The Cost of Medical Care

The cost of medical care in the United States has been rising at a rate more than twice that of inflation. Preliminary estimates for total national health care cost for 1989 stand at $618.4 billion, up from $558.7 billion in 1988 (U.S. Industrial Outlook, 1989, U.S. Department of Commerce). It is predicted that health care costs will continue to rise by 10-13% annually for at least the next five years.

The price of health care has had far-reaching effects on the national economy. Health care insurance is a significant business expense: health benefits cost AT&T between $2 and $3 million per day; NYNEX Corp. claims that its employee health insurance costs have been rising at a rate of 20-30% per year; proposals to require employees to contribute to their health insurance premiums sparked strikes at NYNEX and Pittston Coal this year (Elias, 1989, pp. 40-41); and Chrysler Corporation estimates that health costs add $700 to the price of each of its cars (Bacon, 1989, p. A16).

In West Virginia the problem of rising health care costs is no less acute. Perhaps because of costs, over 300,000 West Virginians have no health insurance. In the last two years, Blue Cross/Blue Shield, the state's largest private health insurer, has raised the rates it charges employers 20-90% (Nyden, 1989, p.lA-12A). Of the 60 state hospitals in West Virginia, 35 are losing money (Oder, 1989, p. 5A). The Public Employees Insurance Agency (PEIA), which covers 90,000 state workers and 170,000 dependents, is chronically in financial trouble. An $85 million emergency loan was needed last summer to keep the PEIA afloat (Cost Crisis, 1989, 2B). PEIA director Sally Richardson has taken steps to control costs: increased deductibles paid by employees, freezing fees paid to hospitals and doctors (Senate Bill 576), and most recently, a proposal to require state employees to pay 1.5 percent of their gross wages for health insurance (Deutsch, 1989, p. 1 A).

On the national level, the Health Care Financing Administration attributes the rapid rise in the price of health care to many factors, chief among them:

-the use of sophisticated and high-priced equipment -increases in the variety and frequency of treatment

-innovative, but costly, treatment of some illnesses, such as

heart ailments, AIDS, and cancer

-increased longevity of the population

-the labor intensiveness of the health care industry and the

high earnings of professional, administrative, and techni-
cal workers (U.S. Industrial Outlook, 1989)

Many of these factors also apply to West Virginia. In 1987 West Virginia ranked 7th in the nation in percentage of the population aged 65 or older, contributing, as it were, to increased health care costs (U.S. Bureau of Census). The high cost and overuse of expensive technologies has also played a role in the state. A 1988 study by the Department of Community Medicine at the West Virginia University Medical School noted that there were 70 mammography units used to check for breast cancer in West Virginia. PEIA director Sally Richardson has stated that eight units could have served the state at current utilization rates (Oder, supra, 5A). A story in the Charleston Gazette in May told of the use of radial keratotomy, paid for by PEIA and costing $1,400 to $2,000 per eye, to correct myopia where eyeglasses could have done the job.

West Virginia also has many unique problems, one of which is its large rural population. Rural hospitals are often underutilized and expensive. In 1986, for example, West Virginia ranked 17th among all states in hospital beds per 100,000 of population at 589 (American Hospital Association), but 29th in occupancy rate. The problem is especially acute in the state's smaller hospitals. For the year 1988, Webster County Memorial reported a 9.8% occupancy rate for its 106 beds, Broaddus Hospital a 16.8% rate, and Braxton County Memorial a 22.7% rate (WV Health Care Cost Review Authority). The cost of maintaining unused beds contributes to the fact that West Virginia had the second highest ratio of hospital workers per 10,000 of population of all states in the nation.

Thus, it is not insignificant fiscally that West Virginia has a health employment rate of at least twice that of any of its neighbors and five times that of Pennsylvania.

The health care problem in West Virginia is also affected by certain lifestyle and environmental concerns. A study by the Northwestern National Life Insurance Company ranked West Virginia as the 35th healthiest state. Last Spring, East West Magazine reported that West Virginia had the 8th worst air quality in the nation, the 16th highest average level of radon in homes, was the 18th largest producer of hazardous waste, and had the 5th heaviest concentration of smokers in the nation (Wessels, 1989. p. 1 C). These factors, coupled with the state's low median income, contribute to high rates of cancer, heart disease, obesity, and other illnesses.

The Medical Malpractice Insurance Debate

In recent years, many health care professionals have attributed the high cost of medical care to the equally high cost of medical malpractice insurance. Is the cost of medical liability insurance a factor? If so, to what degree?

