Local firm offers doctors insurance option

NJ PURE hopes to ease the burden of purchasing malpractice coverage in New Jersey.

By: George Frey

"Lena

Staff photo by Mark Czajkowski
At NJ PURE, Lena Chang, Eric Poe and James Sheeran are working to give New Jersey’s doctors a new option in the battle against rising malpractice insurance costs.


   Concerns that doctors soon might be fleeing New Jersey, as they have some other states, to escape the increasing burden of insurance costs that have skyrocketed in recent years may be tempered by a local initiative that promises some relief.
   Those physicians now have a new choice for their malpractice insurance as West Windsor-based NJ PURE — New Jersey Physicians United Reciprocal Exchange — recently received its Certificate of Authority from the state Department of Banking and Insurance.
   If you suffer a head injury anywhere, you’re generally in big trouble — but it can be worse depending on what state you’re in. And it could get worse yet, experts say.
   If you need a neurosurgeon in West Virginia right now, for example, you may have to drive to Pennsylvania or Maryland or Virginia. That doesn’t bode well in any situation, especially an emergency. Pennsylvania is not much better, as specialty doctors like neurosurgeons, orthopedics and OBGYNs are leaving their practices because of huge court settlements and the resulting high insurance premiums — among other reasons.
   NJ PURE hopes to stem the tide, at least in New Jersey.
   "This offers responsible doctors a credible alternative for obtaining medical malpractice insurance," said Dr. Lena Chang, president of NJ PURE.
   "We know that many doctors felt forced this year to get insurance from insurance companies they were not comfortable with because they didn’t feel like they had a choice," Dr. Chang said.
   NJ PURE is the brainchild of James Sheeran, who was state insurance commissioner from 1974-1982 during the Byrne administration. He formed NJ PURE along with his wife, Dr. Chang, who is regarded as one of the country’s top insurance actuaries. It’s their third reciprocal exchange. Two prior efforts, MEIE, the Massachusetts Employers Insurance Exchange, which they ran from 1989 until 1993, and NJ CURE, the auto insurance company, are both quite successful today.

Doctors complain of costs,


hope for reforms



   "My premiums went from $8,000 to $14,000 in the last year," said Dr. Jonathan Masoudi, a urologist on Witherspoon Street in Princeton who says it’s a huge increase — but something that hasn’t threatened his practice yet.

   He has friends in Pennsylvania with similar practices who pay $50,000 in premiums for a similar urology practice — a comparatively un-risky specialty. "You have to work a couple of months to pay that off."

   Dr. Masoudi said the crisis is fueled by huge claim settlements that warrant larger insurance policies and premiums, but that it could be worse.

   "In Pa. they have something called the catastrophic loss fund that covers doctors beyond their insurance. Anything that provides more for lawyers to go after makes it worse," he said.

   Dr. Masoudi said he would like to see a cap on pain and suffering awards, but not on disability. He thinks tort reform would change the attitude of society toward medical malpractice.

   "I don’t think that people should always sue for negligence. Not every outcome is the result of bad practice. Claims should be made because there is deviant treatment from the standard care of the doctor, and not just for some other result."

   Dr. Masoudi said he fears that the crunch for doctors and patients will get worse, as Medicare reimbursements are set to be cut further in the future. "That’s the money we use to pay our insurance premiums," he said. Cuts would result in fewer doctors accepting Medicare patients, something "disastrous" for senior citizens, he said.

   Dr. Masoudi and others are hopeful change is on the horizon, and some signs point to what could become a significant restructuring. The New York Times recently reported President Bush and Republicans in Congress may back measures in 2003 that would make it harder for plaintiffs to file frivolous and large- settlement malpractice lawsuits. Their plans also call for more class-action suits to be tried in federal courts.

   "The American Medical Association is pushing hard for a national liability reform package," said Dr. Peter Carmel, the chair of the department of neurological surgery at the University of Medicine and Dentistry of New Jersey, and also a board member of the American Medical Association.

   "We’d like to see a cap on pain and suffering, but no cap on economic damages. Pain and suffering would be limited to $250,000. Additionally, we’d like to see a cap on punitive damages."

   Dr. Carmel said the bill was introduced early in the House, where he hoped it would gain approval in March.

   "The Senate may be tougher. I believe there are 45 or 46 solid votes in the Senate," he said.

   "There are some prominent Democrats that have said that they are on board for the reform. The situation is so desperate I think legislators will see the need for national action."

