MINUTES OF THE meeting
of the
ASSEMBLY Committee on Judiciary
Seventy-Second Session
April 4, 2003
The Committee on Judiciarywas called to order at 7:45 a.m., on Friday, April 4, 2003. Chairman Bernie Anderson presided in Room 3138 of the Legislative Building, Carson City, Nevada, and, via simultaneous videoconference, in Room 4401 of the Grant Sawyer State Office Building, Las Vegas, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
Note: These minutes are compiled in the modified verbatim style. Bracketed material indicates language used to clarify and further describe testimony. Actions of the Committee are presented in the traditional legislative style.
COMMITTEE MEMBERS PRESENT:
Mr. Bernie Anderson, Chairman
Mr. John Oceguera, Vice Chairman
Mrs. Sharron Angle
Mr. David Brown
Ms. Barbara Buckley
Mr. John C. Carpenter
Mr. Jerry D. Claborn
Mr. Marcus Conklin
Mr. Jason Geddes
Mr. Don Gustavson
Mr. William Horne
Mr. Garn Mabey
Mr. Harry Mortenson
Ms. Genie Ohrenschall
Mr. Rod Sherer
STAFF MEMBERS PRESENT:
Allison Combs, Committee Policy Analyst
Risa B. Lang, Committee Counsel
Carrie Lee, Committee Secretary
OTHERS PRESENT:
John Ellerton, Physician
Bill Bradley, Nevada Trial Lawyers Association
Matthew Sharp, President, Nevada Trial Lawyers Association
John Williamson, Cardiologist, and President-elect, Nevada State Medical Association
Larry Matheis, Executive Director, Nevada State Medical Association
Larry Spitler, Associate State Director, Advocacy, American Association of Retired Persons (AARP)-Nevada
Jim Wadhams, representing the Nevada Hospital Association; Nevada Independent Insurance Agents; Nevada Association of Health Underwriters; Anthem Blue Cross and Blue Shield; American Insurance Association; and Nevada Mutual Insurance Company
Kerry Kravik, Assistant Vice President, Physicians Insurance Company of Wisconsin
Alice Molasky-Arman, Commissioner of Insurance, Division of Insurance, Nevada Department of Business and Industry
Phil Nowak, Chief of Business Lines, Division of Health Care Financing and Policy, Nevada Department of Human Resources
Chairman Anderson:
The Assembly Committee on Judiciary will please come to order. [The Chair acknowledged Judge Bunch in Battle Mountain. He reminded the Committee members and those present in the audience of the Standing Rules and appropriate meeting etiquette. Roll was called.] A quorum is present. We have a single bill on the order of business today, and it’s hopeful that we’ll be able to move to a work session. Let’s begin with Assembly Bill 320.
Assembly Bill 320: Makes various changes regarding malpractice. (BDR 57‑868)
Assemblywoman Barbara Buckley, District No. 8, Clark County:
I’m pleased to present to you Assembly Bill 320. As some of you may have heard, we had a crisis with regard to the availability and affordability of medical malpractice insurance. The Governor called a special session after the Legislature created an emergency interim committee, which I had the honor to chair. The Governor, in his proclamation, limited the special session to the topic of civil justice reform. Insurance reform was never examined; we now have the opportunity today.
Clearly, the private insurance industry played a key role in the medical malpractice crisis and must be examined. Nevada’s Commissioner of Insurance is charged with the responsibility to ensure that rates are not excessive, inadequate, or unfairly discriminatory. However, insurance companies still have tremendous discretion in the premiums offered to physicians; its decisions of whether or not to offer coverage to a physician, even those with multiple prior claims of medical malpractice; leaving a market with little notice if economic conditions are not optimal; and making decisions of whether to go to trial or settle a case.
The business practices of insurance companies during the 1990s have played a key role in both the development of the crisis and its magnitude. As is typical for their business cycle, in the 1990s, when the economy was performing well, insurance companies were increasingly competitive and aggressive in their pricing of premiums; losses could be offset with investment income. Thus, due to pricing competition, prices were kept artificially low. As economic conditions declined, both before and after the September 11, 2001, terrorist attacks, investment income declined and companies began to increase rates to make up for those artificially low premiums previously charged.
Although its work ended with the call for the special session in July 2002, in its preliminary findings the Legislature’s interim study noted the following with regard to the medical malpractice market:
· Prior to September 11, 2001, there was a hardening of the market. “Hard” markets involve conditions in which premiums are high and coverage is difficult to obtain. Since the late 1980s, the insurance industry had generally experienced a “soft” market in which competition was strong and premiums were low. Prior to September 11, 2001, most major commercial lines were experiencing increases in renewals from 10 to 15 percent.
· The September 11, 2001, terrorist attacks had a severe impact on our nation’s economy. For the insurance industry, the cost estimates varied widely from $30 billion to $70 billion. After that event, the rate of increases for 2002 renewals in commercial lines doubled, on average, to 30 percent. Reinsurers are expected to pay a large percentage of the insurance costs for September 11, 2001, thus raising the rates charged by reinsurers and by insurance companies to cover those costs.
· The two main sources of income for insurance companies are underwriting profits and returns on investments from policyholder surplus. One measure of the financial status of an insurance company is the combined ratio, which is the ratio of the total insurance costs— losses incurred plus all expenses—to the revenues from premiums. A company is operating with an underwriting profit if it has a combined ratio under 100 percent. If a company has a combined ratio over 100 percent, it is operating at an underwriting loss.
[Assemblywoman Buckley continued.] Most of these statistics are in the Legislature’s interim report on the medical malpractice issue.
Practices within the insurance industry have also negatively affected doctors and patients. In addition to paying for skyrocketing premiums, many physicians are affected by first party practices. You hear it colloquially if you speak to a physician. They say, “You know, there are high malpractice insurance costs in New York.” If the reimbursements are high enough, if you get paid, if you’re not constantly dealing with struggles getting paid on the front-end, that’s why they don’t have a crisis.
In Nevada, our market was really suffering from all of these practices. We had one company lowering malpractice premiums to corner the market, insuring doctors with multiple lawsuits, not increasing business, giving physicians inadequate time to find other insurance. To compound the problem, because the St. Paul Medical Liability Insurance Company had such a large share of the medical malpractice market in Nevada, other companies used St. Paul’s rates and experience to determine their rates. So St. Paul did a bad job and created the experience, which was fraught with their mistakes, for which other insurance companies used their data to set rates. As noted in March by Physicians Insurance Company (PIC) of Wisconsin in a response to a survey by Nevada’s Division of Insurance:
St. Paul not only had the greatest market share, but their data was relied upon by many of the carriers for both pricing and loss reserving . . . While Nevada has had a very competitive market, most of that competition came from companies new to the market and therefore unfamiliar with its historic volatility. Physicians enjoyed those years of competition, but it came at the cost of a stable market and healthy insurers. Rates are only now approaching the levels they should have been at over the previous years.
In some of the material, you’ll see a summary of what the rates were and how much they were increased in each one of those years (Exhibit C).
[Assemblywoman Buckley continued.] The purpose of Assembly Bill 320 is to address certain business practices within the insurance industry that have contributed to the crisis facing physicians involving medical malpractice coverage, and to try to prevent such crises in the future. Assembly Bill 320 also works to improve the health care environment by statutorily imposing certain protections for both physicians and patients. It seeks to prevent another crisis and create a fair system of regulation of insurance companies.
I’d like to turn to the bill itself and highlight the main points of the bill. I also included as handouts a section-by-section analysis of the bill, as well as some other information, such as jury verdict information and other information that you might find helpful.
Turning first to the issue of ensuring fair rates, Section 8 of Assembly Bill 320 requires the Insurance Commissioner to disapprove proposals for rate increases if the company is requesting the increase as a result of: the imprudent investment of money, fraud, willful misconduct, losses resulting from unreasonably pursuing litigation when reasonable settlement offers were made, or decisions to insure practitioners with multiple judgments against them.
As noted previously, the need for insurance companies to raise premiums across all lines of insurance is based, in part, upon the loss of investment income. A company that imprudently relies on this income and offers inappropriately low rates to capture market share should not be allowed to indiscriminately pass their losses in the stock market along to their clients.
The issue of insuring physicians with multiple medical malpractice cases is also an important one. Some companies inexplicably continue to insure doctors with multiple substantiated cases of medical malpractice. The costs incurred as a result of the questionable decisions to offer insurance to such physicians should not be passed on to good doctors with no claims against them. One former Nevada physician was sued five times for medical malpractice in Clark County in 2001 alone. This physician voluntarily surrendered his license while under investigation in June 2002 and is now practicing in California. If you ask any physician in Clark County about this physician, they will tell you that that was the tip of the iceberg, and they cannot believe how many people were injured as a result of this physician, yet he was allowed to practice and the insurance company continued to take his premiums, which wreaked havoc with the rates for good physicians. It should not be allowed to happen.
On decisions to settle cases or proceed to trial, the interim committee was fascinated by the jury verdict charts for Clark County. The testimony that we had received was that the juries were out of control, so we compiled the information for every jury verdict in Clark County, since that was said to be the cause of the crisis because there was not a crisis in the rest of the state. We compiled the jury verdicts after asking for the physician’s name, the injury, the date, the date of trial, any offers prior to going to court, the ultimate jury verdict, and then what happened on appeal; it was amazing that the verdicts were much higher than the settlement offers made prior to trial.
[Assemblywoman Buckley continued.] National information also confirms that, and the chart illustrates this point very well. In the majority of cases in Clark County, the offer to settle was substantially lower than the amount awarded by the jury. Clearly, some cases must proceed to trial and parties can’t be denied their right to the judicial system, but in situations where an insurance company vexatiously and unreasonably proceeds to trial, the costs for everyone increases. The costs of this unreasonable and vexatious litigation should not be passed on to the medical community in the form of a rate increase. And in many of those cases, I think it was very significant that both the patient and physician wanted to settle, but it was the insurance company that held up the settlement; that’s not right.
When insurance companies want to file for rate increases, they file cases before the Insurance Commissioner. Assembly Bill 320 provides that any interested party may intervene in the rate filing process. Right now, the test in the rate increases is whether the rates are excessive, inadequate, or unfairly discriminatory. Interested parties, such as physicians, should have the right to have their voice heard in these rate hearings. From my point of view, when you have interested parties involved in the process, they can ask key questions, have them responded to, and the system is better served. This idea has been discussed and I understand some of the insurance companies are saying, “If the doctors want to submit a couple of questions on a piece of paper in writing, maybe we’ll allow them.” I don’t think that’s right. I think physicians have as much stake in this as the insurance companies, and they should have their voice heard to the same extent as the insurance companies.
