AlumniBulletin - The University of Alabama at Birmingham

It’s a complex issue, and one that can be approached from any
number of angles. At its core, however, is the issue of tort reform.
Trial lawyers claim that patients shouldn’t be limited in the
amount of damages they can receive through litigation. Insurers
say they are forced to raise their premiums in order to protect
themselves against large jury awards that sometimes reach into the
millions. And physicians say they’ve been left footing the bill since
reimbursement rates are set and their escalating premium costs
can’t be covered by raising fees for their services.
One thing’s for sure, though: There is a crisis looming, and it
must be addressed before the health-care delivery system in this
country is seriously compromised.
UNDERSTANDING INSURANCE
While huge jury awards in medical-liability
cases are the main reason for the rise in premium
costs for physicians, there are other contributing
factors, according to Richard B. Morawetz, M.D.,
professor and director of the Division of Neurosurgery
in the School of Medicine at UAB.
“The insurance business is pretty straightforward,”
says Morawetz. “The insurance companies
collect premiums, and they invest those premiums
in the stock market in an effort to generate enough
income to pay claims with money left over—
which represents their profit.” The bull market of
the nineties resulted in lower insurance premiums
across the spectrum since insurers’ stock-market
investments were showing healthy returns.
But then three things happened. “First there
was a downturn in the stock market in 2000,”
says Morawetz, “and then 9/11 occurred in 2001,
and in 2002 there were severe floods in central
Europe,” explaining that because many insurance
companies are international, they are affected by
European financial conditions. “These three factors
resulted in a substantial reduction in the insurers’
reserves, and they had to increase their premiums
substantially to make up for that loss.”
Morawetz notes that he and his colleagues, as
physicians practicing at a major hospital and medical
teaching institution, share the frustrations of
doctors in private practice. “At the university, premiums
are paid by the departments on behalf of the
physicians,” he says, “but these fees still come out of
practice income, just as they do in private practice.”
Unlike automakers, for instance, who can pass
higher material or manufacturing costs along to
their customers, physicians are forced to absorb
the cost of rising insurance premiums. “Because
of the way reimbursement for medical services is
set up, physicians can’t just decide to charge more
for their work,” says Morawetz. “So the decline in
the stock market—along with high jury awards in
liability cases—caused premiums to rise to really
unsustainable levels. Many physicians around the
country are no longer able to afford insurance.
Some have decided to practice without insurance,
some have been driven into personal bankruptcy,
and others have simply left practice entirely.”
One way to correct this imbalance would be
setting reimbursement rates by the market, rather
than by third parties, Morawetz says. “There’s an
aberration right now in that these costs are being
borne only by physicians who simply can’t pay
them,” he says. “And if this issue is not dealt with
in the next two or three years, the national system
of medical care will begin to unravel.”
PATIENTS ULTIMATELY PAY
Of all the medical specialties and subspecialties,
neurosurgery and obstetrics and gynecology
are subject to the highest liability premiums.
Michael Poist, M.D., an OB/GYN who has practiced
in Tuscaloosa since 1991, has done his best
to keep his payments as low as possible.
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“Most medical liability companies offer continuing
medical-education courses that deal with
documentation and patient communication skills,
and you get a little shaved off your premiums by
attending,” he says. “But it’s not much.”
Even with this slight reduction, however, Poist has
seen his payments rise by about 15 percent in recent
times, and increases of as much as 30 percent reportedly
are on the horizon. He points out that the
American College of Obstetricians and Gynecologists
has issued a “red alert” for 13 states, and has placed
Alabama—along with five other states—in a “brewing
crisis” category. While this news certainly does not
bode well for physicians, Poist says the price will ultimately
be paid by patients.
“What many people don’t realize is that the
increased cost of liability insurance will eventually
translate to higher medical costs overall,” he
says. “And with physicians retiring early, or moving
to areas where premiums are lower, this will
have a dramatic impact on the patients’ ability to
access the medical care they need.”
Access is indeed the central concern, says J.
Noble Anderson Jr., M.D., an otolaryngologist
who practices in Montgomery. “If doctors are
going out of business because they can’t afford to
pay their liability insurance premiums, then who
loses?” he asks. “The patients do. That’s why it’s
a matter of access to medical care.”
Anderson points out that a private practice—and
some 85 percent of the physicians in Alabama are
private practitioners—is basically a small business,
with all of the associated expenses, such as salaries for
“There’s an aberration right now in that these costs
are being borne only by physicians who simply
can’t pay them. And if this issue is not dealt with in the
next two or three years, the national system of medical
care will begin to unravel.”
— Richard Morawetz, M.D.
employees and rent and utility costs. “Insurance is
factored into a practice’s overhead,” he says. “In
addition to having to pay more for insurance, utility
rates go up, the cost of living increases, and employees
want raises. As a result, physician practices are
having a harder time breaking even these days.”
One way in which some physicians are lowering
premiums—and thus overhead—is by deciding
not to perform certain “high-risk” procedures.
“Insurance companies attach different risk values
to different procedures, and every year they send
out a sort of checklist, and you indicate what you
do and don’t want to do on that list. That’s just
one of the ways they determine what your liability
coverage will cost,” says Anderson. “I practice
general otolaryngology, and I stopped doing facial