Executive Notes
Medical Liability Update: the Value of the SBCMS-NORCAL Partnership

By Linda Stratton, Executive Director

I want to provide you an update on our business partner, NORCAL Mutual Insurance Company, and what is happening in the medical liability insurance market.

In 1999, SBCMS endorsed NORCAL as the insurer of choice for our members. I asked NORCAL to help me develop this article and explain the key factors that affect physician premiums. The article also touches on some of the ways that SBCMS and NORCAL work together to provide value and service to you.

Why Are Rates Going Up?
According to a report released by the Congressional Budget Office (CBO) on January 8, 2004, medical liability insurance premiums rose by an average of 15 percent nationwide between 2000 and 2002. News headlines heralding a "Medical Malpractice Crisis" have detailed stories of patients driving hundreds of miles for medical treatment because high insurance premiums forced local physicians out of business. It seems like everybody from the paperboy to President Bush has something to say about the current state of healthcare in America. But what do these issues really mean for physicians?

While no one likes to pay more for their coverage, it is important to understand that rates aren't based solely on factors at the individual physician level, like claims loss experience or medical specialty. There are also broader environmental factors involved.

In its report, the CBO states, "evidence suggests that [medical malpractice] premiums have risen both because insurance companies have faced increased costs to pay claims (from growth in malpractice awards) and because of reduced income from their investments and short-term factors in the insurance market." National trial lawyer groups have tried to attribute rate increases to corporate greed or bad stock market investments. But for NORCAL this is not the case, and the "official" studies are bearing out what the company has been saying for years-there is a direct correlation between claims severity (the average cost to defend medical liability claims) and the premiums they must charge their policyholders to cover claims losses. While investment income in a robust economy provides cushion against swelling claims costs, when the economy doesn't perform well that cushion disappears and insurers have less income to subsidize physician premiums.

Unfortunately, claims severity in southern California is outpacing the state average, and this has resulted in significant rate increases for most of our members, regardless of which insurer they're with. However, by raising rates responsibly, NORCAL is managing through the difficult business climate to maintain their long-term financial integrity, which is critical for the availability of coverage for physicians in the current unstable market.

Consider some of the major industry events of the last two years. Farmers and St. Paul exited the national medical liability marketplace completely. Others have suffered rating downgrades by A.M. Best. By contrast, NORCAL has stayed its course, maintaining its "A" rating for the twentieth consecutive year in 2003. NORCAL physicians will never have to worry about the company closing its doors and leaving them stranded without coverage, as so many of your colleagues nationwide have experienced.

Cost vs. Value: the Benefits of Our Partnership with NORCAL
While the cost of your medical liability insurance is dictated by complex business and economic factors, what about the real value of your policy? What are your premium dollars actually buying you? Following are a number of ways that NORCAL strives to improve the practice environment for physicians and create value for their policyholders and our members.

Aggressive Claims Defense Strategies
NORCAL was created by and for physicians, and was born at the grassroots medical society level out of a spirit of partnership and physician advocacy. Nowhere is this more apparent than in their aggressive approach to claims handling. They understand that it's not just about paying claims settlements or jury awards; it's about preserving your reputation and good standing as a physician. NORCAL will never settle a claim for "nuisance value" or pressure you to settle even though the standard of care was met. There is no limit on what they will spend to defend you against a non-meritorious claim. In addition, they routinely invoke countersuit legislation to discourage and deflect frivolous lawsuits.

Local Medical Review Advisory Committee (MRAC)
The SBCMS-NORCAL partnership includes a Medical Review Advisory Committee (MRAC), which allows a panel of local peer physicians to determine the standard of care in medical malpractice cases. This ensures that decisions about standard of care aren't made solely by defense attorneys or behind closed insurance company doors. The SBCMS MRAC is co-chaired by Doctors Dennis Flynn of Redlands and Victor Ching of Upland, and is staffed by 22 SBCMS physicians representing multiple specialties throughout San Bernardino County. Also attending the MRAC meetings is a representative from NORCAL's Southern California Claims Office, as well as local defense attorneys who specialize in medical liability claims.

Representation of Our Members' Concerns
NORCAL is a mutual insurance company owned by its physician policyholders. Whether through NORCAL's yearly Customer Satisfaction Survey, Annual Meeting of Members or ongoing medical society representation, policyholders always have a voice in the direction of their company.

NORCAL also maintains a Board Advisory Committee that includes executives from several local California medical societies, and they regularly seek our input and feedback on issues that affect our members. This is typical of NORCAL's philosophy. They understand their origins in the local medical societies and strive to involve us in important policy decisions.

Legislative Advocacy
One way NORCAL and SBCMS fight to keep rates at a reasonable level is through tireless legislative advocacy on behalf of California physicians. In particular, we devote tremendous resources to defending and upholding the Medical Injury Compensation Reform Act (MICRA), which places caps on non-economic damages for patients and patients' families in medical malpractice cases. MICRA is under continual attack from trial attorneys and so-called patient advocacy groups. By supporting MICRA, we are working to keep jury verdicts low, which in turn keeps claims severity down and results in greater affordability of coverage for physicians.

Physicians Administrative Defense (PAD) Coverage
As you know, with the new HIPAA regulations that took effect in 2003, physicians are facing growing scrutiny from the government and third-party payers on issues of administrative fraud and abuse. NORCAL's Physicians Administrative Defense (PAD) Coverage protects policyholders from the devastating financial impact of administrative actions by paying for their defense costs. For members of San Bernardino County Medical Society, the $1,000 PAD deductible is covered. (If you file a PAD claim, contact SBCMS directly for details on payment of your deductible.)

Forging Solutions Through Partnership
If you have any questions or concerns about the issues discussed in this article, please contact me at 909-825-5090 and I will work with Andrew Pashman, NORCAL's Vice President of Sales & Marketing, to provide an answer or solution. Andrew joined NORCAL in June 2003 and has committed himself to strengthening the bond between the company and the local county medical societies. He and his staff will strive to assist us any way they can.

Contact NORCAL
Below is a list of the most common service contact numbers for new and existing NORCAL policyholders. NORCAL invites all policyholders who are SBCMS members to contact them with customer service issues.