Sections 18 and 19 of Assembly Bill 320 prohibit canceling, refusing to renew, or increasing the premium for renewal if the insurance company had an opportunity to settle the claim within the policy limits and did not, and then had to make a payment in that claim that exceeded the policy coverage. During the interim session legislators received compelling testimony from physicians who wanted to settle cases but the insurance company, again, decided to proceed with the case at trial. After a jury awarded damages outside of the policy limits, in some cases the insurers cancelled the policy of the doctor and then raised the prices, when it was the doctor who wanted to settle under the policy limits and there was an offer in that regard. That practice has to change.
[Assemblywoman Buckley continued.] Assembly Bill 320 also provides that an insurer is liable for the entire amount of damages to the same extent the defendant is liable to the plaintiff if:
· The plaintiff made a settlement offer within the policy limits of coverage
· The liability of the defendant was reasonably clear when the plaintiff made the settlement offer
· The insurer, in contravention to the express instructions of the defendant, the physician, unreasonably rejected the settlement offer
· The court enters a judgment in favor of the plaintiff that imposes liability on the defendant for damages in excess of the policy limits
Again, where the liability appears to be at a level above the policy limits, an insurer has a duty to settle claims against the insured doctor within the policy limits; that’s existing law, that’s the insurer’s duty to their policyholder. Currently Nevada statutes require an insurer to, “effectuate a prompt, fair, and equitable settlement.” This provision codifies this, makes these provisions clear, and strengthens our existing law. A physician should not pay their premium to an insurance company only to be abandoned in the litigation process.
The next significant portions of Assembly Bill 320 are Sections 20 and 21. They require an insurer to disclose the reasons for declining to issue a physician a medical malpractice policy. In addition, reasons for setting a physician’s premium at a rate higher than the average rate of the community must also be disclosed. I think this is pretty clear; physicians should have the ability to obtain information on the reasons for which they are denied coverage, or for which their rates are higher than average in the community. We heard testimony during the interim that some companies were placing surcharges on physicians for delivering over a certain amount of babies a year. Physicians need to know what the reasons are for getting surcharged.
Fortunately, I think since then the Insurance Commissioner has said that, at least with regard to one company, since they could not prove that there was any basis for such an unfair surcharge, that’s now being reviewed and changed, and should be, because it was contrary to the national standards of OB/GYNs (obstetricians and gynecologists), and had no relation to liability at the artificial limit that was set. What many physicians did was say, “I’m going to lower the number of babies that I deliver because of insurance rates,” under a practice that had no substantiated rationale in underwriting criteria. This will alert a physician if another such practice is initiated in the future.
[Assemblywoman Buckley continued.] Section 36 strengthens the relationship between the insurer and the practitioner. Assembly Bill 320 requires the defendant and the insurer to attend any settlement conferences required in actions for damages for malpractice. In addition, if the defendant receives a settlement demand that is equal to the limits of the insurance policy, the insurer must inform the defendant of any applicable rights and obligations possessed by the defendant. These rights include the right of the defendant to obtain independent counsel at the insurer’s expense. By way of background, an insurer has an existing common law and statutory duty to communicate with its insured doctor about the claim and the risks pertaining to the claim. This provision strengthens these requirements by specifying them under Chapter 41 of the NRS (Nevada Revised Statutes).
Section 22 addresses the medical malpractice insurance market and it has to do with notice of withdrawal from the market. The bill requires an insurer with more than 40 percent of the market in Nevada to provide written notice to the Insurance Commissioner, along with a plan for minimizing the effect of the withdrawal on the local market. The notice and the plan must be provided 120 days prior to exiting the market. The rationale for this is that the unexpected withdrawal of St. Paul from Nevada’s market created an immediate hardship on Nevada’s physicians. Because St. Paul insured approximately 60 percent of the Nevada market, the impact was especially dramatic and may have hastened the development of the state’s malpractice crisis. Companies with a large percentage of the market—of course, it they want to withdraw, we can’t stop them from withdrawing, but the withdrawal can be done with a little more notice in a more orderly way, not to adversely impact our Nevada physicians.
The other sections of the bill relate to improving the quality of Nevada’s health care system for both physicians and patients. Sections 1 and 40 of the bill deal with the prohibition on fees for inclusion on a panel of providers of health care. Insurance companies set up panels of physicians; we have heard numerous complaints about how this is undertaken. You have to fill out multiple forms with every company, and companies charge fees to be on the panels. We attempted to eliminate this practice in prior legislative sessions. Legislation in 2001 again clarified this and prohibited an insurer from charging a fee, however, unintended loopholes have emerged under which certain organizations claim they are not subject to these laws. Assembly Bill 320 seeks to close these loopholes.
[Assemblywoman Buckley continued.] Assembly Bill 320 also requires that a contract with a health care provider to provide health care to an insured include a schedule setting forth the payments under the contract. It also requires a standardized credentialing form and prohibitions on changes on material terms in the contract. The use of credentialing forms is an important process for screening out bad doctors, but the variety of forms creates an unnecessary paperwork burden. The additional provisions in this section mirror California’s health care providers’ bill of rights that was recently enacted into law to ensure that physicians are not forced into contracts that they feel endanger the quality of care to their patients.
The next sections of the bill address the issue of insurance companies who fail to pay their physicians in a timely manner. In previous sessions I was pleased to cosponsor an effort in this area to ensure timely payment to physicians. However, we still continue to hear complaints in this area, so Assembly Bill 320 requires the Insurance Commissioner to revoke the licensure of companies that fail to pay 95 percent of their approved claims within 30 days. We feel that this would be an additional hammer to ensure that insurance companies follow the law.
In the past year I have lost both of my physicians from my health care plan. I love my physicians, so I’m going to pay out-of-pocket because I don’t want to find another doctor. When I asked both of my physicians why, they said, “It’s your insurance company. They don’t pay us on time, they continue to give us the runaround, and we just can’t deal with them anymore.” When you develop a relationship with your physician over years, you don’t want to find another physician. When the causes are directly related to failure to pay timely it causes a problem, and a problem where most folks in our community can’t afford to pay out of their pocket; they have no choice. This attempts to address that issue.
Section 4 of Assembly Bill 320 specifies that failure to comply with our managed care law, which was adopted by this Legislature in the patient’s bill of rights, is considered an unfair practice. This is designed to strengthen consumer protections under laws governing unfair settlement claims practices by managed care organizations. It will be another tool to be used by physicians and patients to ensure that the law is followed.
The next section addresses continuing coverage for patients when a provider’s contract is terminated. This was a suggestion that came to the interim committee and is very much like the bill sponsored by Assemblyman Mabey, which was heard in the Commerce Committee. It requires that health insurance policies must include provisions that allow a provider to continue caring for a patient with an established medical condition if the contract is terminated for reasons unrelated to unprofessional conduct. It allows if someone has a relationship with their doctor and they have a condition like cancer, the physician is willing to accept the same payment to not interrupt continuity of care in the middle of the treatment.
[Assemblywoman Buckley continued.] Those are the highlights of the bill. It is a comprehensive effort to look at insurance practices as they relate to the medical malpractice issue, and the quality of care that our patients receive. I would note that many of these ideas were suggested to the interim committee by physicians, patients, and advocates, so they are not all my ideas; they are the culmination of all the good ideas that we received. We have supporting testimony, and with that I’d be happy to take any questions.
Chairman Anderson:
Thank you, Ms. Buckley. Having served on the interim committee with you, I’m happy to see the bill come forward.
Assemblyman Mortenson:
You mentioned the fact that panels of physicians were formed by insurance companies which then required them to pay to be on the panel. What were these panels responsible for and what was their purpose?
Assemblywoman Buckley:
They were actually the providers of medical care for the insurance company. If you wanted to provide care under the insurance company, you have to fill out credentialing forms and pay fees.
Assemblyman Mabey:
I need to disclose that I’m a practicing physician; my specialty is obstetrics and gynecology. Because this bill will not affect me any differently than any other physician, I will be authorized to vote on it.
Chairman Anderson:
We are hopeful that you will use your expertise to ask the good questions.
John Ellerton, Physician:
[Introduced himself.] I practice in Las Vegas. I am a cancer specialist, and I speak in complete support of this bill. Medicine is changing in rather drastic ways. Assemblywoman Buckley touched on one of the important ones, which is that she lost her physicians because the insurance company decided not to use them anymore. The ability to establish a long-term relationship with someone you’re comfortable with and you trust in any part of your life is important, but in your health care is especially important. Those are the good old days.
Now we have the changing face of medicine, which is becoming increasingly industrialized and a commodity, in a sense. Those changes are going to accelerate and are reflected in many of the ways that medical care is delivered today. Unfortunately, with current pressures, it leads to problems such as, you can’t have a “real” doctor; those now in training are being trained to look at it as a job, not as a calling or a profession that they should have responsibility to. Perhaps it will never be the same as it was before, and that’s not good, in my opinion, because I’ve had the same physician for a long period of time. Decisions that were made for rational medical reasons are now made for entire other sets of reasons.
If we take all this and look at it, we have a number of things happening all at about the same time. If you look at them individually it’s not so bad. Can we adjust to rising malpractice rates? Some people can’t; obviously, that becomes a problem. Can we adjust to increasing pressure from lawsuits and legal encumbrances? Individually you might be able to, but this is another problem. Then we face the fact that reimbursement is changing drastically, and reimbursement is falling.
My specialty is being squeezed extremely hard right now and we’re worried about the ability to continue to provide care to cancer patients for a number of reasons. One of them is economic. It’s not that we’re making a fortune on these things, it’s that the way the system is working it’s making it difficult to be properly reimbursed. For example, I use a lot of drugs that are very expensive. It’s unconscionable, almost, how expensive they are, and the problems with getting paid for them means that my practice turns into a bank in trying to fund looking after patients. Physicians are also faced with increasing bureaucratic intervention. The Health Insurance Portability and Accountability Act that’s coming into force right now is forcing us into a whole new set of regulations in the way we deal with patients, some of which are good medical practice, but now they’re formalized and it creates a bureaucratic mechanism. We’re going to have all sorts of new forms to deal with.
All of these things come together at the same time and it really becomes the “perfect storm” for medicine. I’m worried and concerned, as are my colleagues, that this will destroy the way the medical system operates to provide care, and the stress on that system is tremendous.
In Clark County, where growth has been phenomenal over the years, many systems have failed to keep up. The health care system is starting to fail to keep up with all of these things coming together. The bill is certainly an excellent effort to give us some bureaucratic relief if you standardize the forms for credentialing and put us on a level playing field so that we can deal with each insurance company. I would say we shouldn’t sign a contract that doesn’t tell you what you’re going to be reimbursed, but try and get that information from some insurance companies; try and find out what they’re actually going to pay you. It would be nice to have that as a mandatory part of the contract that’s sent to us so we can make a rational decision. This would help us to get some bureaucratic relief.