Proponents of the argument that high insurance rates contribute to the high cost of medical care would say that the numbers are on their side. For example, total malpractice premiums paid by doctors and hospitals rose 235% from 1980 to 1987 (Holthaus, 9-20-88, p. 49). In the period 1983 to 1985 alone, the U.S. General Accounting Office (GAO) reports that the premiums doctors paid jumped from $1.7 billion per year to $3.5 billion (Economist, 1-10-87, p. 51). The average medical malpracticejury award rosefrom $166,165 in 1974to $1,294,000 in 1987 (Jury Verdict Research). Thetotal number of malpractice claims has increased morethan fourfold in the 1980s.

On the surface such figures seem compelling, but closer scrutiny makes them less convincing. While it is true total premiums rose dramatically, it is alsotruethat the number of physicians increased significantly-22% from 1980 to 1986 and 70% from 1970 to 1986 (U.S. Department of Health and Human Services, Health Resourcesand Services Administration). Also on the rise was the number of physicians in highrisk specialties.Likewise, though medical liability premiums totaled $4.8 billion in 1987, total health care costs were $507 billion (U.S. Industrial Outlook), indicating that malpractice premiums represented less than 1% of the total national medical bill. Thus, though malpractice insurance itself is not an exorbitant proportion of total health care costs, its rapid rise and disproportionate effect on certain medical specialties and certain localities certainly might have a dramatic impact on the quantity and quality of health care in certain states.

On the other hand, rather than having a direct and proportional impact on overall health costs, malpractice insurance morethan likely has an indirect butstill substantial effect. Malpractice insurance rate increases are, of course, passed on to the patient, and this is a direct effect. However, the fear of being sued can cause physicians to prescribe supplementary tests and treatments that may not be necessary, except as a form of protection for the physician. In addition, the fear of lawsuits may cause physicians to restrict their practice to low-risk procedures, close their practices altogether, or relocate to where insurance costs and the fear of being sued are lower. For example, the August 1989 West Virginia Medical Journal contained an advertisement from Shenandoah County Memorial Hospital in Virginia that began with the entreatment: "Dear Doctor, come to Virginia where you'll find four distinct seasons and malpractice coverage you can afford." (Emphasis added).

Advertisements such as this could lead to a shortage of doctors through out-migration which, in turn, could raise the cost of physician services and lower the quality of medical care. Even now West Virginia has fewer physicans per 100,000 population than all surrounding states except Kentucky.

The Current State of Medical Malpractice Insurance

Medical malpractice insurance, of course, is designed to protect physicians from claims due to injury arising through negligence of an iatrogenic (physician-induced) nature.

Generally, the ideal insurance market consists of the pooling of a large number of homogenous, but independent, random events. It is those large numbers and the randomness of events that make it possible to predict the numberand cost of claims. Medical liability insurance lacks these qualities of "large numbers, randomness, and risk beyond the control of the insured" (Danzon, 1985). In fact, there are a relatively small number of policyholders, losses are not independent, and a few states or localities have the most claims.

Another factor that makes the medical malpractice insurance structure precarious is the level of claims. Whether settled out of court or by jury trial, awards are not uniform. Redress for the same wrong can vary from state to state and within a state. This is a ramification of the tort system which will be discussed more fully below.

Also of consequence is the fact that liabilityfor malpractice is not short-term and does not necessarily arise immediately after an act of negligence. This is known as the "long-tail," the length of time that may elapse after an injury occurs before a claim is settled (GAO, 1986).

It is these peculiarities that give rise to uncertainty and thus, tremendous rate fluctuations. Insurance companie'~ must build reserves deemed adequate for risks that are uncertain. One large award in such a small market could have a tremendous effect on medical malpractice insurance rates.

Medical malpractice insurance is provided to doctors and hospitals by a number of public and private organizations. Before 1975, the vast majority of this insurance was written by private insurance companies. Growth in the number of claims as well as the size of awards caused these companies not only to raise rates, but in some cases to curtail coverage or withdraw from the market altogether (Adams and Zuckerman, 1984).

Tofillthevoid created when private companies abandoned the industry in the mid-seventies, several new means of providing coverage were created, among them physicianowned carriers, self-insurance, Patient Compensation Funds (PCFs), and Joint Underwriting Associations (JUAs) (Furrow, Johnson, Jost, & Schwartz, 1987).

