Friday, July 26, 2002 | 3:59 a.m.
WEEKEND EDITION: July 28, 2002
Whether state lawmakers will be able to curb rising medical malpractice insurance rates when they convene their special session Monday in Carson City depends on whether one asks doctors, lawyers or insurers.
Doctors say tort reforms that include caps on damages for pain and suffering will help drive down rates. Lawyers say changes in the legal system will do nothing of the kind. And an insurance-industry lobbyist says it depends on the economy.
Their perspectives differ because they disagree on what caused the rates to go up as much as 300 percent over the past year.
The Legislature expects to sort through the different perspectives and come to a conclusion on how to solve the medical malpractice insurance crisis in Nevada. Doctors' insurance premiums, particularly in Clark County, have gone through the roof in the last year.
Dr. Ikram Khan, like his colleagues, blamed the high rates on the increasing severity of jury awards and out-of-court settlements that favored injured plaintiffs. Khan, a Las Vegas surgeon, is the liaison between the Nevada Medical Liability Physicians Task Force and Gov. Kenny Guinn.
"The rates have gone up simply and clearly because of the very high jury awards that have gone up in the past couple of years," Khan said. "Six out of seven jury awards last year went over $1 million. The insurance companies have told us that for every $1 in premiums that they take in, they have lost $1.80 in awards."
But Las Vegas lawyer Dean Hardy, a former Nevada Trial Lawyers Association president, said the rates have gone up because investments that insurers relied upon for their profits went sour. He also blamed St. Paul Cos. of Minnesota, which abandoned its 60 percent share of Nevada's medical liability insurance market last year after allegedly keeping rates artificially low.
"There is no correlation between the civil justice system and the needs of insurance companies to raise their rates," Hardy said. "Insurance rates have increased across the country. The (legal) malpractice rates at our law firm have doubled and we've never been sued. How come we didn't hear about medical malpractice insurance being an issue until the last quarter of last year?"
James Wadhams, a Las Vegas attorney representing the insurance industry, said rates have gone up both because of increasingly higher malpractice awards and poor returns on investments. He also said insurers got hammered as a result of the Sept. 11 attacks.
"The insurance companies are saying, 'We've lost our butts in your state and we won't take on new business until we know what you're going to do,' " Wadhams said.
So what will happen to medical malpractice insurance rates if the tort reform passes?
Both Wadhams and Khan said rates would decrease over time depending on the size of the cap, if any, that is placed on damages for pain and suffering.
With a $250,000 cap, Khan said rates could drop 15 percent over the next six to 18 months. With a $500,000 cap, however, the rate decrease would be only an estimated 6 percent, he said.
Wadhams made calculations based on an assumption that the Legislature would adopt all aspects of the Medical Injury Compensation Reform Act passed by California in 1975. In addition to a $250,000 cap on noneconomic damages, he said the other aspect of any law that would lower rates is a limit on the amount of money a doctor has to pay for total damages based on the percentage of his liability as determined by a jury.
Based on those assumptions, Wadhams said that over the next three to eight years, a $250,000 cap would reduce rates by an estimated 35 percent to 40 percent. A $350,000 cap would lower rates 20 percent to 25 percent, a $500,000 cap would reduce rates 10 percent to 15 percent and a $650,000 cap would decrease rates 5 percent, he said.
"The lawyers want to focus on the economy, but they know that if judgments go up, the rates will go up," Wadhams said.
Doctors have argued that the average malpractice claim in Nevada jumped from $34,719 in 1986 to $193,000 last year, an increase they attributed largely to awards for pain and suffering. But Hardy disagreed, arguing that much can be attributed to rising health care costs.
Unlike Wadhams and Khan, Hardy said he believes there would be "zero" effect on insurance rates if lawmakers simply adopted tort reform.
Tort reform "hasn't worked across the country," Hardy said. "The rates will probably continue to go up until the economy turns around. Meanwhile, people's access to the justice system will be significantly impaired and patients will come to attorneys' offices and be appalled.
"It will be a rude awakening for people," Hardy said.