[Dr. John Ellerton continued.] Are we going to get some relief on the malpractice side? It’s not possible to say whether this type of reform would have averted the crisis, but it certainly would have modified it in some ways. Having the malpractice insurance companies behave in a more reasonable fashion is extremely important. I have testified as a treating physician in a couple of cases where the doctor admitted malfeasance and wanted to settle the case and the insurance company refused and went to trial. The doctor got slammed by the jury because this was a case in which he knew there was malpractice and wanted to settle. The purpose of the trial was unclear to me, and the expense associated with that trial, and the fact that then a gigantic judgment was given against the doctor, and then they have to deal with that. I think it’s extremely important that we have a way of making the insurance companies behave more fairly. Certainly, if you are sued in a malpractice case, the first thing a good defense attorney tells you is to go get your own attorney. The reason you do that is to protect yourself against the actions of the insurance company, and if there happens to be a bad faith problem with the insurance company, you have to have your own attorney to protect you. I think it’s a great idea to make the insurance company pay for that, otherwise you’re paying for it out of your own pocket when you’re supposed to be insured against this particular issue. They’re creating another problem for you to conduct business.
On the cost side, you ask about the panel fees. This Legislature has done an excellent job trying to limit these panel fees, but some organizations have still tried to slip through, and their credentialing fees are another expense. Medicine is a heavily regulated profession, not like retail, that can’t raise the price of the goods and recoup the cost. One side is trying to reduce your reimbursement and the other side is trying to increase your cost. These panel fees are not insubstantial; they go from $150 to $500 per doctor. At the time when there were multiple companies doing this, you could spend thousands and thousands of dollars every year just for the privilege of being paid less than you think you should be paid.
I see this bill as an excellent attempt to give us relief in several areas where the stress and strains on the practice of medicine are negatively affecting our ability to provide access to care for the patients, and to provide the kind of high-quality personal care that you expect and need from your physician.
Assemblyman Carpenter:
Why would you think an insurance company would not settle if the doctor felt there was malpractice and it was the thing to do to avoid going to court and getting a larger judgment?
Dr. John Ellerton:
Ask the insurance companies; I can’t imagine that. Remember, in malpractice insurance the physician has to consent to settle, unlike your car insurance. The physician has the right, contractually, and they must have his consent. I suppose one of their arguments would be, “Your policy limit is $1 million, and we think it’s only worth $400,000 and don’t want to give them $1 million, so we’ll have a trial, even if you want to settle the case.” I suppose when you settle a case, you’re not supposed to admit that you did anything wrong, you just settle. They could say they weren’t going to pay all that money and would try to go to trial and get less. I don’t know why they try it. In a situation where we have the right to say yes or no on a settlement, I can’t imagine why they wouldn’t settle. It doesn’t make any sense to me.
Chairman Anderson:
We can save that question for somebody from the insurance company. Maybe the Insurance Commissioner will help us on that.
Bill Bradley, representing the Nevada Trial Lawyers Association:
[Introduced himself.] We welcome the opportunity to talk about this issue that we feel is imperative in achieving the stability of our medical malpractice insurance market in the state of Nevada. We wanted to spend a few minutes talking about the role of insurance companies and how this works in the real world when you, as either a physician who has been named in a lawsuit, or a client of ours who’s been forced to bring an action against a physician for medical malpractice, are involved.
Matthew Sharp, President, Nevada Trial Lawyers Association:
[Introduced himself.] I think that in the context of insurance all of us in this room are in some way a consumer of insurance. I often say that an insurance policy is probably the only product of significance to your life that you don’t test drive before you need it. There are certain rules that an insurance company must follow, and those rules require the utmost good faith by the insurance company in their practices. It comes back to a concept that sometimes we forget; we buy insurance for financial security and peace of mind—whether that’s for your own health, for your life, for disability, for your family—it’s financial security and peace of mind; that’s what the insurance company sells you.
In light of that concept of financial security and peace of mind, the law recognizes that a confidential relationship exists between the insured, who’s the customer, and the insurance company. That confidential relationship is oftentimes referred to within the industry as “akin to a fiduciary.” In light of that confidential relationship and the concept of financial security, we recognize that the insurance industry is heavily regulated. It’s why we hear from the Insurance Commissioner, it’s why we hear from bills like this, because it’s important to the public trust. What I’d like to try and do through the course of this presentation is emphasize how, when the insurance system breaks down, it’s a breach of the public's trust. I’ll certainly not hold myself out as an insurance expert, but I will still provide a lesson on insurance because I think it’s important to understand how insurance companies work in order to judge their conduct.
An insurance company is a unique business where actuaries and underwriters work together. The actuaries set up your rate; the premium that you pay for your auto insurance is established by an actuary. Underwriters make sure that the people they insure are paying enough to make a profit because insurance companies, like any business, are in the business of making a profit. They work with the marketers to make sure that they’re selling the right insurance and everybody’s working functionally to make a profit.
Then you have another aspect of the insurance company, which is called the claims department. The claims department is unique in that they pay claims in good faith, irrespective of what it means to the profit of the company. I say that because if the actuaries and the underwriters and the marketers are doing their jobs, the profit is built-in when you pay your premium. Ms. Buckley was talking about the concept of an underwriting profit, and that’s what we’re talking about; the amount of premium you pay presumes a profit for the company.
What are the standards for an insurance company? In this Committee you deal with important public matters, and you’re dealing with a very critical matter here with regard to insurance companies. What are the rules of the road? We know when we’re driving a car what our obligations are. We know that we follow the speed limit; we know if there’s a double line on the road we don’t pass. There are certain rules of the road that we are familiar with. Insurance companies have the same rules. The first that I think that’s important in the concept of our [PowerPoint] presentation (Exhibit D) on this bill is an insurance company, as a confidential relationship, cannot mislead or deceive its customer in any manner. When a claim is filed, it must conduct a full and fair and objective investigation, meaning when the doctor reports a claim of malpractice, the insurance company has an affirmative obligation to look into the facts to see if the doctor committed malpractice. If the doctor committed malpractice and made a mistake, the insurance company has an obligation to protect their doctor, to settle the case.
Medical malpractice insurance is unique in one sense. In your automobile insurance policy, each of us has what’s called liability insurance. If you cause an accident and injure somebody you have insurance to protect you. Under the terms of your insurance contract the insurance company has the unilateral right to determine when the claim should be settled. The concept of medical malpractice is unique in that the doctor is provided with the consent to settle, so the insurance company cannot settle the claim without the doctor’s consent. Dr. Ellerton’s examples were instances where the doctor has consented to settlement and when that happens, the insurance company, when liability is reasonably clear that the doctor made a mistake, has an obligation to effect a prompt, fair, and equitable settlement to get the case resolved.
We have here a chart on the cyclical nature of insurance; there are two points that I want to make. First, we have to back up and remember that insurance companies are in the business of paying clients. In some years you have good years, you don’t have a lot of claims. In some years you have more claims, and we can go back to disasters that occur—such as Hurricane Hugo and September 11, 2001—those events happen and insurance companies pay the claims. Over the process of their cyclical life they anticipate a reasonable profit to account for the good years and the bad years. This chart indicates the manner in which insurance companies in strong business cycles and strong economies make quite a bit of money from investment income. When the economy goes downhill the percent of income attributable to investments goes down and the premiums increase. Our point is, when you look at why premiums increase, you cannot ignore the factor of the economy, and the investments are going down with the insurance company. When we talk about St. Paul, you’ll see the cyclical nature of insurance and how, as the economy goes down, St. Paul begins to pull out.
Bill Bradley:
[Submitted and referring to Exhibit E.] As you can see from the cyclical nature, for example, if we look at the 1990s or late 1980s, when our economy was robust and interest rates were good, insurance companies are anxious to get their hands on premium dollars. So insurance is available and affordable because their desire is to get that premium dollar into their pockets so they can invest it in an aggressive fashion, both in the stock and bond market, and get that money returning profit. At that time, when the economy is good, they’re anxious to write insurance and they tend to relax their underwriting guidelines and take risks that are higher than, perhaps, is prudent. But, in the desire to get that premium dollar, they want to get insurance. They want to get their product sold so they really market it; it’s available, it’s affordable, there’s no problem.
If we take a look at each time this cycle happens, we’re in a good economy when we reach these peaks. The peaks are called the soft market; that’s when insurance is available and affordable. The valleys, if you go back over time, 1975 was the oil embargo, the early 1980s was extraordinary inflation, and in 1992 and 2001 there was a tremendous downturn in the economy. All of a sudden, the celebration of the good economy is followed by the hangover of the bad economy. The problem is at that point the insurers have taken a lot of risks that weren’t very good risks; those are now coming up for payment. Income is down because the economy is down; there are a lot of high risks that they have to pay dollars for, and they end up suffering profitability-wise. The market tightens up and we go from a soft market to a hard market, and that’s when we hear about the insurance affordability and availability crisis. The cycle is consistent and well-documented, and we have provided you with literature, not from pro-consumer organizations, but from insurance trade journals that document this cyclical nature.
Unfortunately, Nevada, with its small population of physicians, was setup for a real problem in the early 1990s. In the early 1990s there was a small company operating called Nevada Liability Insurance Company that was run by a gentleman named Bob Byrd. Bob Byrd, one of the most sophisticated and reasonable insurance executives we have ever met, is now the president of MLAN (Medical Liability Association of Nevada), the insurance plan set up for physicians by Governor Guinn. He had a small company called NMLIC (Nevada Medical Liability Insurance Company) that was running at a profit because of excellent oversight. In the early 1990s, when Nevada looked like a good market, St. Paul came in and purchased NMLIC. They then embarked on a course—thinking that insurance was going to be profitable in Nevada—of trying to garner market share. One of the things they did was enter into an agreement with the Nevada State Medical Association (NSMA) to provide insurance to any member of the NSMA. In 1997 they do an across-the-board rate decrease of 15 percent for members of the NSMA, and you just have to question that kind of logic when you know each year health care costs are going up roughly 9 percent.
Part of a victim’s claim in a medical malpractice case is due to the future medical expenses that that victim is going to have to incur as a result of the injury. If those costs are going up roughly 9 percent a year, one would have to question how can you give a rate decrease? We will suggest, in very strong terms, that the rate decrease was a calculated effort to corner market share for St. Paul in Nevada, and as a result of their marketing efforts they cornered 60 percent of the market in Nevada. We’ve also included for your review a complaint filed by the Office of the Attorney General of behalf of the Insurance Commissioner against St. Paul for the tactics they used in garnering the market share. One other problem this cornering of the market share and the agreement with the NSMA created is that they get to take all physicians who are members of the association and their underwriting guidelines are ignored. That is the explanation of how one physician in southern Nevada, a spinal surgeon who had multiple claims against him, was able to get, maintain, and keep cheap insurance; he got to come in as part of the package.