PCFs are funded by a surcharge levied against the premiums of health care providers and provide supplementary and high-risk coverage. JUAs are consortiums of insurers within ajurisdiction, in thiscaseastate. Theyare required by law to provide coverage to all health care providers in that state (Furrow, etal., supra). Physician-owned companiesare not operated for profit and at least initially provided some relief from rising insurance rates. Self-insurance isapractice predominantly limited to large hospitals with large earnings.

The 1970s also brought about a change in the type and content of the malpractice coverage written. Before the 1970s most malpractice insurance policies were occurrence policies, meaning the insurance company was liable for any incidents that occurred at the time the policy was in force. Today claims-made policies now account for over 50% of all insurance written. They cover the incidence of malpractice for which claims are made while the policy is in force, regardless of whether the insurer covered the insured at the

time of the malpractice (GAO, 1986). This lowers the company's overall liability because they are covering for a smaller period. Claims-made rates usually rise automatically for the first five years the policy is in force as the exposure of the company increases. To protect themselves from this "longtail," physicians must then purchase extra "tail" coverage specifically for such contingencies.

Ceilings on coverage have also been lowered in some cases. Whereatypical policy may have been $1/$3 million ($1 million per occurrence/$3 million per policy year) the coverage today is often lower, perhaps $200,000/$600,000, forcing physicians to buy another layer of coverage or live with greater personal liability.

The rise in the number of malpractice claims filed and the size of jury awards is due to many phenomena. For one, beginning in the 1960s, medical care became available to a greater number of people, thus raising the chances of negligence. Also important is inflation: the Consumer Price Index now stands at over320from a base of 100 in 1967.

Other driving forces are social or psychological. Expectations have risen regarding the ability of medicine to heal and cure, which leads to greater disappointment when medicine comes up short (Mechanic, 1975). In addition, there is an overwhelming belief in oursociety that (a) most wrongs have a reason, and (b) the individual patient is never wrong (Weinstein, 1988). Thus a less than perfect baby is seen not as the result of the mother's behavior, genetics, or even bad luck, but medical negligence.

There is also no agreed-upon or universal standard of care for many procedures orailments (Mechanic, supra). Different doctors follow different practices for the treatment of even basic injuries. For instance, some physicians say to stay off a sprained ankle for weeks, others recommend walking as soon as possible despite discomfort or pain. The wide spectrum of accepted treatments leaves the appropriateness of many physician actions open to interpretation (often by individuals who are not very knowledgeable-, e.g., judges and juries). The practice of lawyers charging contingency fees (the receipt of a percentage of any award tendered is usually 33%) is seen by some as a contributing factor in the proliferation of lawsuits.

All of this, of course, leads to suits and court action. Medical negligence is a tort, a "private or civil wrong other than breach of contract" (Black's Law Dictionary) for which the court will provide a remedy in the form of an action for damages. Because malpractice claims are handled through the courts, very little (less than 30%) of all medical malpractice premium dollars are received by injured patients (1glehart, 1986). The rest is consumed by administrative and legal expenses. Because of the stress and expense of litigation, there is also a tendency to agree to small settlements rather than fight them in court (Mechanic, supra).

Though malpractice insurance rates remain a concern of physicians and hospitals, today there is little of the hysteria and talk of a "crisis" that was prevalent in the mid-1970s and early 1980s. In April of 1988, Hospitals magazine pronounced the crisis overforthetime being based on aslowdown in rate increases charged to hospitals, from 35% in 1985 to 15% in 1987 (Hospitals, 4-20-88). As early as 1986, John McMahon, president of the American Hospital Association said, "It (malpractice) isvery clearly a crisis in some places, but it isn't a crisis in the hospital world" (Iglehart, supra).

The Insurance Information Institute reported that the cost of settling medical malpractice claims, currently at $4.1 billion, dropped by $100 million between 1987 and 1988 (Freudenheim, 1989). The reasonsforthis slowdown relateto the actions of doctors, the nature of the insurance industry (specifically the insurance cycle) and to the public policy initiatives undertaken to address the problem.

On the front lines, doctors, through the use of , defensive

medicine, better recordkeeping, and greater care in diag-
nosis and prescription, are making fewer mistakes (Iglehart,
supra).

