Letters to the editor

Physician Executive, July-August, 2002

Dear Editor:

Physician-Owned Captives Offer Malpractice Alternative

A malpractice crisis? Yes. A surprise? No. Huge increases in malpractice premiums occur every 10 to 15 years. It is happening again. (The Physician Executive, March/April, 2002)

The last such "crisis" occurred in the late 1980s. During that time, physicians in Thomasville, Ga. realized that our premiums were increasing 20 percent to 30 percent per year in spite of a good claim history. We searched for an alternative.

In 1990 Georgia passed a captive law. TPA Captive Insurance Go, Inc. was chartered in 1991. The experience has been an overwhelming success.

The company was capitalized with approximately one year of premiums from each physician. One share of stock was issued for each dollar of capital contributed. Premiums were priced at competitive market rates, not the lowest or the highest.

When a physician leaves the company or retires, he or she redeems the stock as a long-term capital gain. The stock is now between $6 and $7 per share. Reinsurance is purchased for claims/expenses exceeding $200,000.

The fundamentals for a successful malpractice insurance company are:

* Solid underwriting-only including physicians who will work on effective risk management efforts

* Effective peer review at annual renewal of policies

* Effective risk management--up close and personal

* Efficient administration

* Compliance with regulatory statutes

* Aggressive reporting and management of claims

* Prudent, conservative investment of assets

* Proper domicile, preferably in the U. S.

Insurance is paying/receiving money for risks. Malpractice is a risk that can be managed. Why do some physicians get sued often and others rarely, if ever? Good medical care that is documented and communicated appropriately will never be sued, or if it is, it can be successfully defended.

A group of physicians who know each other professionally well enough to determine who is willing to work together to reduce the potential for claims could potentially form a captive insurance company.

It could be started with annual premiums between $600,000 and $1,000,000. Assistance will be needed to acquire a charter, partner with an appropriate reinsurer and provide reports to the appropriate insurance regulator.

The potential risks and benefits need to be clearly understood by each member.

Bill Thompson, MD, MBA

Physician Captives, LLC

105 Ashworth Drive

Durham, NC 27707

919/403-1357

billthompson.md@verizon.net

Managed Care Initiative Praised

The article by Paul Ellwood, MD ("Does Managed Care Need to be Replaced," The Physician Executive, January/February 2002), began a dialogue regarding the evolution of a health care model to replace the HMOs and PPOs of the 1990s.

Like many physician executives, I share his concerns about the "continuing unacceptable trajectory of the American health care system," and agree that "we need radical and comprehensive reforms, not minor ones."

Dr. Ellwood's revelation about the Jackson Hole Group's exclusion from the Clinton Health Reform debacles and their damaging impact on the idealism of health care leaders was quite enlightening, but not totally surprising.

The HEROIC approach that he proposes is very appealing:

* The not-for-profit emphasis seems to be more palatable than the present situation and many of us have advocated for the utility-like regulation of health care firms in exchange for malpractice and other protections.

* Evidence-based medicine is a necessary replacement of the old-style utilization review system as a means of controlling medical inflation because it makes both the health plan and the practitioner accountable for delivering the "right amount and type" of care.

* Americans need to assume greater responsibility in all aspects of their lives, including health care. The emphasis on healthy lifestyles and prevention combined with financial mechanisms such as defined contribution plans will go a long way to control demand for health care services. We may need some HIPAA relief in order to realize some of the benefits of information technology, but this should not be a major obstacle.

Just as Dr. Ellwood asserts "health policy is an ongoing social experiment, a trial-and-error process conducted in a constantly changing scientific, political, economic and increasingly ethical context," so too is the American form of government.

While incremental change is slow, it is really a form of trial-and-error. We may soon, however, encounter a crisis situation that will open a window of opportunity to implement the radical and comprehensive reforms that we need. Thankfully, we will be ready since Dr. Ellwood has a model upon which we can build.

Joseph T. Doyle, MD, EdS, MBA, MPH, MPA

MRO America, Inc.

PO Box 770208

Naples, FL 34107

239/248-6640