Matthew Sharp:
We had a slide earlier that showed how actuaries establish rates, and we have here a slide indicating inadequate rates. There’s a reason within the insurance industry that you want adequate rates, and it’s to avoid the type of problems that we’re dealing with here, in that if an insurance company like St. Paul attempts to garner market share by charging too little, ultimately, that’s going to come back to roost. From 1997 to 2002, St. Paul’s losses averaged 196 percent. This data comes from a printout that we provided to you that the Insurance Commissioner submitted to the Senate Judiciary Committee. It wasn’t that the losses were increasing over time, it was known; the problem was St. Paul wasn’t charging enough money to pay for the claims when the economy dropped. They made a calculated bet that said, “We’re going to write insurance and lose money and we’re going to make that money up in the stock market.” When that happens, that’s fine while the stock market is going up, but when it drops we have losses, and as we later know, St. Paul pulls out.
Tied into that, as Mr. Bradley pointed out, was the no underwriting standards. We now have it broken down to the two principal rules that the insurance company needs to make a fair profit that have been broken: they don’t have good rates and they don’t have good underwriting practices. In addition, and this comes from the allegations of the Nevada Insurance Commissioner’s suit against St. Paul, they misled doctors. As part of the sales tactics they promised “tail coverage,” which is the coverage that you receive when the policy terminates. The principal concern of the medical community when St. Paul left was picking up the tail coverage, the enormous premiums that St. Paul was charging to get that tail coverage. St. Paul also misled the Nevada Insurance Commissioner; they repeatedly promised not to withdraw from the market. One of the allegations in the Commissioner’s complaint is that, in exchange for receiving a rate increase, St. Paul assured the Commissioner that they were not going to withdraw from the market; they got the rate increase and withdrew from the market. We’re talking about an insurance company that has broken the public trust and that is evidenced by their conduct.
During the period that St. Paul was garnering market share, what’s happening with St. Paul? From 1992 to 1997, they released $1.1 billion from their “reserves.” Reserves is an insurance term, for lack of a better word, that is a savings account that’s set aside to pay future claims. Insurance companies know that as you sell insurance over time there are going to be claims; in order to pay for those claims they set aside reserves. St. Paul took the $1.1 billion and put it into their general account, which enhances their profit and allows them to invest in riskier investments.
Assemblyman Mabey:
I’m curious about that chart that you showed with the cyclical fashion. My understanding, and I’m certainly not an expert in the insurance industry, is I keep hearing from them that they can only invest 9 to 10 percent of their funds in the stock market, so the other investments would go in the bond market or fixed instruments. My understanding of a bond is that it is a loan that a company gives you with a set term and interest rates. Over the past three or four years, when the stock market has gone down, the bond market has actually gone up, so anybody that had a mutual fund in bonds has substantially more money, whereas if they had a mutual fund in stocks, their investment has gone down. When they put the money in a bond at the end of the term they are guaranteed that much money back; that’s the way a bond works, whereas when you put money in the stock market, the equity may lose value. The difference, as the bond market goes up the interest rate on that bond may go down, but the original person that holds that bond is guaranteed a certain interest rate. If he buys a 10 percent bond for $1,000 that expires in 2010, every year he’ll get $100 because that’s 10 percent of the $1,000, and in 2010 he’ll get his $1,000 back. Ten percent in the stock market can lose money, whereas 90 percent in the bond market actually can’t lose money. That’s why we see these fluctuations.
Matthew Sharp:
We’re not experts in insurance accounting and I think you pose an interesting question, because it’s almost rhetorical in nature; if they didn’t lose money in their investments, I don’t know why they were raising the rates when they knew all along they weren’t going to make money on the insurance.
Assemblyman Mabey:
Could it be that they lost money because they had to pay out more claims?
Matthew Sharp:
The statistics of the losses, at least as provided by the Insurance Commissioner’s statistics, were level over time; they were losing money on the insurance and they never charged an adequate rate. That element was always present. Where was the profit coming from, if it wasn’t coming from investment income? St. Paul did not rise to be a multimillion-dollar company because they’re not good businessmen, so the logic dictates that it’s investment income. I can tell you, in the concept of other insurance, the largest disability insurance company in the nation, Unum Provident, had corporate practices where claims department adjusters were required to release reserves from claims. The purpose of that was that the releasing of reserves allowed that money that’s not in reserve to be invested in riskier, higher income investments, and enhanced the profit of the company so their stock went up. The idea that there are requirements on how insurance companies invest, those requirements can, and are, manipulated.
With regard to your question on the bond market, the bond market similarly dropped and that is part of the cyclical equation that Mr. Bradley explained, so that cycle takes into account the bond market.
Bill Bradley:
Bonds aren’t solid, either. I think the people from PIC [Wisconsin] will tell you that they had bonds that failed. The bonds in Enron failed; the bonds in WorldCom failed. Irrespective of the investment vehicle, in bad times there are unanticipated failures that create losses.
Assemblyman Mabey:
I don’t want to bog this down here, and I’m not picking sides; I just want to get to the bottom of this. When a company goes bankrupt, most of the time they may lose money on the bond, but it’s a loan, so they’re first in line, whereas if you have a stock and you own equity, your stock may be worthless. The bondholders will be paid first, but the bond market didn’t go down; the bond market’s gone up. The stock market has gone down in the last year, so when you say the bond market’s gone down, that’s not true. The interest rate on the bond went down, but the bond market has gone up. I’m not an expert in stocks and bonds, but I know that to be the case.
Bill Bradley:
I just know that the bondholders for Enron might be in the front of the line, but they haven’t been paid. The only other question that I wanted to address before we move any further is, when you ask could it be that they were paying more losses, over time the claims in Clark County have remained consistent with growth. We will have this discussion further when we talk about the tort reform bills, but we have yet to see the examples of the excessive verdicts or the frivolous lawsuits in the context of medical malpractice. You have to anticipate that if medical costs are going up 9 percent per year, and part of a victim’s claim is medical expenses, verdicts are going to increase in order to cover the increasing costs of medical care that is necessitated to have to care for those victims. That’s what actuaries and underwriters are supposed to anticipate when they should be increasing their rates, as opposed to decreasing them to garner market share.
Chairman Anderson:
We’ll be coming back to this topic later.
Matthew Sharp:
In September 1, 2001, a 70 percent rate increase was requested; 41.8 percent approved in two stages, and that comes back to the representations made to the Commissioner regarding staying in the marketplace. Fifty percent of the rate increase, as I understand it, was for Clark County; the rest of the state did not have a rate increase.
Chairman Anderson:
May I see that last slide with the statement of what the percentage was for Clark County?
Matthew Sharp:
The statistics that we have on this slide come from the Nevada Insurance Commissioner’s information that we’ve provided in the packet to the Committee. You’ll see, although the Nevada Insurance Commissioner is in a better position to explain this than I am, in that information that there was a 70 percent rate increase approved over two stages that was 41.8 percent, on an average basis, towards all doctors. The areas affected were 50 percent for Clark County and zero for the rest of the state.
We’ve already mentioned the promise that St. Paul made that they would not withdraw; part of that, and this comes from the Commissioner’s allegations, is that when they sought their rate increases before withdrawing they threatened to withdraw. An agreement was made to provide rate increases for the exchange that they were going to stay within the state. St. Paul then withdrew from the market and failed to provide notice to the Commissioner as was currently required by the statute. In addition, they turned around and used the new rates to charge for the tail coverage, so there was a double effect on a doctor, the 40 percent rate increase, plus the tail coverage that was a lot more than they had anticipated.
Assemblyman Geddes:
What is the timeline from receiving the rate increase and then withdrawing without notice?
Matthew Sharp:
It is, I believe, within about a 6-month period. The purpose of this next slide is to indicate to this Committee the business cycle of another large insurance company in this state, The Doctors Company. In 2000 they requested a 2.2 percent decrease. In 2001 they requested a limited 3.8 percent increase in premiums; the increase was to Clark County only, there was actually a decrease outside Clark County. There was a small increase in August 2001, and after September 11, 2001, as the economy went down, a 26 percent rate increase. You’ll see from the Commissioner’s statistics that during the 2000 to 2002 period the losses remained stagnant or consistent throughout those periods.
When an insurance company begins to break the model as to how to make a fair profit, as St. Paul had done without charging adequate premiums or doing proper underwriting, what happens? This information comes from business trade journals; two Nevada doctors accounted for $14 million of $22 million in claims paid in one year; both of those doctors were insured by St. Paul. The next quote we have is from Business Insurance, which is a trade journal for the insurance company, and they’re talking about the fact that in the medical malpractice arena, insurance companies need to be held accountable for underwriting the risk properly. If there’s a bad doctor out there they shouldn’t insure the bad doctor, or at the very least, the bad doctor should pay more in premiums than the good doctor.
This next slide is in regards to what happens when the claims aren’t settled, and the purpose of this slide is to lead into, what Mr. Bradley will briefly explain, the verdict chart that we have and Assemblywoman Buckley previously referred to.
Bill Bradley:
The last two pages in the package we have handed out represent each verdict returned in Clark County from 1996 through 2001. The chart that was provided to the Committee through Ms. Combs is a more detailed chart of the awards. I’d like to just spend a little bit of time walking you through the chart to make sure the significance of it is realized.
We’ve been using an example, not necessarily to talk about whether it was a properly or improperly brought medical malpractice case, but just to show as an example what can happen when insurers fail to protect the public trust. It’s really important how significant this is in Nevada, because we have a small claims pool of physicians and when there is an unreasonable decision and a large verdict is returned, because of the small size of the claims pool, it can have significant effects that ripple through that pool. Part of the benefit of Ms. Buckley’s bill is how important, from a public policy standpoint, the insurers who elect to do business in this state have to realize that their practices have to be very good in order to protect that small pool of doctors.
[Bill Bradley continued.] Let’s just go to [case] number 3, which is entitled Burney v. Kramer. You’ll be told, and there will be disputes on whether it was an appropriate medical malpractice case or an inappropriate one, we’re not here to debate that, but we’ll show you what this chart stands for compared to our chart. This resulted in a permanent injury to a child at birth, a shoulder injury that renders that child’s arm useless for the remainder of his life. The case was presented to a screening panel; in that screening panel a determination of negligence was made. That means that before A.B. 1 of the 18th Special Session, a screening panel of three physicians and three attorneys sat and reviewed medical records. In order to get a positive finding, at least three of one profession had to agree, or, for example, two physicians and two lawyers, there had to be a vote of four out of the six that would agree. That means that in every case where there is a probability of malpractice at least one physician agreed, and in most of these cases, most of the panels usually agree. In this case the screening panel found negligence; that is a strong finding.
Dr. Kramer had a policy of insurance with The Doctors Company for $1 million. The plaintiff’s lawyer believed that that case of the child with the permanently injured arm had a value of $1 million over the lifetime of that child and demanded the $1 million; the insurer elected to offer $200,000. In each one of these columns where you see a defense offer, the only way a defense offer can be made is if the physician consents; absent the physician’s consent, the insurance company is prohibited from making an offer. So by reading any of these, where you see an offer made it means that the physician has consented. However, the insurance company felt the case only had a value of $200,000.
