Vital Signs - June 2009

Is Nevada building another medical malpractice crisis?

by Steven Keltie

    Nevada doctors are currently facing multiple threats in the ongoing fight to keep their malpractice rates low, and many don’t even know it.

    Despite the relative calm in the insurance market since the state legislature passed malpractice insurance caps in 2003, the increasingly low rates should be a warning sign – not a blessing. Doctors shopping for insurance may chase the lowest price to their own detriment.

    Malpractice rates have been on an artificial downslide over the last five years because many insurance carriers are taking on excessive risk cutting their rates dramatically in order to expand market share. This is at the expense of the carrier’s own policyholders as eventually the company will be forced to raise rates substantially to pay for malpractice claims and stay afloat. The other option the carrier will have is to exit the insurance market entirely, leaving their members without coverage, and creating the potential for price gouging – again.

    Low rates and a competitive insurance marketplace create what is known as a soft market. These are soon followed by hard markets – periods when premiums are higher and coverage is more restricted. During hard markets, large insurance companies have more capital to buy more market share, which Nevada witnessed in 2000-2002 during the medical malpractice crisis and in 2001-2004 in the general liability market. With increased competition due to increased supply, prices fall, lax underwriting leads to a rise in claims and a weak investment market inevitably causes insurance companies to take advantage of the soft market to become less profitable. This cycle typically swings back and forth.

    Statistics indicate that premium dollars are now about 7 percent below consumer price index. As a result, reinsurers are leading the charge into a hard market by increasing their premiums as much as 15 percent. This, in turn, puts pressure on primary carriers to raise their rates to keep pace. By mid-2009, most insurance companies could see premiums increase substantially as a result.

    The protection of patient’s rights and the delivery of quality care is of paramount importance to healthcare.  This is achieved by the excellent doctors of our state providing excellent care.  The goal of providing this care would not be served well if doctors are forced to leave the state in droves.

Steven Keltie
Steven Keltie, Capstone Management Group