   Meanwhile, in state government, reform efforts have been hampered by a powerful trial-attorney lobby in Trenton, Dr. Carmel said.

   During the 1970s, it was Mr. Sheeran who rejected malpractice insurers’ requests for a 35 percent rate hike, and he is credited with the creation of the framework for the state’s first reciprocal exchange. That first reciprocal exchange was the forerunner of the current MIIX of Lawrence, which helped doctors and hospitals find malpractice insurance at affordable rates, the company said.
   With a product unique to the medical malpractice insurance industry, NJ PURE is undertaking a number of measures to improve healthcare in the state and minimize the risk on the people it insures. For example, the company will visit each policyholder’s office to assess risks. PURE officials said changing something as simple as the documentation process for incoming patients can prevent a frivolous lawsuit.
   Also, it is requiring the doctors to dictate all of their records, something PURE says should help eliminate the hard-to-defend, classically illegible doctor handwriting. Things like better record keeping and communication around the offices should lead to better care, and the approach is proving popular with the doctors.
   "They’re saying: ‘Thanks for sending out that questionnaire,’" Dr. Chang said. "They say: ‘Nobody’s ever taken an interest in our office like this…’"
   All in an effort to improve healthcare, she says.
   Dr. Chang, Mr. Sheeran and Eric Poe, the vice president of marketing and business development at PURE, went on to explain how NJ PURE works.
   In reciprocal exchanges, doctors with similar insurance backgrounds agree to pool their money and share the combined risk. Each policy issued is non-assessable, which protects policyholders from being held liable for anything beyond paying their own premium. By creating membership requirements — like visiting the offices — the exchange keeps losses down by adhering to specific risk-management criteria.
   The exchange is a not-for-profit organization, in which each subscriber or policyholder appoints an expert company to manage NJ PURE’s operations, known as the attorney-in-fact. In-house-based Reciprocal Attorney-in-Fact Inc. serves this role for NJ PURE.
   NJ PURE will pool the premiums to pay any claims, and use any returns on the invested premiums to pay a sort of dividend to the policy-holding doctors when possible.
   The company is privately held, so premiums will not be subject to fluctuation to offset loss in invested capital. Without investors, there will not be an increase in the premiums because the company has to pay a dividend in a bad year, NJ PURE said. Furthermore, NJ PURE will operate only in New Jersey and will not inflate premiums to account for states that have a high incidence of malpractice settlements. The firm has low management fees and does not charge any commissions or use agents, adding to the savings for doctors and the efficiency of the company, NJ PURE said.
   The company said a major factor in the medical malpractice crisis in recent years has been the severity of claims, not the frequency. NJ PURE cited statistics from Massachusetts from 1991 to 1999 where the number of paid claims was steady, with 250 to 310 annually — but the severity of those claims rose exponentially, from the $300,000 range to the $1 million range.
   So, many insurance companies became more and more selective with the policies they were writing, and upped rates significantly. According to NJ PURE, 42 percent of the doctors in New Jersey are looking for malpractice insurance today.
   Another company, Conventus Inter-Insurance Exchange of Woodbridge, began offering reciprocal exchange malpractice insurance late last year.
   Conventus noted an American Medical Association analysis that showed that "New Jersey was one of the 12 states where the cost of securing medical malpractice insurance has been identified as reaching crisis proportions. The analysis estimated that some New Jersey surgeons or obstetricians may pay more than $200,000 for annual professional liability coverage."
   "Exacerbating the situation, the pool of companies that offer medical malpractice insurance in New Jersey has contracted drastically over the past year. As a result of this worsening crisis, six out of 10 New Jersey physicians will be forced to find a new medical malpractice insurance company amid shrinking market and sharp increases in pricing," Conventus said.
   "With only eight companies operating in the state, it’s not like you can open the Yellow Pages and expect to do that much shopping around," PURE’s Mr. Poe said.
   NJ PURE hopes to set an example and to serve as a basis from which doctors can continue to provide quality healthcare and legislators can base the debate on the tort reform issue. Legislative reform, though, may take some time, Mr. Sheeran said.
   Mr. Sheeran said he might consider setting up other independent malpractice reciprocal exchange companies in other states in the future.
   The directors of NJ PURE are also the founders of the highly successful NJ CURE, New Jersey Citizens United Reciprocal Exchange, which was formed to address the state’s auto insurance crisis in 1990. The firm now insures 38,000 vehicles and has a staff of 180.
   NJ PURE currently has a staff of about 15.