The plaintiff’s lawyer then proceeded to trial, in which a verdict in the excess of $5 million was recovered. What happens at that point is what is such a tragedy. That money is not paid to the victim; it goes on appeal for another three years. That $5 million loss is now held against the physician when that physician comes back up for renewal, but the physician said, “But I wanted to settle for $1 million; why are you holding me accountable for a $5 million verdict?” The insurance company said, “You’ve got a $5 million verdict against you.” That physician, in order to get insurance from The Doctors Company, is told he can no longer practice obstetrics. They insist that they take away those privileges because he has a $5 million verdict against him.
[Bill Bradley continued.] Assemblyman Carpenter, you asked how can they make that decision when the doctor wants to consent? I would suggest to you that the insurer takes a gamble. Unfortunately, when they take this kind of a gamble, they’re gambling with the physician’s reputation, the well-being of the plaintiff, and the system, because the system indicates to them the significant majority of medical malpractice cases that are tried in this state result in a defense verdict. Generally, it is the insurance company that demands a jury, and whenever juries return defense verdicts, juries are responsible and acting appropriately in Nevada. But when a jury returns a verdict in favor of a plaintiff, all we hear is that juries are out of control and excessive.
The other thing is just because a jury has returned a verdict in excess of policy limits does not mean that that child is going to get the monetary compensation in order to care for his needs. It now goes on appeal; that family has got tremendous expenses, they’re struggling with their mortgage, and car payment, and now the insurance company comes to them and says, “We know you have a verdict for $5 million, but we’ll offer you $400,000.” They use time to make money off the verdict that belongs to the plaintiff and, in the meantime, they wear the plaintiff down on appeal until finally, in most cases, at some point, the plaintiff can no longer wait for the [Nevada] Supreme Court to resolve the case and takes something less than the verdict. I would suggest to you that the main reason is that, and I’m not saying all companies, certain companies would rather hold onto the money and go through the process and earn interest off that money and wear the plaintiff down.
In Burney v. Kramer the ripple effects go beyond Dr. Kramer; they go to his partners. His partners, because they work with a physician that’s had a $5 million verdict, and Dr. Kramer may be on-call some night, the insurer’s use that to increase that physician’s partners’ coverage. Throughout the 21 verdicts in Clark County on this chart, you will see that the vast majority included both a positive finding of the screening panel, an offer within policy limits, and a verdict that exceeded policy limits. We would submit to you that the worst part about this practice is once that $5 million verdict is returned, now the insurer is allowed to use that as a loss, even though it hasn’t been paid. They take that $5 million loss and they work it into their rating structure for the next year, claim excessive losses and raise premiums based only on their decision to gamble. Each and every physician then has to pay an excess premium based on what could be considered an unreasonable decision to precede forward.
[Bill Bradley continued.] Now we’d like to talk about the merits of A.B. 320. While I’m on this verdict chart, it’s very important to realize what this bill would do in the case where there is a policy limit demand, the doctor consents, and the insurer, who is entitled to say, “We would rather go to trial.” No one is trying to take away their trial right. However, if the insurer makes the decision to go to trial and put that physician’s reputation at risk, the incredible emotional wear and tear on everybody involved in the trial, they better have all their ducks in a row. They better have thoroughly investigated this claim and have a very good understanding of the nature of the liability and damages. It has to be a very intense investigation so they feel comfortable. If they’re going to go to trial, at that point, this bill requires that they hire a lawyer whose only interest is that of the doctor.
Realize that when a claim is filed, one of the things a malpractice company does is appoint an insurance defense lawyer to represent that physician. Those insurance defense lawyers will all swear, and I believe they are attempting to do their best, that their sole obligation is to that physician. However, they are being paid by the insurance company, and physicians have a right to question does allegiance belong to the doctor, or does it belong to the insurance company? After all, the [lawyer’s] relationship with the insurance company will go on and on; their relationship with the physician will only last the time length of the case. Consequently, under A.B. 320 at the time when that policy demand limit is made, the doctor is entitled to ask for a private counsel who is paid for by the insurer; after all, the insurer is now making a decision to gamble, and the physician should have the right to an attorney who has not even an appearance of a conflict.
The other thing that A.B. 320 will do in this respect, by the way, it’s mirrored in Senate bills that are currently being evaluated by the Senate Committee on Commerce and Labor, if they proceed to trial and they did not conduct a thorough, adequate, and reasonable investigation before they proceeded to go to trial, in other words, acted unreasonably in the decision to go to trial, and a verdict results in excess of the policy limit, that insurer is held responsible for the verdict. That is very important, to take the responsibility off the physician and put it onto the insurer.
The other positive aspects that we have been asked to comment upon in A.B. 320 have to do with the intervention in the rate filing; that’s Section 5. Any time there is a rate increase, the Insurance Commissioner holds a hearing. Under current law, a physician may be entitled to intervene and ask questions, but the rate hearing is a very regulated process. This bill would allow an advocacy group or other interested parties the right to appear at the rate hearing and ask questions like should have been asked when these rate decreases were being done by St. Paul.
[Bill Bradley continued.] Section 8 deals with the insurance company’s investments. If there is an insurer that is not doing appropriate investments, that should be able to be pointed out. In A.B. 320 if an insurer repeatedly insures a bad doctor and is incurring substantial losses that it is then passing on to the rest of the medical community, that is reason not to grant the rate increase.
The disclosure of information to doctors under Section 20 is very important for the physicians to know the plans of the insurer on how they’re going to be proceeding with the claim.
Chairman Anderson:
You need to be trying to come to a conclusion.
Matthew Sharp:
Section 22 governs the withdrawal from the insurance market in the St. Paul example. If St. Paul had withdrawn under this bill, they would have had to provide a 120-day prior notice of intent to withdraw to the Insurance Commissioner. They would also have to submit a written plan for withdrawal that would need to be approved by the Commissioner and then followed so the Commissioner, whose job is to protect the consumer, would be allowed to work with the insurance company to protect, in this case, the doctors who would be left without insurance.
Mr. Chairman, the next part of my presentation has to do strictly with the managed care provisions, so we can take questions now on the medical malpractice and then go to managed care; however you’d prefer to do that.
Chairman Anderson:
How much more time is there left to your presentation?
Matt Sharp:
With the managed care, probably three to four minutes.
Chairman Anderson:
Let me get to some questions here, so we can get them out of the way. The problem is about time limits. I have at least two more people I’ve guaranteed a speaking opportunity in support of the bill, and I want to make sure that people on the other side of the question are heard equally.
Assemblyman Geddes:
Mr. Bradley, I need a clarification on the [verdict] table [of Exhibit E]. Cases 2, 8, and 9 show nothing in the panel findings [area], and in cases 2 and 8, there is nothing in the nature of case area. The panel was there; did these not go through the panel?
Bill Bradley:
Despite Ms. Combs’ and our best efforts to get information on all these cases, in some cases either they were sealed and the lawyers could not provide us information, or we could not make contact with anybody that would provide us with information. On case 9, I have spoken with the plaintiff’s counsel, and that was entered into a confidential settlement.
Assemblyman Geddes:
Did that go through the panel or not, or do we know?
Bill Bradley:
It did go through the panel.
Assemblyman Carpenter:
On your handout regarding the verdicts, what generally are the policy limits? Are there set amounts or do they vary?
Bill Bradley:
Generally, it’s $1 million per event, and $3 million per year. In A.B. 1 of the 18th Special Session, any physician that maintained that type of coverage was entitled to the reforms that were addressed in A.B. 1 of the 18th Special Session, so that is, by far, the standard policy in Nevada.
Assemblyman Carpenter:
When we’re talking about the doctor wanting to settle, does he have any authority to say he wants to settle this, or is it left up to the insurance company and they have to disregard his wishes?
Bill Bradley:
In the policy is a consent clause so before any settlement discussion can be initiated the doctor must consent. The reason that a doctor would consent, even though they feel very strongly about it, if there is a very bad injury and the likelihood of that verdict is high, that it would exceed $1 million, in most cases, representing someone who is severely injured as a result of a medical malpractice error, when the physician offers the policy limits, we feel compelled to take that offer.
You hear about the anecdotal evidence of physicians being pursued individually. In the 21 years that I’ve practiced I have never done that. When the insurer and the doctor team up and offer that policy limit of $1 million even though my client’s damages may be higher, we cannot afford to wait. We cannot afford to wait through the decision of the Nevada Supreme Court, because there will certainly be an appeal, and then to try and pursue a physician, or anybody else, individually, is a monumental undertaking complicated by offshore investment concerns, bankruptcies, and a myriad of reasons why that is not prudent for our client. By offering the policy limits, that physician will be given a release of all claims and the case comes to an efficient, final conclusion.
Assemblyman Carpenter:
But if the insurance company does not want to enter into that and it goes on to trial and the award is more than the limits of the policy, then the doctor could be possibly liable for more?
Bill Bradley:
The doctor is definitely liable for more. Under A.B. 1 of the 18th Special Session the doctor is definitely liable for all the economic damages. The doctor remains liable for that, and, in most cases, where there is a verdict that exceeds the policy limits, a second lawsuit is initiated where the doctor brings a lawsuit against his insurance company for failing to act reasonably for not settling the case within policy limits.
Assemblyman Horne:
I have a question on Section 8, the investments portion. Do you think it may be a little broad? It’s not uncommon for any business to try to recoup their losses in another vein of their business. That’s what insurance companies are doing. How are we going to categorize whether or not the investments that they lose money on are just investments they lost money on, or were they bad investments? Who’s going to make those determinations, because I think that’s where we would have to limit it.
Bill Bradley:
Under Section 8 the Commissioner would make that decision after a hearing. I don’t know how many investments they’re going to find under this provision that qualify for disapproval of the rates. If there is somebody that is not investing prudently, the Insurance Commissioner is entitled to conduct that examination to see if that is the case.
Assemblyman Mortenson:
How can Nevada regulate investments of an insurance company that’s not headquartered here? I guess they cannot, but they can use Section 8 to mitigate any bad investments regarding insurance increases.
Assemblyman Brown:
There’s much I like about this bill, but as Mr. Horne stated, I think a sticking point would be “imprudent investment of money.” It’s a relative and subjective issue; I don’t know if there’s anything we can do to make it any more objective. In Section 8, and this may be a matter for the insurance representatives, on the latter portion of the section where it deals with the unreasonable or vexatious litigation or the continued insuring of a physician with ten or more judgments and the $5 million figure, that seems like a small amount of insuring activity. Can that influence the rate setting in a locality?
Bill Bradley:
I would defer to the drafter of the bill in terms of intent. Certainly a $5 million verdict can occur, but if there’s a $1 million policy limit and liability is reasonable clear, we should never get to the $5 million verdict.