With regard to the insurance cycle, it is important to note that insurance companies use premiums to cover losses due to claims against them. Profit, however, is made by investing those premium dollars. Investment income also provides protection against underwriting loss. Therefore, insurance companies tend to broaden coverage and/or decrease or stabilize rates during periods when investment (interest rates) returns are high. When interest rates fall and profit decreases, insurance companies contract their business, cutting back on coverage and raising rates to protect themselves against losses because they lack that cushion of investment income (GAO, 1986). This practice can be seen when trends in malpractice insurance rates are examined. Rate increases, for example, slowed in the early 1980s when interest rates were high; when interest rates dropped toward the mid-1980s, insurance charges shot up again.

Unfortunately, the ebb and flow of the insurance cycle does not necessarily lend itself to the same cycle in health care. Doctors usually do not and can not expand and contract their practices in a like manner. They do not leave a location or medical specialty when costs rise and then return when costs decrease. Once a doctor moves on or retires he or she is usually gone for good.

On other fronts, state legislatures nationwide have passed laws limiting juryawards, sharply curtailing damagesforpain and suffering, allowing periodic payment of awards, and placing limits on attorney's fees (Holthaus, 1988). New York State has even gone so far as to cap the rates insurance companies may charge (McFadden, 1988).

Even with all this effort in curbing costs, most knowledgeable persons in the health field believe that the current slowdown is only temporary and expect rates to rise again and coverage to become harder to obtain.

hospitals in the state are now self-insured, Though this total represents less than 2% of total hospital expenses, the cost of malpractice insurance was cited by administrators of 29 hospitals in the state as a reason for eliminating or curtailing the delivery of babies in those hospitals, according to an informal survey by the WVU Health Sciences Research Center.

Medical Malpractice in West Virginia State Rate

How West Virginia physicians feel about the state of malpractice insurance in West Virginia and how it has affected them was revealed in a survey conducted by the West Virginia State Medical Association in 1986. Some 1,033 physician members of the State Medical Association responded to the survey with the following results (West Virginia State Medical Association):

-70% said the malpractice insurance situation affected their practice

-44% of all physicians reported having been sued

-62% of all suits were settled out of court, 38% went to trial (the national average is 9%);

-in response to the threat of lawsuits, 56% increased defensive medicine, 40% reduced risk exposure procedures, 23% considered leaving the state, 18% declined to provide medicaid services, 14% reduced coverage to save premium dollars, and 14% limited new patient access.

The results were especially ominous in certain disciplines, particularly obstetrics, which will be discussed in greater detail below.

There are basically two groups affected byrnedical liability coverage: hospitals and physicians. While it is true that individual physicians bear the brunt of the malpractice premium burden, malpractice expenses and the ensuing liability can affect the type of services hospitals offer as well. Hospitals in West Virginia have experienced a dramatic rise in malpractice insurance expenses. As Figure 1 demonstrates, the cost of malpractice protection to the state's hospitals rose f rom $9.4 million in 1985 to over $20 million in 1987, a 113% increase, according to the Health Care Cost Review Authority. This increase is due in part to the fact that The environment for West Virginia physicians themselves has been improving in recent years and should improve further in the coming year. The rate of premium increases on a $1/$3 million claims-made policy overthelast 5 years and the projected increase for this year. The carrier Js the CNA Insurance Company, the largest medical malpractice insurer in the state.

The rate of increase has slowed substantially since 1985 and should remain stable in the near future.
Quotes are by the primary state medical malpractice insurer and represent the cost of a fully mature claims-made policy, $1/$3 million of coverage.

Though rates have stabilized in West Virginia, as they have throughout the region, the West Virginia rates do not compare favorably with neighboring states. West Virginia rates are greater in each class than Virginia and Kentucky, and, in at least one class (obstetrics), than Maryland, Ohio, and Pennsylvania. It is important to note that West Virginia has the lowest per capita disposable income of these states (49th in the nation) and also lower average incomes for physicians. Thus, West Virginia physicians theoretically are less able to absorb these malpractice costs.

What is it that drives malpractice rates and why are some states experiencing decreases while West Virginia to date has not? Intuitively, one would assume that rates are tied both to the frequency and the severity of claims. A 1986 study by Patricia Danzon for the Institute for Civil Justice of the Rand Corporation found several factors that impacted significantly on claim frequency and severity in the period under study. The most significant was urbanization. Danzon found that more claims were made and greater awards were granted in metropolitan areas than in rural areas.

Of course, West Virginia is largely a rural state with only 36% of its population residing in metropolitan areas. Conversely, Virginia, Pennsylvania, Ohio and Maryland each have over 70% of their population in metropolitan areas with Maryland leading the way at 93% (U.S. Bureau of Census). Thus Danzon's findings clearly do not apply to WestVirginia.

