Medical bill a surprise: Court says docs must pay

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1 Medical bill a surprise: Court says docs must pay Julie Bryant Staff writer A Georgia bankruptcy court has ruled that more than 900 doctors still owe millions to a local medical liability insurance group that went bust nearly a decade ago. / The recent payment default judgment, still being reviewed, is the final chapter ir/ protracted bankruptcy proceeding for Physicians Reliance Association Inc. -- a chapter that could include nasty financial surprises for some Georgia doctors. Formed in the late 1980s, when liability insurance rates were skyrocketing nationally, the company offered physicians a way to purchase more affordable medical malpractice coverage. But when the company's Louisiana-based insurance arm went belly-up in 1993, doctors were left holding the bag, responsible for millions in malpractice claims the insurance company had no money to pay. What was originally almost 5,000 physician members has now been boiled down to about 900 that never paid up, said Atlanta attorney Bill Rothschild of Ellenberg, Ogier & Rothschild P.C., who reached a settlement agreement on behalf of the 200 physicians he represented in the case. A bankruptcy judge has cleared the way for debt collectors to go after the remaining physician members, some of whom may be hoping the case has gone away, some who may not be aware of the proceedings and others who may be dead, Rothschild said. The 924 physicians that still owe up to $10,000 each, according to court filings, are spread out across every state, most of them outside ~eorgia. Physicians Reliance set up shop in Marietta as a risk retention group back in the mid- to late 1980s, Rothschild said. At the time, the federal Liability Risk Retention Act had just been passed, clearing the way for these groups to form as an alternative means of purchasing liability insurance that might otherwise have been difficult, or too expensive, to buy. Under the law, which is still in effect, risk retention group members can collectively purchase liability insurance that they could not otherwise afford to buy, sometimes at a cheaper rate. In exchange, members assume some financial risk if liability claims for a given period of time are higher than anticipated.

2 The Physicians Reliance risk retention group was required to be "chartered" by only one state in order to operate nationally and it was given the go-ahead from Louisiana, Rothschild said. Physicians Reliance then divided itself into two companies, the company the doctors were insured by and the association they paid dues to, Rothschild explained. "The guys doing it turned out to be crooks and the state of Louisiana shut them down," he said. The company filed for Chapter 7 bankruptcy in Georgia and, according to attorneys working on the case, left an outstanding malpractice claims balance totaling about $32 million. With malpractice victims suddenly left with no way to recoup their medical losses, the courts ruled that the physicians would have to help pay the claims. Each group member physician was subject to an assessment of about $2,000 a year for each year they were a member, said Atlanta attorney Kenneth P. McDuffie, who represents the trustee in the Physicians Reliance case. "If you add that all up for 5,000 members it was never going to get close to the $32 million [in total outstanding claims]," McDuffie said. Many of the physicians fought the assessments on principle, Rothschild said. After all, they were essentially paying for insurance they never got. Others settled for as low as 10 cents on the dollar, he said. Now the remaining doctors who thought this would just go away are going to find themselves opening their wallets. "We are hoping to wrap this [case] up by the beginning of next year," said James R. Marshall, a trustee in the case. Marshall said he will pay a private collection company to recover the losses and he will turn the proceeds over to an appointed liquidator in Louisiana. The U.S. District Court for the Northern District of Georgia will make a final ruling on the bankruptcy court's recommendation for the default judgment. Meanwhile, while the Physicians Reliance case was an unusually bad one, insurance industry experts warn that risk retention groups can still be, well, risky. With liability insurance premiums skyrocketing nationally, risk retention groups are on the rise again, said Tom Gose, president of physician-owned MAG Mutual Insurance Co., the largest malpractice insurer in the state. Risk retention groups, while a legitimate alternative, are not subject to state insurance regulations, including the financial scrutiny standard insurers are subject to, Gose said. When liability premiums start rising, entrepreneurs sometimes view risk retention groups as a huge opportunity for cash flow, he said.

3 If a regulated insurance company has financial troubles, state insurance officials step in and ultimately take over if the company crumbles, Gose said. Outstanding claims would then be paid by a state insolvency pool. Georgia now requires all risk retention groups to provide a written warning to members that there is financial risk involved in signing up with a group, he said. But the risks aren't any greater than they are for any other line of business, according to the National Risk Retention Association (NRRA), which represents risk retention groups. "Just because some groups struggle does not mean the concept [of risk retention groups] isn't sound," said an NRRA spokesperson. Many individuals and small companies cannot afford to purchase liability insurance or cannot find an insurer willing to offer them a policy. Group purchasing gives those businesses a leg up, the NRRA says. Reach Bryant at jb~yant@,biziournals.corn

4 RISK RETENTION GROUP 1 CAPTIVE CONSIDERATIONS 1. Who is doing the underwriting or controlling what doctors enter the program? Is more than one state involved? 2. How are the premiums determined? Who determines these? An actuary? On what basis? 3. Is there a front or issuing company? 4. Do you understand there is no state regulation, supervision or guaranty fund protection if the program fails or has financial or operational problems? 5. Is it assessable? Joint and several liability? If not, then what happens if adverse group losses use up the funds? 6. What errors and omissions coverage is available in case of insolvency? Ask for a certificate of coverage annually. 7. Who will handle the claims? What law firms will do the litigation and how will this be supervised? 8. Who does the loss control and risk management? 9. Who is the reinsurer? Is it excess of loss? What is the attachment point? 10. Is there stop loss or aggregate reinsurance protection in place and who is the carrier? 11. Who is managing the Risk Retention Group (RRG)? What is their experience? Do they have errors and omissions coverage and employee fidelity coverage? 12. Who does the accounting? Who audits the financials and how often? 13. What happens if some of you decide to leave? What is the estimated tail premium he will have to pay? Does assessability attach after the doc leaves? What is the residual liability for any doc that exists going forward? 14. What does the policy look like? What are the precise terms, conditions, grants and limitations of coverage? What happens to claims if the total group claims have exhausted the bag of funds? Consent to settle? Hammer clause? 15. Who chooses the defense counsel? Expert witnesses? 16. What is the claims philosophy?

5 17. What happens if bad faith is assessed by a court? 18. Is there an exit strategy? How does it work? 19. Is there a written five year plan? 20. Are the physicians comfortable sharing risk with each other? 2 1. Do you want to partner with a medical malpractice specialists offering captives or a captive specialists making available a new product for medical malpractice? 22. Any free tail for death, disability and retirement included? 23. Are the doctors willing to concentrate and commit on this approach on a long term basis? 24. Are you willing to spend the time it will take to oversee and manage this approach?