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State changes malpractice tact: Insurance department using more outside legal help

October 17, 2005

The Indiana Department of Insurance has boosted the outside help it uses to defend its medical malpractice Patients' Compensation Fund after seeing a record payout this summer.

A staff shortage, concern voiced by providers and a ruling that could lead to huge damage sums all spurred the move, said Amy Strati, who oversees the fund as the Insurance Department's chief counsel.

"The provider community has clearly said to us, 'We want you using experienced [medical malpractice] attorneys on the complex issues,'" she said. "We've attempted to accommodate that without being frivolous with our money, either."

The department historically farmed out only about 10 percent to 15 percent of cases that involve a fund defense. But it slowly started increasing that percentage over the past year partially because the new administration of Gov. Mitch Daniels told them to try it, according to Strati.

"They're kind of questioning the status quo," she said.

The bulk of the fund defenses falls to two Insurance Department lawyers who usually handle about 50 cases apiece during each six-month payout period. But the number of cases sent to outside help has risen past 30 percent recently because the department is down an attorney, Strati said.

The department is playing close attention to how this higher percentage works out. Strati said she wants to know how much more expensive it will be and whether it leads to better settlements.

"That's a bit of a blip, so we're also using it kind of as an experiment," she said.

Providers say the compensation fund has held malpractice premiums under control and kept doctors from fleeing the state.

The state created the fund in 1975 as part of the Indiana Medical Malpractice Act to help insurance companies remain solvent and to keep premiums stable by paying some of the damages awarded in a case.

Indiana is one of a dozen states with some sort of patient compensation or excess coverage fund, according to the American Medical Association.

In Indiana, doctors and health care providers pay a surcharge to their insurers, which then turn the money over to the Insurance Department to maintain the fund.

It pays for damages such as lost wages, medical bills, pain and suffering, and emotional distress.

Indiana caps the damages victims can recover in malpractice cases. The total, which has risen over the years, currently stands at $1.25 million. Of that, insurers pay the first $250,000. The fund covers the rest.

Twice a year, the fund doles out payments. Over the past few years, those have ranged anywhere from $36 million up to the $58.8 million record paid last July.

Strati said the number of claims has remained stable, but more awards are falling under the new, larger cap of $1.25 million, which covers cases filed since 1999.

Doctors also saw the surcharge rate they pay to the fund jump 73 percent in 2003, and hospitals saw theirs rise about 60 percent, the first hike in several years. The state had to boost the rates again earlier this year, and they will rise another 10 percent for doctors and 16 percent for hospitals in 2006.

Concern about payouts started surfacing after the rate increases hit providers, according to Mike Chrysler, director of insurance initiatives for the Indiana Economic Development Corp. He's heard from a few doctors around the state.

"Before, things were so reasonably affordable for the docs, nobody was raising much of a fuss about the payouts," he said.

Some Indiana State Medical Association members met with Strati last month to talk about the fund and how it was defended.

"We notice that it seems to be a significant amount of [the case payouts] go to the upper limits of the fund itself," said Dr. Bill Mohr, a Kokomo family practice physician and the association's immediate past president.

The Patients' Compensation Fund only needs defending when both sides of a case start talking settlement, which means the vast majority of cases.

A lawyer representing the malpractice insurer launches settlement talks and then negotiates up to $250,000 in damages for cases filed after the cap was raised in 1999. If the plaintiff wants more, he or she has to sue the Patients' Compensation Fund.

Insurance Department lawyers then look at the case and try to determine whether they should take it or farm it out. If the damages are clear-cut or the department's lawyers have experience in that area, they take over, Strati said.

If it's more complex, they turn to outside counsel like the insurer's lawyer who handled the case from the start. The fund covers those legal fees.

The call to handle these complex cases may rise, thanks to a decision backed last year by the Indiana Supreme Court that essentially allows plaintiffs to claim more than one injury per case, Strati said.

For example, a Marion County judge in a recent malpractice case awarded a woman $650,000 for physical injuries and $750,000 for emotional injuries. Then the woman's husband received another $750,000 for his emotional injuries.

"Now, the plaintiffs are trying to figure out how many different ways they can find injuries," Strati said.

This potential for rising damage totals keeps doctors concerned. Mohr said his association had a productive meeting with Strati, and she was very helpful in explaining the department's moves. Still, they plan to keep an eye on payouts.

"We're still worried about it and still vigilant about it only because ... the fund has to remain solvent or essentially the entire medical malpractice act disappears," he said.
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