Danzon also found that certain tort reforms enacted through state legislatures have affected claim frequency and severity. Among them were: (1 ) cutting a year off the statute of limitations for bringing a suit, which on average, reduces claim frequency by 8%; (2) permitting or mandating the offset of collateral benefits which reduces claim severity by 11 -18% and frequency by 14%; (3) placing caps on awards which reduces severity by 23%; and (4) requiring mandatory arbitration of suits which increases claim frequency but reduces severity (Danzon, 1986).

Tort reforms can be broken down into four categories according to their intended purpose: (1) reducing the filing of claims; (2) limiting the plaintiff's award; (3) altering the plaintiff's burden of proof; and (4) changing the judicial role (Furrow, et al., 1987). A summary of the major tort reforms currently in force in West Virginia and the surrounding states is contained in Table 7 on the next page.

As the table shows, West Virginia has some form of five of the sixteen listed tort reforms. This is more than Pennsylvania (3) and Kentucky (3), but less than Virginia (7), Maryland (7), and Ohio (11). Despitethis, asshown earlier in Table 5 West Virginia still has higher average rates than Virginia and Kentucky in all malpractice classes, higherthan Maryland in two of four classes, and higher than Ohio and Pennsylvania in obstetrical coverage, while being comparable in the other three classes. This is not because West Virginia doctorsare morecareless or ineptthan doctorsfrorn other states. Nor does it mean that the state does not do a good job of policing its physicians, disciplining those failing to perform acceptably. Table 8, also on the next page, shows the number and type of disciplinary actions taken by state medical boards in 1987.

West Virginia and Kentucky each had 12 actions per 1,000 physicians in 1987, though West Virginia had a higher rate of serious disciplinary actions, 9.3 to 8.8. Virginia, Ohio, Maryland, and Pennsylvania followed overall with 6.0, 4.6, 2.7, and 1.8 disciplinary actions per 1,000 physicians, respectively.

Clearly there is something wrong when doctors from a poor, predominantly rural state are saddled with malpractice burdens equal to orgreaterthan those of doctors in wealthier and more urban localities. There are several theories as to why this is the case.

Jim Mahurin, a risk management and insurance consultant who has done research for the West Virginia State Medical Association, found that on the whole there are far fewer insurance companies offering liability insurance in West Virginia than in other states. With fewer companies, there is less competition and hence less incentive to offer competitive rates. St. Paul Fire and Marine Insurance Company, the largest private malpractice carrier in the nation, has only recently begun offering coverage in West Virginia again. This might help to bring rates down.

Another point that bears mentioning is the fact that the programs of Virginia, Ohio, Pennsylvania, Maryland, and Kentucky are physician- and/or state-run, while the primary medical malpractice insurer in West Virginia, CNA Insurance Co., is a private company. This is important because a physician- or state-run program, if well managed, might have the opportunity to be less expensive since there is no profit motive. Premiums and interest income could go towards claims only-, there would be no dividend payments, and premiums theoretically would be lower. Indeed, the West Virginia State Medical Association has a contingency physician-run plan on standby if the malpractice insurance climate deteriorates to the point where such action is deemed necessary.

Finally, though West Virginia has enacted tort reforms in the last five years, some argue that they are not the right reforms and do not go far enough. The West Virginia State Medical Association, for example, which represents about 80% of the state's physicians, recently submitted a proposal regarding tort reform for medical liability claims with the following prescriptions:

1. Eliminate the Collateral Source Rule.

2. Modify the statute of limitations to an absolute three years for adults (down from the current ten years) and for minors up to age six or prior to their 21st birthday, whichever comes first.

3. Provide periodic payments in awards over $250,000. 4. Require certification on merit of claim provisions~ 5. Seek removal of punitive damage awards. 6. Reduce cap to $250,000 on pain and suffering awards.

If enacted, these reforms could have an effect, even a dramatic one, on the size and number of medical malpractice awards in the state. There are, however, other circumstances that make the resolution of the malpractice situation in West Virginia especially complicated and, in a sense, much more urgent.

