01:00 AM EST on Tuesday, December 28, 2004

THE BEST ONE can say about the latest major appearance of the personal-injury attorneys on The Journal's editorial page ("Don't cap R.I. malpractice-suit awards," by James P. Howe, Commentary, Sept. 1) is that it illustrates the need for Rhode Island finally to have a serious and honest discussion about the impact of litigation in health care.

Mr. Howe's essay, unfortunately, is too riddled with misstatements to serve as a good point of departure for such a discussion. For starters, take the misleading headline about capping awards. The fact is, there never was a bill before the General Assembly this year, or any other year in recent memory, that would have capped the size of malpractice settlements or awards.

Further, we know that Mr. Howe's statement "[i]n 2003 there was one medical-malpractice verdict in the state" is both factually false and largely irrelevant. It is irrelevant because the great majority of malpractice cases end up being dismissed or settled, rather than tried all the way through to a jury verdict.

Moreover, the statements that "[p]ayouts by malpractice insurers have been essentially flat for the last 20 years" and that "there have been no significant increases in payouts" are calculated to mislead the reader. Most people will read those statements as obviously meaning that the total amount of money malpractice insurers pay out each year has not gone up appreciably in a long time. But we know that is wildly contrary to the truth. So how can Mr. Howe make such a claim?

The trick is to realize that he can be referring only to the frequency of suits and the number of payouts, not to the size of those payouts. Focusing on frequency dodges the issue. Growth in the average size and total cost of the payouts is the principal factor driving up premiums, not so much the number of payouts. This is true not only in Rhode Island but generally across the country.

(See the U.S. General Accounting Office report of June 2003. In addition, data published by the U.S. Department of Health and Human Services indicate that Rhode Island is very much on the high side nationally, both in the frequency of suits and in the total amount of payouts: In 2001, Rhode Island was 12th highest of all the states in frequency, and 4th highest in the average size of payouts for settlements and verdicts.)

Mr. Howe is also careless with history. He states that the largest of the only two malpractice-insurance companies now left in Rhode Island came to town "approximately 20 years ago." In fact, that company has been here just 10 years. Further, he falsely asserts that this company -- a physician-owned and -directed mutual-insurance company called NORCAL -- won its market share in Rhode Island (currently about 40 percent) through "Wal-Mart-like" predatory pricing. The fact is that NORCAL Mutual has always been substantially pricier than the alternatives, not cheaper. NORCAL Mutual happens to be a quality insurer, one of only a handful of malpractice insurers left in the country that still have an "A" rating for financial strength and stability from A.M. Best.

Moreover, NORCAL Mutual has a reputation for settling fair claims quickly but staunchly defending doctors against unfair ones. Those unfair, non-meritorious claims are the great majority. National figures indicate that about 87 percent of so-called malpractice claims actually involve no malpractice at all. This helps to explain why many doctors are willing to pay more for NORCAL coverage. A doctor's professional reputation, after all, is a very precious thing. It also explains why the wrath of the trial bar is so focused on NORCAL Mutual.

It is also important to clarify that NORCAL Mutual came into Rhode Island 10 years ago not as a predator but as a white knight. In February 1994, NORCAL seamlessly assumed the entire book of business of an insurance company that was failing. NORCAL Mutual thus saved many hundreds of Rhode Island doctors and patients from an insolvency, and in the process naturally secured a substantial market share for itself in Rhode Island from day one.

In the bargain, Rhode Island got the first malpractice insurer it had seen in fully 19 years that had any A. M. Best rating at all -- let alone Best's top rating for financial stability and strength. It was a pretty good deal for Rhode Island, and it looks even better 10 years later, in the context of the current chaos in the malpractice-insurance industry. Many companies have abandoned markets all across the country, and many have been downgraded by A.M. Best in the past three years. Some have been downgraded multiple times.

Rhode Island, too, has lost most of its insurers. A few years ago, close to two dozen companies were offering medical-malpractice insurance here. At the start of last summer, there were just three companies left. Today, two remain. (The Rhode Island Joint Underwriting Association, by the way, is not an insurance company. It was created by the state to be the insurer of last resort, not a substitute for a voluntary, competitive market.)

When Mr. Howe asserts that insurance-company "greed is the sole culprit" behind rising premiums, we have only to ask ourselves: How often do companies walk away from good business?

The obvious answers to straight questions like that help cut to the heart of the matter and expose inconsistencies in the arguments advanced by trial attorneys to defend their status quo. It is no mystery why every last national and state medical society in America rejects the trial bar's assertion that insurance companies' management practices (rather than their well-documented losses) are the principal drivers of higher premiums, and the lawyers' view that tighter insurance regulation is therefore the ultimate answer (rather than the process reforms we really need for our liability system).

Every credible study concludes that the rise in malpractice premiums results from multiple factors (including the rising cost of reinsurance after 9/11 and the decline of the investment markets since the late '90s), but that the dominant factor is heftier payouts on individual claims.

Clearly, we must not neglect insurance regulation, and Rhode Island has not neglected it. Both the state Department of Business Regulation and the attorney general are to be commended for the intense and tenacious scrutiny to which they subject malpractice insurers' filings.

But regulation is obviously not enough. We also need to face the real numbers and the heavy losses, and we need to decide as a community how to reform a system that delivers slow and spotty justice to a few, at enormous cost to the many. That high cost comes not only in the form of expensive health care but also in the form of barriers to improving the quality and safety of health care, and in diminished availability of health-care services. (For example, not a single family physician in Rhode Island delivers babies anymore, and many obstetricians now do only gynecology.)

Mr. Howe and the trial bar are to be commended for publicly acknowledging that affordability of medical-malpractice insurance is a grave and growing problem for health professionals, hospitals and nursing homes in Rhode Island, and a threat to our health-care system. The next step is to acknowledge that the status quo is therefore unsustainable, and that everyone needs to participate in designing solutions. That is the discussion we need to have in Rhode Island.

Fredric V. Christian, M.D., is president of the Rhode Island Medical Society.