Philadelphia Reflections

The musings of a physician who has served the community for over six decades

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Medical Malpractice
The medical system is on the point of abandoning the city to escape abusive lawsuits. A series of observations about shared blame, ultimately assigns responsibility to the mistake of allowing this matter to be covered by insurance, thus creating a financial target.

Malpractice: Blame Insurance Companies?

Malpractice Insurance

Physicians are in a mood to dislike the insurance industry indiscriminately. Health insurance was once provider-dominated but now is employer-dominated. Since that didn't happen voluntarily, it's a grievance. With health insurance the main source of relentlessly squeezed physician income, insurance middle-men are an unfocused target of antagonism. Unfortunately, irritation unfairly spills over to malpractice insurance, which however is an entirely different thing, run by an essentially different industry with its own principles and belief systems. There is one common historical feature, however. In both cases, health insurance and professional liability insurance, a health-related industry abandoned its field when it became unprofitable, and physicians then had to start their own insurance companies to cope with the resulting vacuum. When the insurance became profitable again, the commercial insurers wanted it back, and this annoying experience dramatized an essential conflict of attitudes. Physicians are in the medical business for life, in good times or bad; the sick are always with us. Businessmen, however, think it's normal economic behavior to drop unprofitable products. Since both sides stumbled into this situation without fully understanding its implications, it is not yet clear how to compromise two legitimate positions without disrupting an essential public service. If insurance will not play by our rules, perhaps we must reluctantly play by theirs.

{Blue Cross and Blue Shield}
Blue Cross and Blue Shield

We should examine the origins of provider-dominated health insurance, eighty years ago, some other time. In essence, however, physicians and hospitals started Blue Cross and Blue Shield because commercial insurers avoided the task. The commercial medical liability insurance industry, our present central topic, abandoned its field in 1974. By that time the cat was out of the bag, with physicians feeling endangered, or even prohibited by law, from practicing medicine without liability insurance. So physicians put up the money and started their own insurance companies, nick-named bedpan mutuals. That accidental foray into high finance put physicians on the inside of the industry's secrets, and very quickly put an end to their idea insurance companies were getting rich without taking big risks. We learned about premium cycles, and reserving philosophy, and dual systems (GAP and SAP) of insurance accounting. We learned appalling things about re-insurance, especially finite reinsurance. We learned about the politics of legislative insurance committees, and the politics of insurance commissioners. We learned, in short, that it's a cruel world out there, and that it's very easy to get lost in complicated details. Insurance companies create lots of problems, but we came to feel it was unfair to say malpractice insurance was unfordable because insurers were getting easy rich, that it was unacceptable to drive them out of business, and (quite unlike their cousin, health insurance) the solution to physicians' malpractice problem probably did not lie in reforming the insurance companies, however useful that might otherwise be. In fact, when the highly cyclic malpractice insurance industry just happened to be unusually profitable, the word "contraries" came up, and the day soon followed when I raised my hand and said, Let's just sell this company.

Originally published: Wednesday, June 21, 2006; most-recently modified: Sunday, July 21, 2019