Uncompensated Care and Physician Liability

Perhaps the most outstanding negative feature of healthcare in West Virginia currently is the high degree of uncompensated physician service that is delivered. Uncompensated care is basically defined as charity care-care given gratis and/or resulting from bad debt-for which payment cannot be obtained. In addition, there is the problem of medicare and medicaid payments, which are paid to the physician at less than a rate of 100% reimbursement. According to Robert Harman, the Administrator of Grant Memorial Hospital, 50-60% of patients use medicare or medicaid for payment. Dr. Derrick Latos, President of the West Virginia Medical Society, says that 62.5% of all state physicians participate in the medicare program (WVU Health Sciences Center Conference, 10-23-89). Thus, in both instances, the situation in West Virginia in regard to uncompensated and undercompensated care is severe.

Interviews with officials of the West Virginia State Medical Association confirm that of $537 million worth of physician services delivered in the state in 1988, 26% or $142 million worth was uncompensated. That comes outto nearly $57,000 per physician for each of the 2,500 practicing physicians in the state.

The situation in hospitals is not much better. Income statements provided by the Health Care Cost Review Authority indicate that uncompensated care represented 8.3% of gross patient revenue for West Virginia hospitals in 1987 and 7.5% in 1988. The national average is 6%.

The situation in certain hospitals is especially acute. At West Virginia University Hospitals the rate of uncompensated care was 16.3% in 1987 and 13% in 1988.

The chances of physicians and hospitals avoiding uncompensated and undercompensated care are not good. Senate Bill 576, known as the Health Care Cost Containment Act of 1989, requires that any physician who treats a beneficiary of any state health plan (PEIA, worker's compensation, etc.) must also treat a certain percentage of medicaid and charity patients. The bill also imposes reimbursement caps for physicians treating the beneficiaries of state plans. With about 260,000, or over 14%, of state residents belonging to PEIA alone, the chances of avoiding the treatment of state patients are slim.

A comparison of West Virginia and surrounding states in this regard is shown in Table 9. As can be seen, West Virginia has a high percentage of state residents on social security and receiving public aid in 1987. Indeed, West Virginia has the highest percentage of all states in the region for both categories. This illustrates, of course, the higher degree of exposure to undercompensated care byWest Virginia physicians and hospitals.

What this situation-the high level of uncompensated care, requirements to take on undercompensated care, and stateimposed reimbursement limitations-creates is an environment where physicians see their incomes restricted while their liability increases. A doctor may besued for malpractice by a charity patient ora medicaid patientjust aseasilyas by a patient who pays the full rate in cash. These circumstances create a strong incentive for physicians to either (1) leavethe state to practice or (2) switch to a specialty where the risk of delivering uncompensated or undercompensated care is lowered. Unfortunately, taking such action will adversely affect the quality and availability of health care for all state residents, especially the poor.

Malpractice insurance rates, of course, are calculated on the basis of risk. The specialized nature of the medical procedure and the history or propensity forthere to be claims arising from such procedures figure into this calculation. Riskier specialties not only increase the likelihood of mistakes because of the hazardous nature of such procedures, but they often produce greater patient dissatisfaction with results, whether the physician or hospital is at fault or not.

Two such high risk areas are obstetrics and neurosurgery. As was shown earlier in Table 6, West Virginia doctors pay higher average obstetrical rates than doctors in surrounding states with the exception of Maryland, and higher average neurosurgery rates than Kentucky and Virginia. The situation for obtaining such coverage from the private insurer, St. Paul Fire and Marine, are even worse. Here we see that rates for West Virginia physicians in both specialties are significantly higher than those for surrounding states. In the cases of Virginia and Kentucky, rates are up to 150% higher.

The impact of these costs on the practice of obstetrics in thestate has been significant in recentyears.  As can be seen, the percentage of doctors practicing obstetrics has fallen from 6.8% to 5.7% of all physicians statewide. What is frightening, however, is what has happened sincethen. In ajointstudy by the West Virginia Hospital Research and Education Foundation and the WVU Department of Community Medicine, it was found that the number of obstetricians delivering babies in the state had fallen to 125 in 1989. The number of family physicians delivering babies declined from 130 in 1987 to 48 in 1989, a 62%drop. Reasonsgiven for leaving thefield varied, the most frequent being the cost of malpractice insurance (Pearson & Whitler, 1989). Other reasons given were the closure of hospital obstetrical units and inadequate medicaid reimbursement by the state of West Virginia. Although the state did raisethe medicaid reimbursement rate for pregnancy and delivery care in 1987 to $600, up from $300, this figure barely covers the cost of insurance alone. The situation is exacerbated by the fact that medicaid covers 58% of all births in the state. Again,the result is a situation where some physicians are being asked to expose themselves to greater liability while at the same time experiencing lower income.

