Data for the Medical Malpractice Debate – 2012 Results for ISMIE

A June 24, 2013 story in Crain’s Chicago Business by Andrew Wang brings factual news relevant to the ceaseless arguments on whether there is or ever was a real medical malpractice crisis, and its scope. The latest news involves record "profits" at ISMIE, the Illinois mutual insurance company for doctors, and various other data. The factual sections are pasted below.

"By Andrew L. Wang June 22, 2013

Profits at the state’s largest medical malpractice insurance carrier reached a record $57 million in 2012, two years after the Illinois Supreme Court struck down a law capping damages in jury verdicts.

That’s not the doomsday scenario the insurance industry was predicting. Responding to the controversial 2010 ruling, ISMIE Mutual Insurance Co.’s chairman, Dr. Harold Jensen, said fewer frivolous lawsuits and flattening malpractice rates were “practical proof” that the $500,000 cap on non-economic damages had been working in the five years it was in effect (view the PDF).

ISMIE’s skyrocketing profits come during a prolonged soft market for the medical liability industry. Fewer claims have driven down premium revenue, but profits, buoyed by investment gains, have remained high.

By nature, the medical liability industry goes through cycles, but experts say the recent soft market has stretched into the longest in memory, helped along by award caps in some states, rising costs of pursuing cases and more stringent risk-management practices by doctors and hospitals, which have limited errors.

According to state filings, ISMIE’s net income in 2012 was its highest in at least 20 years. The company, which holds more than half the market in policies for independent physicians in Illinois, earned it even after committing a $17 million dividend to its 12,000 members. Rating service A.M. Best Co. of Oldwick, N.J., recently upgraded its financial strength rating for ISMIE to A- (excellent) from B++ (good). (View the PDF.)

The soft market means more competition among insurers and greater choice for physicians, who have benefited from deeply discounted premiums. Still, insurance remains a major expense of running an independent practice, and the Chicago area has among the highest rates in the country.

For internists in Cook County, ISMIE’s 2012 base premium, before credits or other adjustments, was $37,688 for policies with limits of $1 million per occurrence and $3 million per year, according to the Medical Liability Monitor‘s annual survey. The annual base premium for general surgeons was $98,888, and $138,484 for obstetrician-gynecologists.

LIABILITY LANDSCAPE

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Faced with few options and high rates, the Illinois State Medical Society’s physicians in 1976 started their own mutual insurance company. ISMIE and the medical society are separate organizations but share four board members and addresses in Chicago and Springfield.

The state Legislature in 2005 passed the $500,000 cap on damages for pain and suffering after a period of spiking rates in the early 2000s. The law was intended to tamp down lawsuits and reduce rates, but a spokesman for ISMIE says the limit had little effect on premiums because it wasn’t given time to work. The organization also argues that it’s too soon to identify any trends as a result of the high court’s 2010 decision.

ISMIE wrote $264.9 million in gross premiums in 2012, down 38 percent from the peak of $425.3 million in 2004. Meanwhile, the number of claims reported fell 22 percent to 2,716; claims paid were down 39 percent over the same period to 171; and the combined outlay for claims and defense costs fell 16 percent to $185.9 million, according to filings with the state Department of Insurance.

Despite the shrinking revenue, ISMIE has posted steadily increasing net income over the last four years and hasn’t seen a loss since 2002. Its investment income has topped $42 million in each of the last three years.

PAINFUL SCENARIO

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ISMIE declines to make senior officials available for interviews but says in written responses that it could be years before the true financial picture of 2012 is clear, because lawsuits can be filed years after a disputed medical outcome. When the insurer performs well financially, it pays back policyholders in the form of dividends that are credited to future premiums. ISMIE in May committed to pay $45 million in dividends to its members ….

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Since becoming a lawyer in 1983, Kirk’s over 30 years of practice have focused on advising a wide range of corporations, associations, and individuals (as both plaintiffs and defendants) on both tort and commercial law issues centered around “mass torts.”

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