Assemblyman Brown:
I understand that, but as far as disapproval of a rate increase—
Bill Bradley:
I see what you mean. I think that was intended to deal with the situation that we’ve had in Las Vegas. You’ll be getting another chart when we talk about the tort reform of the repeat offender physicians in Las Vegas who continue to get insurance. Whether it’s a 10 or 12 verdict, $5 million or $7 million, I think at some point an insurer has to be questioned about how long are they going to continue in this type of conduct as far as asking for rate increases for all physicians, based on the conduct of a few.
Assemblyman Brown:
I am trying to see how strong a relationship exists between the rate increase proposal and that continued insurance practice.
Bill Bradley:
The one physician that we will talk about, Dr. D’Ambrosio, the spinal surgeon, I believe, at last count, has 41 claims against him in Clark County, all under policies that were issued a couple of years ago. He happened to be a spinal surgeon, and so when he erred during spinal surgery on a Clark County resident the consequences were devastating. I feel very strongly that that type of conduct going unchecked and continuing to be insured can have devastating effects on what the insurance companies will tell you is the critical mass of the number of doctors, because nobody can simply share that number of claims through our small group of physicians without having significant rate increases to cover one physician’s conduct.
Matthew Sharp:
We’re now turning to Sections 4 and 29 of the bill.
Chairman Anderson:
I need to put you on a real tight time limit; you need to really go fast.
Matthew Sharp:
I understand. Sections 4 and 29 deal with managed care and health maintenance organizations (HMOs). The purpose of each of those provisions is to level the playing field. As the law now exists, automobile, homeowner’s, and disability insurers are subject to what’s called the Nevada Unfair Claims Practices Act; the only insurance industry entity that is not subject to that act is the HMO. Section 29 makes HMOs subject to those provisions; it’s just a matter of fairness protecting the insured and leveling the playing field so all insurance companies act fairly. Section 4 ensures that the standards relating to pre‑utilization and medical necessity are subject to the Unfair Claims Settlement Practices Act.
Assemblywoman Angle:
Regarding the cases where you cite the settlement and the actual verdicts, is there a difference between the verdict and actually what the insurance companies paid out?
Bill Bradley:
There was most certainly a difference in the payout. We don’t have those numbers because once the jury returns a verdict the physician, through his insurer, appeals; that’s a three-year process. During the appeal, the insurer will “dangle a carrot” until finally the injured victim is forced to take that, but at the time they take that, they’re required to sign a confidentiality agreement, so we can’t get you that number. All we can report to you are the losses that the insurer incurs within a year, but trying to find out what happened to any of these victims is very difficult to find out.
Assemblywoman Angle:
Is there any provision in the bill for that?
Bill Bradley:
To prevent confidential awards so you can find out the numbers?
Assemblywoman Angle:
It sounds like they’re claiming something as a loss that actually may not be a loss. Is there a way to make those numbers actual, rather than having that difference?
Bill Bradley:
I think the Insurance Commissioner is best suited to answer that; her rates will be determined on the losses the insurers report.
Chairman Anderson:
Any other questions for these two gentlemen?
John Williamson, Cardiologist, and President-elect, Nevada State Medical Association:
[Introduced himself]. I’m here to register our support for this bill.
Larry Matheis, Executive Director, Nevada State Medical Association:
We want to thank Majority Leader Buckley for bringing together a number of the issues that have been talked about as contributing to some of the aspects of how the problem developed, certainly to the depth of the crisis in southern Nevada, and how the options to get out of the problem weren’t as available as they should have been; the issues related to insurance are important. As Mr. Bradley indicated, there are also two pieces of legislation the Senate is processing which deal with very similar issues, some with exactly the same approach, some with a slightly different approach, S.B. 122 and S.B. 250. I should imagine at some point you’re going to be comparing and drawing the best language you can get a consensus on.
Since I think Ms. Buckley did an excellent job of talking about the part dealing with the professional liability insurance reforms, I’d like to focus a little bit more on the issues that Dr. Ellerton pointed out, the contributing factors of the pressures on physicians and all health care providers resulting from the significant changes that have occurred in the last decade in how the health care system is structured, the inflexibility of what physicians and other health care professionals can do in treating patients, and in dealing with the business costs associated with being available to be a provider. I think those issues are addressed here, as they are again, in several other bills of this session.
Section 1 and a number of other sections deal with the specific issues associated with the panel fees. Senate Bill 99 of the 71st Session was intended to ban the practice of charging a fee in order to be able to be listed so that you can actually provide your professional services to the patient. It’s an odd arrangement that was a mutation of a bad idea that grew and became a profit center for some insurers. What happened was that some rather creative folks thought they found a way around the ban—uninsured entities that offer panels to insured entities that they could later argue were not explicitly covered. I think this closes that last loophole and says the contracts that are entered into are so deeply discounted the way they are, adding an annual fee just to be listed on a panel is way over the top.
The important issue of contracting is raised in this bill in a number of different sections. This is taken up in another bill, Senate Bill 163, where the issue is that a physician or any health care provider, when they sign a contract with an insurer or health plan, they should know what they are going to actually be paid for the services when they provide them. It’s a novel concept in the health care system right now, or at least it is, unfortunately, in too many cases, a concept which has been approached more in the observance than practice. There is some amendment language on the other side that simply clarifies that it should be part of the contract. There may be a code not provided in the contract that comes along; it may need a supplemental request to be able to get that, but that’s addressed here. One of the problems that physicians find is that they’ve gone through the process and gotten an agreement to do a procedure, but the contract is unreadable, or it refers to another document that is difficult to find, what the schedule’s going to be, and they find out they’re getting less than the cost of actually providing the service, and they’re surprised and distraught.
Physicians are not always known as the most prudent and canny business people, and sometimes they find themselves in a position where they are offering their services at such levels, and indeed, with the tight managed care markets we have, that the ability to deal with a 100, 200, or 250 percent increase in any part of their overhead is simply not possible. That’s part of what made this crisis so deep in a place like Las Vegas, which is a heavy managed care market, that for physicians to have the flexibility to be able to pass on unexpected and unanticipated costs has been huge. Those who are trying to hang onto their practices hoping that we will pass through this whole thing, what are they doing? They are borrowing money; there’s a whole new set of financial advisers in several banks in southern Nevada who are set up to figure out how to be able to loan money to physicians to pay their insurance. There is clearly a set of pressures on the practice of medicine that makes it exceedingly difficult to deal with any of these kinds of emergent situations that come along when a system around them fails.
Assemblyman Mortenson:
Why is a spinal physician still practicing after 41 claims against him? Don’t we have a medical board that should have done away with his license? Maybe you could explain that.
Larry Matheis:
I’ll give you my opinion; yes, we have a board that should have done something and they should explain why they didn’t. The bill also goes on to deal with the continuing issues of timely payment. I’m pleased to say that the work many of you have done has really helped to defuse a lot of the worst problems associated with timely payment of health insurance claims. A major part of that is S.B. 99 of the 71st Session that added some pretty severe punitive parts if the law wasn’t followed. I have to say that the Insurance Commissioner went the extra mile and set up a task force to look at continuing issues of prompt payment, how to make sure the law is implemented, and published a good guide that’s very useful for provider offices—we’re continuing to try to identify problems. We do not anticipate that any good health insurer or plan would have to face the kind of punitive actions that are contemplated in this bill, but we have had experience to say, “What do you do when someone is egregiously bad?” This would allow for the ultimate sanction, which is to really look at whether or not they are able to do business. I think that that’s certainly an appropriate hammer to have, just in case the timely payment issue heats up again.
We support the bill because it does address a set of complex issues that have contributed both to the depth and the extent of the crisis, and they’re the type of changes which should be able to help us as we move out of this. There is no doubt that it will take a lot of changes and reforms in a lot of areas of how the health care system interacts with other systems and how the laws deal with the health care system as it continues to evolve. We are not going to see the health care system in southern Nevada be at the level it was two years ago for some time.
When the key part of the system is put into the kind of disarray the physician community has been in during the last year and a half, it causes pressure on every other part. We know about the nurse shortage and how much pressure that’s put on. The emergency departments are overused, the OBs, who have picked up the slack from the OBs who have left, are now at 100 percent and more; they’re eventually going to experience burnout and restrict their practices. We’re going to go through phases of this, but these kinds of policies should help us to get out of it as easily as we can and to avoid, we hope, anything like what we’ve gone through this last year and a half to occur again.
Chairman Anderson:
Questions for Mr. Matheis or Dr. Williamson?
Larry Spitler, Associate State Director, Advocacy, American Association of Retired Persons (AARP)-Nevada:
[Introduced himself.] We have consistently supported the concept that unless the insurance industry is brought to the table, we’ll never really understand or resolve this issue. We think the work that was done by the interim committee that brings forward A.B. 320 is certainly on the right track, and that’s the way we will eventually get the issue resolved. The American Association of Retired Persons (AARP)-Nevada supports A.B. 320.
Chairman Anderson:
Thank you very much. Ms. Gang has signed in and is for the legislation. I want to move to the other side; Mr. Nichols, with the National Association of Social Workers, Nevada, is in support but not speaking; and Ms. Gilbert from Progressive Leadership is in support and not speaking. Anybody else who feels an absolute need to speak in support of the legislation that has not had an opportunity to speak? Mr. Wadhams in opposition.
Jim Wadhams, representing the Nevada Hospital Association; Nevada Independent Insurance Agents; Nevada Association of Health Underwriters; Anthem Blue Cross and Blue Shield; American Insurance Association; and Nevada Mutual Insurance Company:
[Introduced himself.] I have actually signed in on behalf of a number of clients. Rarely have I had the opportunity to put so many clients on a list, but this bill contains several different policy issues. While I sense that the single theme of the bill is frustration, with which I take no opposition, I think the testimony that has preceded mine, and particularly from the physician community, reflects a very high level of frustration. I think your constituents, particularly in southern Nevada, are experiencing that same level of frustration as we felt with the problems of the Trauma Center last summer, and the elimination of at least four hours of access to health care because the system of emergency delivery was frozen. I sense that this bill is really a result of a lot of that. In one respect or another, I have represented the insurance industry for a number of years and, in my recollection, it never failed to come to the table, and I think there are a lot of issues that are raised by the policy questions that are worth considering.
The bill has two major components intertwined. One is the circumstance where the patient is suing the doctor. That is an adversarial relationship that has been created between the patient and the physician. Those are the sections dealing with medical malpractice. The other component of the bill deals with the delivery of health care through the health insurance mechanism that is, in most cases, policies purchased by employers. I hasten to add that this bill would have no effect on those policies that are handled by ARISA (Australian Retirement Income Streams Association) trusts, and health and welfare trusts through the federal government, so when we’re talking about the health insurance piece of this, I’m afraid that the frustration expressed by our physicians, about 65 percent of that frustration will continue because this legislation, even if it were passed, would not eliminate that problem in the vast majority of the practice of our physicians.