Senate Bill 576 had a provision to partially protect physicians against loss of income. The legislation included a provision for malpractice coverage of $1 million per occurrence for physicians delivering medicaid babies (Simpson, 6-89). Keep in mind, however, that the range of jury awards for malpractice in childbirth have ranged from $20,000to $15 million in the last five years with an average award of $2,184,946 (Jury Verdict Research, 1988). In addition, there has been disagreement between the state and doctors over which coverage should take effect first: the state's $1 million per occurrence or the physician's own malpractice insurance. To make matters worse, there are no state funds available to finance the liability program.

The survey conducted by the State Medical Association noted earlier also reported the recent experience of the state's obstetricians, 78% of which report being sued in their careers. In responseto liability problems encountered, physicians have acted as follows: (West Virginia State Medical Association)

-36% reduced the number of risk exposure procedures performed -78% increased testing (defensive medicine) -58% considered leaving West Virginia -19% limited new patients -41% declined to provide medicaid services

It is important to note, as well, that though the number of physicians overall in the state has increased since 1980, the increase has largely been in the cities and in selected specialties (Pearson & Pratt, 1989). The West Virginia University Departmentof Community Medicine reportsthat28of 55 counties in the state in 1987 had no practicing obstetricians. This means that babies in these counties were, to a high degree, delivered in regional referral centers. This is not a negative trend as far as the safety of the actual birth is concerned, but it does mean that there is a dearth of local doctors available for advice and pregnancy monitoring. This is important economically, too. The cost of keeping 250 lowbirth-weight babies alive during an 18-month period at the WVU hospital in 1983-84 was $5.5 million, or $22,000 per baby (Pearson).

Thus, what we are faced with now is a situation where this most vital medical treatment is simply becoming unavailable to those with lower incomes and even more expensive and restricted to those who can pay.

Some states have taken action to protect obstetricians and ensure their continued practice. Virginia has created a compensation fund for neurologically impaired infants and this has caused private insurers in that state to reduce rates for obstetrical coverage while simultaneously increasing coverage limits (Holthaus, 4-88). In Maryland, the town of Easton agreed to pay the malpractice insurance for its seven practicing obstetricians rather than risk losing them (Economist, 1-10-87, p. 51). In Montgomery County, Md., obstetricians are considered agents of the county when delivering medicaid babies and are provided $500,000 in coverage (the ceiling) for liability and cannot be personally sued in such instances.

Conclusions and Policy Considerations

The medical malpractice insurance situation in West Virginia is not good. Though rates have stabilized with the primary carrier, CNA, forthe most part they are not competitive with those of surrounding states, particularly in thefields of neurosurgery and obstetrics. The problem, moreover, is compounded by the fact that physician incomes in West Virginia are somewhat lower than other states. It is also importantto keep in mind thatasthe national economy slows we will be entering a period of comparatively low interest rates. If the history of the insurance cycle repeats itself, lower interest rates mean restricted malpractice insurance availability and higher rates.

The impact of medical malpractice rates on health care is not a simple case of passing along costs in a dollar-for-dollar manner. The cost of coverage can affect the availability of care. The situation in the field of obstetrics is a perfect example. The decline in the number of obstetricians and family physicians delivering babies in the state can only lead to higher costs, more restrictive availability, and greater risk to the health of both baby and mother.

In other medical specialties malpractice coverage may not represent such a prohibitive cost. Liability insurance in and of itself, though a large expense, will not drive doctors from the medical field. Doctors may feel, however, that certain procedures and types of patients expose them to prohibitive risk. A large jury award can easily exceed a physician's coverage limit thereby making him personally liable for damages. A lifelong practice can be destroyed by one lawsuit. It is important to remember that although doctors dedicate their lives to helping others, medicine is a business. Doctors are increasingly being forced to tailor their practices to business considerations. Also, the competition for physicians is national. Physicians may simply choose to practice in other places.

From a public policy standpoint, lawmakers must be cognizant of the fact that . . the problem is one of designing liability rules and insurance mechanisms that minimize the total costs of injuries, including the utility cost of injuries, the resource cost of prevention, and the overhead costs of effecting compensation" (Furrow, et. al., 1987, p. 271). One must keep in mind that malpractice does occur. There are incompetent doctors just as there are incompetent individuals in every profession. The zeal to reduce medical malpractice insurance rates should not let us forget that there are true victims of medical negligence and that they should be compensated for their losses. The problem is how to accomplish such compensation in a mannerthat isfairand efficient.

