The Atlanta Journal-Constitution: 10/7/02

Grady makes $15 million bet: Huge malpractice deductible reflects squeeze

By ANDY MILLER

Atlanta Journal-Constitution Staff Writer

One rural hospital, Evans Memorial in Claxton, decided to "go bare" -- have no coverage at all -- instead of paying what it considered an exorbitant premium.

Only one insurer offered a malpractice policy for the hospital and its nursing home, and the annual premium for $1 million coverage would have been $581,000, up from $216,000 last year.

"We just thought it was outrageous," said Eston Price, Evans Memorial administrator.

Then there's the largest hospital in the state, 953-bed Grady Memorial, whose health system has bought a new policy -- with a deductible of $15 million -- covering the hospital, a nursing home and clinics. On each paid claim below that mark, Grady is responsible for every dollar. The $15 million deductible starts again with each claim.

"Grady faces open-ended liability," said Timothy Jefferson, Grady Health System executive vice president and chief counsel. "The worst case would be a lot of claims under the $15 million mark. We pay that out of operating funds. We don't have reserves."

The two hospitals have reached perhaps the extreme of the medical malpractice insurance squeeze, in which hospitals are paying more for less coverage.

The malpractice problem has erupted nationally as insurers have withdrawn from the market, and hospitals, doctors and nursing homes are struggling to find affordable coverage.

From 1999 to 2002, hospital liability insurance premiums, per occupied bed, rose from $3,536 to $9,797 -- an increase of 177 percent, according to Georgia Hospital Association statistics released last week.

And if the hospitals operate nursing homes, as do Grady and Evans Memorial, premium increases per hospital bed were steeper -- 105 percent in 2001, and 113 percent in 2002, GHA reported.

"These costs eventually are going to come back to the payer," said Holly Bates Snow of GHA. "The patient will have to absorb a greater out-of-pocket cost."

At least two other rural hospitals are considering dropping malpractice coverage, she said.

The state's physicians also are seeing premium hikes, though generally to a lesser extent.

The Medical Association of Georgia reports that premiums for these physicians rose 20 percent in 2002 and are expected to increase another 20 percent in 2003.

MAG, which has 6,700 members, is sponsoring a rally for doctors and other health care providers at the state Capitol on Nov. 15.

The American Medical Association has listed Georgia as among 12 states in crisis because of rising malpractice premiums.

The Georgia Chamber of Commerce has created a special committee to study he malpractice problem, and key legislators already are looking at the issue.

Tort reform is expected to head the health care agenda in the 2003 Georgia General Assembly, with physicians and hospitals -- pointing to data on rising jury awards -- backing a cap on payouts.

The leading malpractice insurer for Georgia physicians, MAG Mutual, says from 1995 to 2001, its paid claims of $500,000 or more rose from 17 to 31.

The Georgia Trial Lawyers Association agrees that a premium crisis exists.

"Doctors and hospitals are facing outrageously high premiums," said Bill Clark, lobbyist for the organization.

But Clark also said insurance companies, with stiff premium increases, "are trying to offset the money they banked on making in the stock and bond markets in the last two years."

Insurance reforms are needed to calm the market, along with incentives to bring more insurers into the state to boost competition, Clark said.

Grady had only one insurance company, AIG, offer coverage. Under its policy, which started in August, insurance covers any payout amount above $15 million and under $50 million. If it exceeds $50 million, Grady again starts picking up the tab at that point. And each claim also gets treated with a new deductible.

The annual premium cost for the current Grady policy is $5.4 million.

For a $5.8 million premium last year, Grady got a much lower deductible --$2.5 million -- and there was a limit for total malpractice payments at $13 million for the year, beyond which insurance covered. Jefferson said the amount of Grady malpractice cases "has been fairly steady over the last four to six years."

The malpractice situation comes at a tough time for the Grady system. Overall, it lost $6.4 million in 2001. From January through July of this year, it lost $15.1 million.

Evans Memorial's former insurance policy ran out Aug. 1. After evaluating the $581,000 premium for just $1 million in coverage, along with a $50,000 deductible, "We decided to take our chances," said Price, the administrator for the 49-bed hospital.