Let me take a minute on the medical malpractice side. I represent a company called Nevada Mutual Insurance Company. It is owned, was formed, and exists for the sole purpose of protecting about 660 southern Nevada physicians. There are no stockholders; it is a mutual company. It was created and officially licensed in May of 2002 to help those physicians deal with the medical malpractice insurance situation, and I think it’s fair to say that those 660 physicians would at least request an exemption for their company from the application of the medical malpractice laws. It would undermine their genuine effort to try to manage this process for the benefit of their members in southern Nevada.
Having said that, in reading those provisions and listening to the presentation of the proponents, there is a person who should be on this stand from a company I do not represent, the St. Paul Insurance Company. As my friends from the Trial Lawyers Association pointed out, the prior Attorney General filed an action in the judicial branch of government where such forms of punishment are decided. Whether or not they conducted themselves properly, fairly, or appropriately is a judgment that has to be made in that branch of government. In order to try to address that problem here with legislation attempting to deal with what St. Paul did in a five-to-seven-year period in the 1990s, and at the same time, disadvantage those physicians who asked the Legislature to handle the matter, during a special session regarding medical malpractice, in a manner which would bring relief to the insurance rates, and the existence of insurance companies to offer protection, legislation that would be punitive would be counterproductive to the primary goal of the physician community. Again, I reference the entity that was formed by physicians to deal specifically with that.
There are a couple of general comments that I think I need to correct. A prior witness said that insurance companies are in the business of paying claims. I suppose, in a way, that might be true, but insurance companies are in the business of making money. The decision by St. Paul to get out of the medical malpractice line of business was based upon a determination by a newly hired CEO (chief executive officer) that they weren’t making money in that business and wanted to do something else, so capital will follow the opportunity for return. It’s also important to note, as in the company that I specifically represent, it is a mutual fund company; it is not in the business to make a profit, it is in the business to break even on the business that they do for the benefit of their policyholders. Most of the medical malpractice currently being written in this state is written by insurance companies not owned by stockholders, but owned by their policyholders. The notion that we try to contrive with the anecdotes about St. Paul generating profits for some out-of-state entity doesn’t really apply in the real-life situation here in Nevada today.
[Jim Wadhams continued.] I think there’s another piece that came out of the prior testimony, which is probably why this bill is in the Judiciary Committee; in this adversarial area, lawyers handle litigation. There are lawyers who represent defendants, and in the courthouse that’s where the issues are resolved, in the hands of lawyers. I look particularly at that phrase in Section 8 on “vexatious litigation.” I think that comes right out of Rule 11 [of the Nevada Rules of Civil Procedure] which is designed to deal with those persons responsible in our system of government to deal with litigation, attorneys.
I’m a little perplexed at some of these issues on settlement of claims in adversarial situations where the primary duty of the insurance company is to defend the physician by hiring competent counsel licensed in Nevada. The settlement of a claim for less than the value that a jury would award seems to be inconsistent with representing the best interests of the plaintiff. Our courts exist for a reason and that is to allow juries to render decisions, and I would take exception to those who would try to eliminate and undermine that opportunity in our system.
On the health insurance side, I think one of the frustrations expressed by Dr. Ellerton, unfortunately, will continue in the vast majority of his practice that will not be affected by the passage of this bill. There are bills that are being worked on dealing with many of these areas, and I think those areas should be incorporated into the consideration of this Committee. This bill may be the one that passes, and indeed, it should have the benefit of the dialog and policy development that’s going into those bills, some of which are being processed in sister committees in this house, and some in the other house, so those policy questions are well worth continuing to resolve.
The final thing I wanted to comment on is that there seems to be an incongruity in what we talk about in this area. We want rates to be fair and reasonable, and our physicians have asked this body, both during the special session and now, to do what it can to assist in keeping those rates low and bringing insurers back into the marketplace. I’ve heard suggestions that one of the ways to do that is to repeal the antitrust exemption of insurance companies. That antitrust exemption exists because we regulate their rates pursuant to a federal act that gave that power to the states. If you want the antitrust exemption to apply and let them compete, which means they’d charge prices based upon a marketplace as opposed to a regulated system, all we have to do is repeal state regulation of insurance rates. That’s a confusion that oftentimes gets in the way of understanding what the problem is. For example, the section on evaluating the prudency of investments, the law that’s been passed by both houses of this Legislature prohibits an insurance company from charging a rate to make up on any loss in a prior year, irrespective of where that loss came from. I suspect if the Insurance Commissioner testifies, or her staff, they will indicate that they do not consider that in their system; they only utilize rates to evaluate the predictability of what’s going to happen in the future.
[Jim Wadhams continued.] There’s at least one state that sets the rates. The problem with that system is it doesn’t give your physician the opportunity to benefit from that competitive marketplace that, given the cyclical nature of this business, with which I take no exception, will eventually reduce rates. If you had the state setting rates as we used to do with Workers’ Compensation when we had a monopoly, you will artificially set a level that may prevent the advantage of competition flowing to those physicians who are actually looking for that benefit.
This is an important bill. It raises important policy questions, and it raises questions that should have been dealt with during that interim committee that was beginning to address when the full development could occur. We still have an opportunity to do that with this bill in this body, and I would offer the services of myself and my clients to participate in work sessions to develop the facts necessary and helpful to this Committee to make those policy decisions. I’d be happy to answer any questions.
Assemblyman Conklin:
You said something here that I’m going to try to recreate because it concerns me a little bit. “Insurance companies are out to make a profit.” That was your opening premise, and I agree with it 100 percent. It’s part of the American culture; we’re a free market society, and I think that’s terrific. However, if you’re out to make a profit, and your next claim is to defend your clients at all cost, which is it? We understand that the doctor has a reputation, but your business is out to make a profit, and if I look down at this list of 23 cases, there are a lot of cases here you didn’t make a profit, but you had the opportunity to save a substantial sum of money. Which are we in the business of, the business of doing like the Legislature and ultimately deciding what is justice, or are we in the business of making a profit and, therefore, we need to make better decisions based on this information?
Jim Wadhams:
I think that’s precisely the point of my testimony; you cannot use charts, which the proponents admitted, that do not have all the facts about those cases. That’s the essence of what the interim committee was heading into, is how do we break down these cases? What were the facts in each case? Was that a situation where reasonable minds looked at the value of that claim and said, “This is a $175,000 claim,” as opposed to a $1 million claim, and that was the basis of the litigation. As all of you know in your personal experience, probably most with auto insurance, there are really two issues: whether you are liable, and the amount of damage. The suggestion implicit in this is that if I have a $300,000 auto insurance policy and the plaintiff would accept my policy limits and I put a small dent in their fender, is that a legitimate place to have a dispute, even though I rear-ended that person? I think that’s the kind of question that is not revealed by that chart which needs further explanation. Secondly, if it deals with St. Paul, that bad actor is already gone.
Assemblyman Conklin:
About five years ago my wife’s car got stuck in the mud and we called a tow truck and brought somebody out to tow the car. They wrapped a chain around the rear axle; the car doesn’t have a rear axle, it has a beam that comes out of the body. It bent that beam in half at a 90-degree angle—useless. I went to my insurance company and wound up paying for the repair of my car because my insurance company said the claim was too small to defend in court to try to get their money from the company, around $700; that was a business decision on my insurance company’s part. I soon got rid of my insurance company and went to another one, but that was a business decision made for purposes of profitability because of the cost associated with trying to fight even though what they were fighting for was right. Again, I come back to this and I think it’s very important to understand that we have many cases where the judge’s evaluation is a certain amount, the plaintiff’s request is for a certain amount, probably pretty reasonable, and yet we take it to court and it winds up being 80 times as much. Have we truly done the doctor or the insurance company justice in that particular case?
Jim Wadhams:
I think that’s a policy question that will require a more careful analysis of those particular cases and the circumstances that are involved there. Your original question raises precisely the point that I’m trying to make, there are two responsibilities in a liability insurance policy. One is the duty to defend, which means you hire a lawyer who you expect to defend you vigorously and effectively, that is our commitment as lawyers, and secondly, to indemnify you for losses for which you become obligated. To then break down into those limited number of cases where the verdict may have exceeded the policy limits, without information about what the interests and the evaluation of all the parties may have been, may lead you to a conclusion that may not be fully developed.
Assemblyman Horne:
On the issue of the insurance company’s duty to defend the doctor, that’s not really occurring, is it, if you have a doctor who admits to malpractice and wants to settle, but the insurance company chooses to go on and go to trial? If I have a client in the criminal realm and his mother chooses to pay me his attorney’s fees, but the client wants to take a deal, I can’t say, “No, because your mother wants to go on to trial”; that would be malpractice on my part. In other realms we can think of all kinds of examples like that. Just because somebody else is paying the attorney’s fees doesn’t mean they get to make the decisions on the litigation. How is it in the insurance and medical malpractice realms that the insurance company can make the decision once the doctor has accepted liability and wants to settle? I think it’s good that at that point the doctor should be able to get his own attorney at the expense of the insurance company.
Jim Wadhams:
I think that is precisely the area that I’m trying to develop here. You’ve got to break down those circumstances and find out what actually was going on in that particular case. As was testified to earlier in the medical malpractice area, it is unique in which there is a “consent to settle clause” in these contracts. I think that’s an important point; there are two issues, the liability, and the value of the claim. We attorneys make those kinds of judgments in advising our clients every day, and I think those who are involved in litigation, hopefully they are competent to do so, are advising their clients in that regard. There are defense attorneys who are under the same obligations of rules of practice as the plaintiff’s attorneys. Under the duty to defend you’ve got to understand that there is also a whole body of law, carefully developed in our courts, on the bad faith that results from a failure to properly protect the plaintiff. I think the kind of rule that may be coming out of legislation such as this could undermine that in a much broader area. To imply that every case should be settled at policy limits will potentially have the effect of bringing every settlement to policy limit value when it could have been settled at less.
In this area of law, the statistics that were presented by both sides in the special session indicated that about 65—70 percent of the plaintiff’s lawsuits in medical malpractice are lost. So it is not fair to assume that every case has a settlement value within policy limits, and it’s probably not fair to assume that every plaintiff’s case was frivolously brought. That’s a judgment that has to be made on the analysis of those cases as opposed to a chart that is incomplete with the information.
Assemblyman Horne:
But this bill doesn’t take that privilege away from the insurance company to defend against the case; the doctor can still have his own attorney. You can still go forward, is that not correct? The doctor has chosen to retain his own attorney since the insurance company’s attorney is not considering the doctor’s advice in settling. The insurance company is not barred from having their own attorney fighting the claim.
Jim Wadhams:
As Mr. Bradley pointed out, the attorney that’s hired is obligated, under the Rules of Practice in Nevada, to protect the interest of the client, who is the physician.
Assemblyman Horne:
“Who” is the insurance company.
