PCF, Insurance Commissioner Continue Battle on Louisiana Medical News

PCF, Insurance Commissioner Continue Battle

By: TED GRIGGS

Louisiana’s Patients’ Compensation Fund Oversight Board and insurance commissioner appear headed for a legislative showdown to decide who will decide the malpractice rates providers must pay.

“Here’s the fight: are we an insurance company like (Commissioner) Jim Donelon perceives us to be, and do we have an obligation to build a reserve more than the amount of the liabilities that we owe?” said Clark Cossé III, a member of the oversight board.

The board’s position is that the PCF is not an insurance company, nor was it ever intended to be, Cossé said. Because of that, the PCF doesn’t have to set aside as much money as an insurer would.

“We have socked away nearly $600 million of doctors’ and healthcare providers’ dollars to ensure that we can pay our claims as they come due,” Cossé said.

The money the PCF has on hand now would cover five years of claims payments.

However, Donelon said the PCF has an unfunded accrued liability of $400 million; the amount the PCF owes and will owe in claims over and above what it has on hand and will take in at its current rates.

The PCF has been stuck at that level for the past five years, Donelon said.

“Which means if the death spiral happens tomorrow, the victims of malpractice will collect 50 cents on the dollar that they’re entitled to,” Donelon said. “That’s an intolerable situation.”

Donelon said that’s why he has urged the PCF board to take steps to retire the unfunded liability.

For 2010, the oversight board had planned to reduce rates by as much as 17 percent for physicians and 15 percent for hospitals, Cossé said. The board wasn’t going to give everybody the full amount, but it wanted to provide some relief because everybody in healthcare is suffering.

Providers are being squeezed by everything from cuts in Medicaid and Medicare reimbursements to managed care, Cossé said. However, Donelon not only denied the rate decrease but told the board it should increase rates by 5 percent overall.

The PCF ended up increasing rates by 2.8 percent overall for 2010, although the oversight board balked at a 5 percent increase for 2011 and adopting a plan to retire the unfunded liability over seven years.

Instead, the board chose not to file a new rate for 2011, Cossé said, a move that left Donelon with nothing to approve or disapprove.

Donelon disagreed.

He told the board it should increase rates by 5 percent and commit to a seven-year plan to amortize the unfunded liability. Donelon said a 5 percent increase for the PCF would raise med-mal rates overall by around 2.5 percent.

The PCF accounts for roughly half of the cost of medical malpractice insurance, Donelon said. The remainder is the cost of private insurance for the first $100,000 in liability. The state’s largest medical malpractice insurer, Louisiana Medical Mutual Insurance Co., didn’t raise rates last year and returned 10 percent of premiums to policyholders.

“I said, ‘Gang, if we don’t do this while the sun is shining, we’re never going to be able to do it when times are tough in a hard market,’” Donelon said.

Cossé said malpractice rates are already high enough.

In the South only Florida’s rates are higher, and that’s because the PCF has been so aggressive in lowering the unfunded liability, he added.

“We’re stacking up money and making it less affordable for doctors to practice in our state, and it’s a very dangerous situation, and it threatens the very existence of the system,” Cossé said.

After the oversight board declined to raise rates or even make a rate filing, Donelon sued in state court in Baton Rouge, asking a judge to clarify the issues. The lawsuit also made sure the issue will be addressed, whether through a compromise with the oversight board or by the Legislature, Donelon said.

The Insurance Department’s proposed bill, which had not been completed as of press time, would require the PCF to retire the unfunded liability in a reasonable amount of time; an annual 5 percent increase for seven years would do the trick.

The department’s proposed bill would also clarify whether Donelon has the authority to set the PCF’s rates.

Cossé said the unfunded liability is “a fiction,” the creation of an insurance mentality when the PCF is not an insurance company.

The unfunded liability is not due tomorrow, five years from now and maybe not in 20 years, Cossé said. The real question is not how to address the unfunded liability, it’s how does the PCF keep malpractice rates competitive?

The Oversight Board’s solution will be to take the insurance commissioner’s office out of the equation, Cossé said. The commissioner’s proposed bill would also allow the department to levy an assessment against healthcare providers to cover the unfunded liability.

That requirement would also end the state’s medical malpractice law, Cossé said. There would be a stampede of providers leaving Louisiana.