Turnaround in Texas results in explosive market

Sometimes legislative success yields results beyond those predicted and causes unanticipated new challenges. Such is the case in Texas, where com-prehensive medical liability reforms were enacted by the state legislature in 2003 and subsequently supported by a Constitutional amendment establishing a $250,000 non-economic aggregate cap for all physicians.

In less than 4 years, Texas has seen a stampede of professional liability insurers enter the market, premium rates continue to decline well beyond anyone’s predictions, and now a glut of applications for new medical licenses has overwhelmed the Texas Medical Board’s application process.

It wasn’t always like this
As in other states where medical liability insurance premiums were skyrocketing, physicians in Texas were altering their practices by implementing risk avoidance strategies, taking early retirement, or moving out of state in the early part of this decade. As a result of unsustainable liability costs and uncertainty of courtroom outcomes, liability insurers were also leaving the state and physicians, who once had a choice of two dozen insurers, were limited to only four carriers.

The American Tort Reform Association had given Texas the dubious distinction of having four counties rated in the top ten “Hell Holes” of America. This dark outlook came to a head in 2003, when pa-tients’ access to care was threatened. As a result, a bipartisan legislative package was developed that restored balance to the civil liability system and instilled confidence that we as physicians would be treated fairly in it.

Be careful what you ask for
House Bill 4 (HB4) passed in May 2003; the non-economic cap would go into effect on September 1, provided that the voters approved amending the state constitution through Proposition 12. Because the vote on the amendment was scheduled for September 13, every lawyer with the shred of a case predictably cleared his or her desk by filing all potential claims in August; thereby avoiding a legal malpractice claim for waiting until the new law went into effect.

As anticipated, the result was a record number of filings for medical negligence. More claims were filed in the first 8 months of 2003 than in any other previous full year. Each of these “old law” claims had to work their way through the courts under the previous set of rules (see Table 1).

Promises made; promises kept
The state’s largest medical liability carrier, Texas Medical Liability Trust (TMLT), underwrote more than 40 percent of the policies for Texas physicians. As HB4 was making its way through the legislature, TMLT officers testified that if the legislation was enacted as written, they would lower premiums by 12 percent on January 2004 renewals. That compelling testimony not only won the votes of countless legislators, it was a promise to the patients and physicians of Texas.

Since then, TMLT has lowered premiums every year, for an aggregate premium reduction of nearly 30 percent. In addition, because TMLT is organized as a mutual insurance company and is physician owned, profits are declared as dividends and are returned to policy holders the following year. In 2007, TMLT granted a 20 percent dividend on its premiums, resulting in nearly a 50 percent overall reduction on premiums paid this year from the 2003 levels.

Competition is healthy for all markets, so an infusion of new liability carriers was expected after the reforms went into effect. What exceeded our expectations is how healthy that competition would be. Just 4 years ago, Texas physicians were scrambling to find any company to underwrite medical liability coverage for them. Now, the state has four admitted carriers and a record of more than 30 new carriers writing policies. Rarely a week goes by in which a physician doesn’t receive a solicitation for a rate quote on professional liability coverage. No sane person would have testified in 2003 that rates would be cut in half in slightly more than 3 years, and the number of options for insurance coverage increased eightfold.

Results add up
Why is the good news for patients and physicians continuing? Simply put: Results. The “old law” cases have been largely decided, at lower than previous rates of settlement and jury verdicts. Now that the public and jurors are aware of previous abuses and sensitized to the possibility of losing their doctors, it’s much easier to maintain an impartial and objective system. Additionally, the closure of these “old law” cases has mitigated the future need for reserves to cover those claims.

By far the most important factor, however, was the surety of the constitutional amendment, which eliminated a decade-long wait for an appeal on constitutional grounds. The number of cases being filed is less than half the number filed before reform, and cases that involve truly injured parties are being settled significantly earlier, thus reducing the portion of the settlement that goes to pay expenses and attorneys fees.

If you build it, they will come
Along with the influx of insurers was a stampede of new applicants for medical licenses, many of whom are graduates of Texas residency programs who decided to “stay home.” More than 4,000 new applicants sought state medical licenses in fiscal year 2006—beating the previous record by more than 1,000 applicants.

As physicians sought to start practices in or move to postreform Texas, the Texas Medical Board (TMB) faced a backlog of applications that peaked at more than 2,700 pending in March 2007. Back in 2003, it took only a month or two to process a new application; by 2007, it was taking more than 6 months to process “clean” applicants, and more than 9 months to process others.

To keep these new physicians interested in Texas, something needed to be done quickly. The Texas Health Institute (THI), a 501(c)3 organization, received grants from several sources including TMLT and Texans Allied for Patient Access, the medical liability reform organization that had been formed in 2003. With those funds, the THI awarded a grant to the TMB, enabling the hiring of five temporary licensure specialists. The additional staff could help reduce the licensing backlog while legislation to fully fund the TMB was pending.

The Legislature responded by passing HB15 as a $1.8 million supplemental appropriations measure to fund additional processors and information technology, and to repay an emergency advance to the TMB authorized by the governor of more than $1 million. As a more permanent fix, HB1, passed in late May, will fully fund this level of activity for the next Biennium, which begins in September.

Facing the consequences
The intended and beneficial consequences of tort reform have exceeded anything that was predicted—in competition, premium reductions, and improved patient access. The “happy problem” of having too many physicians who wanted to practice in Texas was unanticipated. But quick reaction, using all tools at our disposal, means that, within the year, “clean” Texas medical license applications will be processed in less than a month. What the final improvement for Texas patients will be—particularly for access to care—is anyone’s guess, but it sure is looking good.

David Teuscher, MD, is past president of the Texas Orthopaedic Association.