Jim Wadhams:
We have attorneys that don’t do that. We have another branch of government that is obligated to deal, rather severely, with an attorney who has failed to advocate the interest of the physician. I think this is a great Committee, but this issue needs to be explored. If the defense bar is somehow failing, and information has developed to identify that, then that ought to be carefully developed.
Assemblyman Geddes:
I’m just following up on a question that Dr. Mabey had asked earlier in regards to the amount that you’re allowed to invest in the bond market versus the stock market. What’s your opinion on the issue?
Jim Wadhams:
There is a section in the Nevada Revised Statutes that describes both the quality and the diversification of the insurance company’s investment portfolio. There are limitations on how much can be placed in any one kind of investment, or investments in any one kind of an entity, and there are also requirements on what they call “seasoning,” that the quality of the investment has to be of a certain level. The basic principle that the Legislature has adopted is that insurance companies must have liquidity so that they have the dollars to pay the claims; they must have an adequate liquidity and it must be in conservative investments. It’s called statutory accounting, which is a reference to the statute that creates. The simple answer to your question is the maximum that’s allowed under the statute for equities is either 30 or 35 percent; it is in NRS Chapter 681A or NRS Chapter 681B.
There was anecdotal testimony that St. Paul lost hundreds of millions of dollars in Enron and that’s the problem here. I think Mr. Bradley’s charts, with which, again, I take no exception, show the cyclical nature of business enterprise. I suspect that would be the same for PERS (Public Employees Retirement System); if you saw the PERS investment cycle chart it would be identical to that.
Assemblyman Mortenson:
We were advised in previous testimony that there are creative ways around that 30 to 35 percent so that an insurance company can invest more into the stock market, or whatever they choose. Can you address that?
Jim Wadhams:
I practice law for a living and my job is to advise clients how to comply with the law. Sometimes that’s considered being creative with the law; I’m not sure. I think the simple answer to your question is every insurance commissioner has a law that is almost identical to the one I’ve referenced here in our Nevada Revised Statutes. They are examined; they file audited statements every year on March 1st that list their investments. The answer to that question is if they are taking creative ventures into circumventing that law, the law is in place, the regulatory authority exists to bring them to heel.
Chairman Anderson:
Thank you very much for staying within the time limit.
Kerry Kravik, Assistant Vice President, Physicians Insurance Company of Wisconsin:
[Introduced himself.] What we wanted to do in our being here was let the Committee know that we are here as a resource for them on the bill. There are some sections in the bill that we have more of an interest in than others that are troublesome to our organization in doing business in Nevada. What we’re offering is a resource to work with the Committee members and answer any questions that you may have from us as an insurance company doing business. I’d just like to state for the record that PIC Wisconsin is a physician-owned company; we are privately held, and we are advocates for physicians. We do take issue with some of the previous testimony in talking about all the things that are happening, and have happened, with St. Paul, and to a certain degree some of the ill will and the things that have happened with St. Paul being passed on to some of the responsible carriers that have been doing business in this state. PIC Wisconsin has been here for more than seven years insuring dentists, and the last five years insuring physicians, along with the mutuals that are considered responsible carriers, and would appreciate the fact that we are not grouped in the same vein as St. Paul. I’d like to take any questions if anybody has any.
Chairman Anderson:
One statement that was made is the fact that new insurance companies coming into the state of Nevada often use the actuarial rates designed by the St. Paul Company. With your insurance company, what’s your reaction to the market being driven by St. Paul and the competition for that market share?
Kerry Kravik:
As a new carrier coming into the state, whether it’s in Nevada or any other state that PIC Wisconsin would enter, you are always behind the eight ball because of the experience with the state and actuarial results. What we do as an organization is look at blended rates when we work with actuaries. We utilize our own in-house actuary and we substantiate that with a leading national actuary firm, Loehmann U.S.A., and also Tillinghouse, who help us with the evaluation of our rates. When we talk about blending rates we look at who is the market leader and how long have they been in business in the state, how much market share do they have, and to date, what have they had for their experience, meaning their loss ratios, and et cetera. Then, rather than relying 100 percent on that, we also blend that with national trends. So, yes, as a carrier, we are definitely looking at who the dominant player is in that state.
Assemblyman Carpenter:
In the rural areas and in Elko, where our nurse anesthetists are losing their insurance, would you be interested in talking to them?
Kerry Kravik:
Interesting dilemma that you’ve brought up with nurse anesthetists; we consider them ancillary care providers. One of the reasons that nurse anesthetists, and other ancillary care providers, are finding it difficult to have insurance is because traditionally what medical malpractice insurance companies would do is provide coverage as long as they were supervised by a physician or part of a group. What’s happening with some of the ancillary care providers is they are now starting to practice some of the procedures without supervision of a physician, and in the case of CRNAs (certified registered nurse anesthetists), they are providing some anesthesiology services without the advanced training or supervision of an anesthesiologist, so it makes it very difficult.
Assemblyman Carpenter:
The people I am familiar with have been practicing for years and they had a doctor but he left. They have had no claims against them so I would like to see you look at them again.
Chairman Anderson:
Any other questions? Thank you for making yourself available to the Committee as we move through this.
Assemblywoman Buckley:
I wanted to mention that a couple of health insurers on the first party part of it had some suggested language changes to make things clearer, and I agreed to gather all of those and then present them to you next week.
Chairman Anderson:
I want to make sure that we get to the Insurance Commissioner and see if there’s something she wants to put in the record, or if there’s anyone from the Nevada Division of Insurance needing to put anything in the record.
Alice Molasky-Arman, Commissioner of Insurance, Division of Insurance, Nevada Department of Business and Industry:
[Introduced herself.] I have with me Cliff King, Chief Examiner of our property and casualty insurance section, in the event that you have any questions that are beyond my technical expertise. I do not have any prepared presentation with respect to this bill. I do have some comments on certain sections and would be happy to work with you on those. Regarding Section 28, we do not regulate Medicaid; that is federally regulated along with the Department of Human Resources, Health Care Financing and Policy Division. We do not have any real authority to review any kind of evidence of coverage so I would ask that be reconsidered.
Also, with respect to the revocation of health insurers’ licenses, and I certainly recognize the problem and appreciate Larry Matheis’ remarks about our prompt pay task force, we have made, I believe, great strides. We brought the industry physicians and the physicians’ associations together to work on this ongoing task force. We do have a guide for the physician’s use; we have also developed a video, and we have already presented two seminars to physicians and their administrators. We are hoping to get this information out to every provider in this state so they can be helped in how they present claims so that claims can be processed more smoothly. We have seen a tremendous drop in the complaints, and in our market conduct examinations we have not observed any insurer who is missing the mark established by S.B. 99 of the 71st Session.
The only thing I would comment on is there are extenuating circumstances and one of the most severe occurred several years ago with an HMO that had an intermediary; Pacific Care had an intermediary who was to pay the claims. Pacific Care paid $30 million to the intermediary, but the intermediary did not pay those claims; they filed for bankruptcy. We had physicians here in the state who were due $30 million. Pacific Care did come forward and paid that $30 million once again. That took a great deal of time, it was far beyond the time limit, but they did come forward. There was a law that placed the responsibility on the HMO in the event an intermediary was used. But in that type of situation, I really was more motivated toward getting the physicians and providers paid. We did impose a fine on Pacific Care; that fine was considerably reduced due to the fact that they had to dig into their pockets for an additional $30 million.
Chairman Anderson:
We thank you for being here today. I wanted to make sure that if there was something in particular that stuck out you had an opportunity to comment to the Committee. If you and Mr. King are making yourselves available over the next week to try to solve whatever problems there may be in the bill, we’d appreciate that.
Alice Molasky-Arman:
We’d be delighted to work with you on that.
Phil Nowak, Chief of Business Lines, Division of Health Care Financing and Policy, Nevada Department of Human Resources:
[Introduced himself.] Mr. Chairman, in light of the Committee’s interests I’ve provided a complete statement of the Division of Health Care Finance and Policy’s position (Exhibit F). Our Division’s responsibility concerns Nevada Medicaid and the State Children’s Health Insurance Policy Program (SCHIP), or Nevada Check Up. In this regard it’s our responsibility to ensure that there is a stable and adequate health care provider base from which Medicaid providers can be recruited.
We are neutral concerning A.B. 320 as it relates to the commercial health maintenance organizations (HMOs). Our issue concerns the request that the Medicaid and SCHIP programs be exempted from the provisions of the bill, and I’ve enumerated those in my written testimony. I think perhaps the most basic reason for our position, as implied by the comments from Commissioner Molasky-Arman is that both Medicaid and the Nevada Check Up program are joint federal and state programs and, as such, they are regulated more stringently than commercial HMOs. Our contracts with the Medicaid HMOs include: federal and state regulations regarding enrollee income, location of residence, access to and continuity of care, availability of services, and other provisions that do not apply to the commercial HMOs. Some of the specific aspects of A.B. 320 as submitted, potentially conflict with our existing and prospective contracts.
I thank the Committee and if there are questions, I’d be happy to entertain them.
Chairman Anderson:
Thank you for being here. One of the concerns that we continually hear from physicians is the timeliness of payment, and particularly in Medicaid cases, the level of compensation for the services that are provided. I know some of those are not within your power, but how about the timeliness of payment question?
Phil Nowak:
With respect to our contracts in light of the passage of S.B. 99 of the 71st Legislative Session, the provisions of S.B. 99 of the 71st Legislative Session are more stringent than the applicable federal regulations and, as a consequence, the Medicaid HMOs are subject to compliance with the prompt pay provisions.
Assemblyman Carpenter:
I think it has improved, but I’m getting a lot of complaints from the physicians in Elko in regard to Medicaid and their payments. I hope that you will continue to improve your program so they can get paid. I know one physician had to borrow money to finance the Medicaid payments that he was waiting for.
Phil Nowak:
I’m pleased to comment with particular reference to areas that are outside the coverage of the Medicaid HMOs, the Division has embarked and is moving forward with development of its Medicaid Management Information System (MMIS). It is a major step forward in terms of technology and the ability to be much more diligent in the ability to be timely in virtually all areas of claim payment, whether HMO, or in the case of areas in rural Nevada, fee-for-service payments.
Assemblywoman Buckley:
I think that we shouldn’t expect of others what we don’t expect of ourselves, and I hate having special breaks for government. We have to stay in line with federal law and regulations, but there’s a philosophical difference there.
Chairman Anderson:
Is there anybody who feels that they have written information or specific information relative to Assembly Bill 320 that they need to get into the record so that the Committee can move forward, either in favor or against the legislation? Let me close the hearing on Assembly Bill 320.
There may be a possibility of revised agendas for Thursday and Friday because we had a work session document for today that we didn’t get to. Is there anything else to come before the Committee? We are adjourned [at 10:32 a.m.].
RESPECTFULLY SUBMITTED:
Carrie Lee
Committee Secretary
APPROVED BY:
Assemblyman Bernie Anderson, Chairman
DATE: