Some New York Hospitals Cancel Malpractice Insurance; Administrators Say Coverage is Simply Too Expensive

Several of New York City’s financially strapped hospitals have canceled their malpractice insurance because the insurance costs are simply too high. Executives of these hospitals, most of which are in poor neighborhoods, say their financial circumstances and high premiums make it impractical to pay millions of dollars a year for insurance.
This trend was reported in a recent edition of the New York Times.
In an Illinois medical malpractice action against a county or state owned hospital, if a jury finds in favor of a patient, the award is paid by the state when the hospital is state-owned. When the facility is a county-funded institution, like Stroger Hospital, there is a statute, the Local Governmental and Government Employees Tort Immunity Act, 745 ILCS 10/1-101, et seq. (Illinois Tort Immunity Act), which essentially allows the possibility of recovery against a Cook County hospital only if the hospital is found to be negligent in the treatment of a patient, but not liable if the hospital chooses not to order tests or it was negligent because it misdiagnosed a patient. Michigan Avenue National Bank v. Cook County, 191 Ill. 2d 493 (2000) is the leading case interpreting the Illinois statute on immunity.
Some hospitals in New York have saved money to cover their liabilities, but others have used up their malpractice reserves. This means that any future awards or settlements could come at the expense of patients’ care. One New York hospital has closed its obstetric practice, in part out of fear of lawsuits.
Insurance experts say the move to cancel insurance is not in the best interest of patients. They add that in the long term it may be costly to hospitals and that large judgments could force them into bankruptcy.
“From a kind of self-interest of the hospital, it seems if you’re a marginally capitalized hospital barely making it, it would be perfectly rational not to buy insurance,” said Tom Baker, a law professor at the University of Pennsylvania who has written about malpractice insurance. “From a social perspective, it’s very irresponsible. They’re taking in these people knowing they’re not able to make good on the harm they caused. Even a really good hospital is going to have a certain amount of medical malpractice. It’s inevitable.”
In Illinois, doctors are required to carry medical malpractice insurance. But many states do not require malpractice insurance. Generally the uninsured hospitals are in areas where juries award big judgments, insurance executives say.
“In New York and in poor venues, difficult venues — Philadelphia is one, New York City, ChicagoCook County, Florida Dade County — it’s not effective for the hospitals to buy the coverage because they charge so much,” said Dominic A. Colaizzo, chairman of the national health care practice for Aon, an insurance brokerage.
Henry W. Fust of Fust Charles Chambers, a Syracuse firm that provides accounting services to hospitals across New York State, said that for hospitals to “go totally naked” was very unusual and “would draw into question the viability of the entity.” It would also be difficult for any patient to recover money from hospitals like Wyckoff and Interfaith, which are already deeply in debt. “You can’t get blood out of a stone,” Mr. Fust said.
An absence of insurance is generally a sign of double trouble, signifying that rates have gone up because of high claims. Many commercial insurance companies pulled out of New York years ago because “this is a very litigious state, high severity and high frequency,” said Edward J. Amsler, vice president of Medical Liability Mutual Insurance Company, which is owned by its policyholders. Financially stable hospitals have responded by banding together in groups like Mr. Amsler’s, setting premiums and reserves and sometimes sharing risks.
Some hospital executives say, however, it is better to be uninsured, because lawyers follow the money. “Malpractice insurance is a lawsuit magnet,” said a former hospital administrator who did not want to be named to avoid upsetting potential employers. That all may be a ruse. There is no tangible evidence of a reduction of hospital insurance premiums for medical malpractice in states that have enacted caps on lawsuit recovery. Texas had enacted very limiting restrictions on medical malpractice recoveries, yet the state’s medical professionals report no change in their rising insurance premiums. The insurance companies complain about medical malpractice lawsuits while increasing premiums and very likely their profits even in the face of sinking recoveries.
Kreisman Law Offices has been handling medical malpractice lawsuits for over 36 years, serving those areas in and around Cook County, including Chicago, Schaumburg, Wilmette, and Lisle, Ill.
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