "snowbirds" will no longer come to Arizona which would be a great loss of revenue to the State. She stressed that as long as there are no controls over payouts in lawsuits, the malpractice crisis will continue. She added that her organization worked diligently on eliminating risks; however, that is not enough. The issue is how much is paid out in a lawsuit. The current system provides an incentive to file a lawsuit because in most cases, something is paid to the patient. She indicated that she will be disappointed if healthcare becomes unavailable to Arizona citizens because of the lobbyists. Other states have found a way to work around that issue and Arizona should also.
Ms. Hughes asked for the full name of the organization's carrier. Ms. Mahlmann replied that it is Lexington Insurance.
Bruce Hancock, Medical Indemnity Group, noted that he has been in the insurance business for 27 years and his practice is dedicated solely to the healthcare community. Three years ago there were 11 malpractice insurance carriers in the state; today there are three: 1) MICA is the predominate carrier; 2) Medical Protective which is owned by General Electric; and 3) The Doctors Company. He indicated that MICA has done one thing better than the other carriers which is to provide a stable rate structure.
Mr. Cronberg questioned what happens to a doctor who cannot find malpractice insurance. Mr. Hancock replied if a doctor has one claim, they might be able to obtain coverage from a substandard company.
Mr. Hancock noted that a number of current claims are filed because prenatal care is not being provided and if a problem occurs, the emergency room doctor is held liable.
Mr. Carland indicated that it was mentioned that carriers will not take a doctor with a single claim. He asked if that was true with MICA. Mr. Hancock replied that MICA looks at the individual doctors on a case-by-case basis.
Ms. Hughes asked that if a patient is served by a FQHC and something goes awry, who does that patient sue. Mr. Hancock replied that he does not know.
Representative Poelstra asked that staff research that issue and provide information to the Committee.
Vista Brown, Legislative Liaison, DOI, testified that rates are regulated under an open competition system. The statutory standard for these rates is that they cannot be excessive, inadequate, or unfairly discriminatory. By statute, DOI cannot find rates excessive unless they first find that there is not a competitive market for the rates. The only remedy would be to have prior approval of those rates. She also pointed out that they do have a law that allows DOI to create this thing which functions like an insurance company when there is no private market for that line of insurance. That law was opined by the Attorney General's (AG) office to be unconstitutional. A taskforce was formed to review these issues and determined that there are still some constitutional and practical problems about the funding mechanism within that law. She indicated that DOI is currently seeking an AG's opinion regarding that law.
Senator Arzberger suggested that the Committee establish two working groups. One to review the malpractice law options and recommend changes to meet the Committee's goals. The second working group will meet with doctors and hospital administrators to recommend changes that will improve the Committee's goals. Dr. Carland and Representative Poelstra will form the first working group and Ms. Hughes and Representative Poelstra will form the second working group. Senator Arzberger also ask if Representative Cannell would provide input to each of the working groups and asked if anyone else wants to participate, it would be greatly appreciated.
Senator Arzberger pointed out that the Committee's goals are to determine a method to reduce the loss of doctors and healthcare access in rural areas and to improve the rural areas ability to meet the obstetrical needs locally.
There being no further business, the meeting was adjourned at 11:55 a.m.
Respectfully submitted,
Carol Dager
Committee Secretary
(Tapes and attachments on file in the Secretary of the
Senate’s Office/Resource Center, Room 115.)
---------- DOCUMENT FOOTER ---------
Rural Physicians Study Committee
September 18, 2002
Page 1
---------- DOCUMENT FOOTER ---------