Richard Anderson’s inflation worry isn’t what you might think

Inflation is on the mind of Richard E. Anderson, MD, FACP, chairman and CEO of The Doctors Company and TDC Group, the Napa-based 80,000-member physician-owned medical malpractice insurance company, the largest in the United States. It’s the inflation of jury awards.

“We are seeing really high verdicts compared to historical norms. What is different now is this is occurring all over the country—in very liberal and conservative venues,” he said

In part Anderson blames “social inflation” where the jury is swayed by socioeconomic and behavioral trends instead of purely by legal arguments. He said the desensitization of large sums of money is triggering what he said are sky high juror awards.

“A lot of jury verdicts are based on emotion. It is the emotion in how you feel about the plaintiff or injured party, and how you feel about the individual lawyers, and the defendant, and if there is a doctor you don’t like, it often affects the outcome of the verdict,” Anderson, 74, explained.

To get away from the stress of work Anderson travels with his wife, combining those adventures with his love of photography. Like many travelers, the pandemic delayed their plans to see the pyramids in Egypt and cruise down the Nile River until later this year.

He likes the outdoors, with whitewater rafting providing some of his most memorable adventures, including several trips through the Grand Canyon.

“Another rafting trip was on the Tatsheshini River that goes from Canada to Alaska. You are rafting with glacial ice for about a week and end up in Alaska’s Glacier Bay all on a rubber raft.”

The couple is also kept busy with family. Between them they have seven children and 10 grandchildren.

The following is a Q&A between the Business Journal and Anderson that has been edited for clarity and space.

What types of lawsuits have been brought forward that are COVID related?

An estimated 15,000 COVID-related lawsuits have been filed nationally as of mid-2021. While the majority of these initial lawsuits were against long-term care facilities, it was thought the next targets would be providers and other facilities, including some hospitals.

But here we are over two years into the pandemic, and we that has yet to occur. The Doctors Company has had 39 COVID-related claims as of July 1, 2022, and has not paid any indemnity. A physician is more likely to have a complaint made to a licensing board for a COVID-related incident than to have a medical malpractice claim.

What is affecting the cost of medical malpractice insurance premiums?

COVID has not affected the cost of medical malpractice insurance. What has generated an increase in medical malpractice insurance rates is severity, or the average cost of a medical malpractice insurance claim.

From 2014 to 2018, the number of verdicts in excess of $25 million more than tripled. Similarly, from 2010 to 2019, the average cost of the top 100 jury awards for medical malpractice cases nationwide rose by nearly 50%.

Most carriers were slow to notice this increase, but The Doctors Company responded and instituted modest rate increases in most venues to avoid a large increase all at once. We are almost caught up, but the rest of the industry has not, so industry rates are trending upward while ours have stabilized.

How many cases involving your members are with merit v. frivolous?

In an average year, we close 80% of the cases brought against our members without a payment to the patient. We prefer to think of those cases as non-meritorious. Among those non-meritorious cases is a subset of cases that can be considered to be frivolous.

How do the cases without merit impact the medical profession?

Even though we win over 80% of our cases with no indemnity paid to the plaintiffs, the average claim costs over $100,000 to defend.

These costs are reflected in the cost of medical malpractice insurance, which is an overhead cost of practicing medicine. All of that gets added into the ultimate costs that every one of us pays to get our health care.

And to the extent that medical malpractice insurance is unaffordable or to the extent that, for example, an obstetrician in a rural area literally cannot afford medical malpractice insurance to cover deliveries, access to care is seriously impaired.

What are your thoughts about Assembly Bill 35, which affects civil damages in medical malpractice cases?

With the withdrawal of the Fairness for Injured Patients Act (FIPA) initiative from the November 2022 ballot and the passage of the new legislation AB35, key features of the state’s longstanding Medical Injury Compensation Reform Act (MICRA) have been maintained. The increase in noneconomic damage caps under AB35 is limited and will not take full effect for 10 years.

Because of the compromise that led to AB35, California’s health care providers can look forward to long term stability and the end of the continual battles to eliminate MICRA entirely. It is a major step toward achieving an accessible and affordable healthcare system for all Californians.

Having reasonable caps on noneconomic damages saves California’s healthcare system billions of dollars each year and increases patients’ access to healthcare by keeping doctors, nurses, and other healthcare providers in practice and hospitals and clinics open.

If you could change one government regulation, what would it be and why?

Rate regulation is a difficult issue in many states, but it is even more challenging in California because of the presence of Proposition 103. (This 1988 initiative requires prior approval by the state Department of Insurance before insurance companies can implement property and casualty insurance rates.)

The industry doesn’t mind the scrutiny that rate regulation entails, but the process that insurers have to go through in California is adversarial, cumbersome, and expensive and often compromised by political considerations. This is true irrespective of the line of insurance. It has reached the point where many insurers are questioning their commitment to California.

You know there is a problem when insurance companies are questioning their willingness to continue to do business in the largest personal lines market in the country because they don’t think they will be allowed to charge a premium commensurate with the risk they are taking.

Can you briefly explain “defensive medicine”?

Defensive medicine is a test, procedure, or a therapy that’s ordered by the physician primarily to protect himself or herself from liability rather than because of its diagnostic or therapeutic utility. Defensive medicine violates the Hippocratic Oath, does violence to the doctor-patient relationship, is manifestly self-serving for the physician, and adds to the cost of health care.

However, defensive medicine will be difficult to eliminate because it is the result of nearly 40 years of continuous legal assault on the medical profession. A physician practicing in a high-risk specialty today can expect to spend 25% of his or her entire career defending malpractice claims, despite the fact that four out of five claims are found to be without merit.