"Two years from now when doctors' rates continue to go up, will they ask for more tort reform and less access to the justice system?"
Wadhams said that tort reform helps lower rates because it makes it easier for insurers to predict what they will have to pay out in claims. Without the predictability produced by caps on noneconomic damages, he said insurers are forced to charge higher rates.
But Wadhams conceded that tort reform alone is not the only factor that would drive rates. He said doctors may be mistaken if they believe that adopting California's reform will lower malpractice premiums to the levels enjoyed by that state's physicians.
A key difference, he said, is that California has a lot more doctors, enabling insurers to spread costs.
"If you had 10 bad doctors, that would have more impact on a Clark County pool of 2,200 doctors than a Southern California pool of 25,000," Wadhams said.
The bigger wild card, however, is the economy. If the economy rallies, Wadhams said rates likely would decrease even faster than the estimates he worked up if Nevada adopted California-like reforms. But if the economy worsens, physicians are not likely to see the kind of rate decreases they hope tort reform produces, he said.
The vast majority of an insurer's investment portfolio -- typically 80 percent or more -- is tied up in low-risk government-backed bonds, Wadhams said. But with the nation's prime lending rate at historic lows, insurers have been getting scant returns on bond investments.
"If the economy is producing only a 1 percent return on investments, then more of your income has to come from premiums," Wadhams said. "When investment income increases, you can decrease your rates."
Whether Nevada physicians will be willing to ride out high malpractice insurance premiums until the effects of any tort reforms kick in is another matter.
"That is a question that remains unanswered," Khan said. "I hope there are only a small number of doctors who choose to leave."
Already, 29 physicians have closed practices and 14 others took "early retirement" because of skyrocketing premiums, according to the Nevada State Medical Association.
If the Legislature fails to pass tort reforms that doctors can live with, Khan said it would be easier for young doctors to move out than it would be for veteran physicians with established roots.
"It wouldn't happen overnight," Khan said. "It would be based on when each doctor's insurance comes up for renewal. You would see people leave over the next three to 10 months.
"Doctors are looking for stability in the insurance industry to save their practices. I would implore the insurance industry to come to the table and be part of the solution because they have been part of the problem."
But Hardy said a court challenge is inevitable if Nevada adopts a cap on damages for pain and suffering. Eight states have ruled that such caps are unconstitutional because of the limits placed on juries.
"The doctors have bought into the insurance industry rhetoric of 'the lawyers this, the lawyers that,' " Hardy said. "The numbers do not justify changes in the civil justice system."
Caps appear likely, however, because Guinn, Assembly Speaker Richard Perkins, D-Henderson, and Senate Majority Leader Bill Raggio, R-Reno, have all said so.
Although doctors have claimed at least one victory -- a special session has been called -- it remains to be seen whether they will feel victorious when the session ends.
There could be winners and losers in the political arena as well, according to Eric Herzik, a University of Nevada, Reno political science professor.
Herzik said Guinn and Perkins could come out looking good if a workable compromise is achieved. Guinn, a Republican, is already considered a prohibitive favorite to defeat Sen. Joe Neal, D-North Las Vegas, in this year's gubernatorial election.
"If nothing happens and I'm Joe Neal, I would ask why Guinn wasted all this money and nothing got done," Herzik said, referring to the special session's cost. "But Guinn will get helped if they hammer out something. Guinn will look like the bipartisan problem solver."
Perkins has a greater chance of reaping long-term benefits, particularly if he runs for statewide office in 2006, Herzik said. "It is in his long-term interests to come up with a viable solution."
Conversely, Herzik said the biggest losers politically could be liberal Assembly Democrats such as Majority Leader Barbara Buckley of Las Vegas, especially if they are viewed as being too close to the trial attorneys.
"Buckley and any of the other liberal Democrats have the most at risk," Herzik said. "In order to craft a balance, the people that will get gored are the trial attorneys."
But Ted Jelen, University of Nevada, Las Vegas political science chairman, said the medical malpractice issue is so complex he is not as certain there will be political winners and losers, at least as far as the November elections are concerned.
"It's all about rich people fighting about money," Jelen said.
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