The system in place in Pennsylvania bears further study. The Pennsylvania Catastrophic Loss Fund provides for patient claims through an insurance surcharge. The combined Fund and primary physician liability limits provide greater coverage for physicians at lower rates for obstetrics and comparable rates for other specialties.

Arbitration, mediation, or systems similar to worker's compensation are attractive alternatives when one considers that the majority of malpractice premiums go to satisfy the cost of litigation, not to pay off claims. Panels of unbiased medical and legal experts could theoretically make the process faster, more fair, and efficient.

The problem lies in startup costs and the funding of such programs. Thestate of WestVirginia is in nocondition totake on additional fiscal burdens, particularly one as unpredictable as the liability for medical negligence. If doctors were asked to contribute to a patient compensation fund, the immediate short-term resultwould very likely be even higher medical liability rates because of the need to build thefund to an acceptable level.

Like the problems of the state Public Employee Insurance Agency, forthe time being at least, the answerseems to lie in cost containment, moreexactly, tort reform and self-policing by the medical profession. Tort reform can lower the cost of claims, thereby reducing the impetus for rate increases. Peer review and self-policing measures by doctors can weed out the incompetent physicians that account for a disproportionate amount of claims.

West Virginia might also adopt a certification of merit program like that of Virginia and Ohio. This would require the plaintiff's attorney to obtain certification from an expert that there is cause to believe that malpractice has occurred. This might help to screen out frivolous claims and reduce legal costs.

As the study by Danzon reported, caps on awards were found to significantly reduce claim severity. The mostabused type of award is for "pain and suffering" or noneconomic damages. These damages often go under the terms "mental anguish" and "loss of consortium." These types of damages are emotional in nature and are difficult, if not impossible, to measure accurately. West Virginia currently has a $1 million cap on such awards, but a lower limit, perhaps $250,000, might be considered. This one change alone could reduce claim severity up to 20% (Danzon, 1986).

Punitive damages might also be eliminated or restricted. Punitive damages are designed to punish the defendant for negligence. The best reason for doing away with this type of damage is the fact that West Virginia physicians cannot currently obtain coverage for punitive damages. Therefore, physicians are personally liable for punitive damages. Almost every businessman equally exposed would find this an untenable situation, Twenty-four other states have eliminated punitive damages against physicians.

The collateral source offset might also be made mandatory. If damages are paid from another source-worker's compensation, health insurance, life insurance, etc.-there is no reason why the physician's insurance should pay again for the same damages. This rule is in effect in thirty states.

Damages designed to compensate a plaintiff over a lifetime, such as for lost wages, might also be paid over a lifetime instead of in a lump sum. A claim paid over time is significantly less expensive and assuresthe plaintiff of incomeover the period specified.

Though West Virginia is more aggressive than itsneighbors in the number and types of disciplinary actions the State Medical Board takes against physicians, the Board might take this duty even further. Dr. Bryant L. Galusha, the former Executive Vice President of the Federation of State Medical Boards of the United States, recommends screening out bad doctors before the granting of licenses, either to a new physician or to one who is relocating (Galusha, 1989). By making the state boards more rigorous and by performing intensive background checks of physicians, incompetent doctors could be prohibited from practicing altogether. A poor doctor at the outset is likely to always be a poor doctor.

New York State is considering a Board-directed review procedure forthe recertification, recreclentialing, and license renewal of physicians (Gellhorn & Cherkasky, 1989). The physician's record for patient care and malpractice-related issues could be considered in this procedure. West Virginia currently has a provision wherebythe Board of Medicine may investigate physicians against whom five or more judgments or settlements of $50,000 or more are rendered within a fiveyear period. Eliminating the five-yeartime frame would make it easier to get rid of bad doctors and would make lesscompetent physicians more attentive. If settlements and claims were made and physician culpability is clear, there is no reason why his or her practice should continue in the same manner.

Finally, establishing guidelines for standards of carewould give physiciansa better idea of what isacceptable procedure in various specialties. Numerous and sometimes contradictory treatments allow too much subjectivity to invade the question of culpability.

Any one of these actions taken alone will probably do very little to improve the medical liability situation in the state. However, a comprehensive reform package incorporating a series of tort reforms and peer review provisions could have a dramatic impact on the medical liability problem rather quickly.