Does your company have attorneys on staff?

We do not employ attorneys on staff to represent our members. To conduct our members’ defense to claims of malpractice, we select independent counsel located in the community or region where our member who is named in the lawsuit practices medicine. These independent attorneys know the local legal customs and practices of the court where the suit is filed.

They also know the judges and opposing counsel. Most importantly, they know the communities and the values of the local citizens who will constitute the jury our member may ultimately face. This knowledge of these things makes them uniquely suited to protect and defend our members.

Do you insure other medical providers like mid-levels, RNs, dentists, psychologists, and others?

Yes, we insure dentists, psychologists, podiatrists, optometrists, chiropractors, and pharmacists.

We also insure every category of advanced practice clinician (APCs) like nurse practitioners, physician’s assistants, nurse midwives, and nurse anesthetists. We expect to insure even more APCs in the future as more states enact laws to allow them to practice independently because of the growing shortage of physicians. We expect APCs to become responsible for providing routine primary care to patients, freeing up physicians to focus on the sickest of patients.

You spent 25 years as a doctor specializing in oncology and as a clinical professor of medicine at UC San Diego. What from that time in your career do you miss?

I was and am proud to have practiced medicine for so many years. I miss my patients and the opportunity to be of service in helping patients contend with the challenges of cancer.

What led you to work for The Doctors Company?

I was a member of the company from the early days of my practice. Serving on several committees of The Doctors Company led to deeper involvement and ultimately to membership in the board of governors.

What is your approach to making tough/important business decisions?

Understand the facts, the context, and the emotions of the issues; see if consensus is achievable; and move forward with dispatch.

What was the hardest lesson you learned early in your career which you now recognize as an important one?

Listen well, be as patient as the situation will allow, then move decisively.

Where will your business and industry be in the next five years and what concerns do you have?

Health care institutions and practices are consolidating into much larger entities. Medical professional liability carriers need to grow to have the ability to serve these large enterprise, while preserving the ability to serve the smaller practices that have traditionally provided much of the medical care in the United States.

Many of today’s companies will be unable to manage both, and we expect there will be fewer companies in our line of business. The Doctors Company will continue to grow to serve the medical profession. We have achieved the scale necessary to withstand the pressures that are driving others in our industry to consolidate.

Diminished demand for our traditional product as health care consolidation drives the creation of large physician groups. Larger groups have the scale to self-insure so we must be in a position to provide relevant services to them and expand our products and services to encompass more of the medical professions.

General economic inflation, which is at its highest point in the last 40 years, affects us in two ways: It drives up the cost of settling cases against our members and it drives up the cost of our overhead particularly in the area of salaries and benefits.

The insurance industry is also plagued by social inflation, which is a term used to explain why the cost of claim settlements increases at rate higher than general economic inflation. Social inflation refers to the impact that societal factors like legal advertising, litigation funding, expanding class-action lawsuits, and public distrust of corporate defendants can have on insurance claims.

Those societal factors plus the tactics plaintiffs’ lawyers use in the courtroom to trigger primal reactions in the brains of jurors, result in jury verdicts designed to punish the defendant, not make the injured party whole as intended by our civil justice system. This explains why we see “nuclear verdicts” much more frequently than we used to and it drives up the cost of settlements even more than economic inflation. Nuclear verdict describes the very large, unexpected verdict.

What is your opinion about the future of the national economy? And how will that affect your business?

Inflation is a major threat to both our company and the nation. The actions the Federal Reserve must take to combat inflation could drive the national economy into a recession. A mild recession might produce limited harm. A severe recession has enormous human and economic costs. While a recession might not cripple our company, it will adversely impact our customers, and anything that impacts them impacts us.

What are you doing to attract employees? How has recruitment changed since the start of the pandemic?

The Doctors Company has been fortunate over the years to attract a high volume of quality candidates. Our internal referral policy continues to be another great resource for finding talent and The Doctors Company’s strong brand and multiple Employer of Choice certifications are also strong attractors.

Our social media recruiting practices have evolved significantly since the start of the pandemic. Identifying and messaging top talent on LinkedIn for instance has become an increasingly effective tool in our effort to attract the best and the brightest, especially those that are not actively seeking a new job.

Post-pandemic candidates put more focus on the totality of the job offer and not just base salary. They want flexibility and we have adapted by offering a hybrid work schedule and telecommuting opportunities. Our culture is to show appreciation through rewards and recognition when our mission and goals are met through both collective and individual contributions.

Are wages the answer to recruiting great talent? Why or why not?

Fair compensation is critical to everyone and assuring it takes place is an important executive responsibility. Beyond dollars, however, the opportunity to do good work is also critical. The work we do at The Doctors Company helps make our health care system better, and we are proud of those contributions.

The pandemic provided candidates the opportunity to reflect on what means the most to them and offering a competitive salary is not enough. Candidates today are seeking greater work/life balance, professional enrichment, and to know they are valued. This has led to a bigger push for part-time opportunities, flexibility in work schedules and work location, clear career pathing, and quality training and development opportunities.

What are the benefits and drawbacks to being located in the North Bay and doing business here?

When recruiting candidates from other states, just mentioning that we our headquartered in California’s Napa Valley, with its great weather and world-class wines, sparks interest and excitement. Closer to home, recruiting for our Napa office positions can sometimes take more effort. The North Bay has always been a very competitive talent market. Housing costs and commute times are serious concerns.

What advice would you give someone just starting his or her career in your industry?

Develop the skills to do work you love.

EDITOR’S NOTE: An earlier version of the story incorrectly reported the executive’s first name. He is Richard E. Anderson, MD, FACP, chairman and CEO of The Doctors Company and TDC Group.