Watch CBSN Live

Hospitals Help Docs With Insurance

When a group of specialists were dropped from their malpractice insurance last year and began job-hunting in other states, their cash-strapped community hospital started weighing its options.

"Our board took a look at the situation and the first question was, 'What will happen when these doctors leave?"' said Perry Pepper, chief executive officer at Chester County Hospital.

"And the answer was, 'Well, we won't be able to recruit any more obstetrician-gynecologists,"' Pepper said.

So the hospital offered to make a subsidiary of the obstetrician-gynecologists' group, and now pays to insure the eight doctors in it.

Hospitals across the nation are making the same tough choice, particularly those in states hard-hit by rising malpractice insurance costs: Help doctors pay their rising malpractice liability premiums, or risk losing them to states where conditions might be better.

The American Medical Association says 19 states are experiencing a malpractice insurance crisis, including Pennsylvania, Florida and Mississippi.

Amid other financial pressures facing hospitals, the method often requires creativity.

Four hospitals in Pennsylvania created a new self-insurance group this year and opened its policies to emergency medicine physicians, anesthesiologists and radiologists already on staff.

Memphis, Tenn.-based Baptist Memorial Health Care says it will spend about $650,000 to help physicians at three hospitals in Mississippi pay for new policies that are likely to be more expensive than the ones they lost when their insurers went under or left the state.

And Tallahassee Memorial Hospital in Florida, despite more than $20 million in anticipated losses that prompted nearly 200 layoffs this fiscal year, hired its lone perinatologist - who cares for high-risk pregnancies - after he lost his coverage. The hiring made Dr. Donald Willis one of about 20 doctors who are hospital employees out of more than 450 physicians on staff.

Ron Brafford, a senior vice president at Tallahassee Memorial, said the decision was carefully considered by hospital officials, who concluded that Willis was the only perinatologist for 60 miles around.

"Ultimately it's a decision that the hospital had to make," Brafford said.

The problem of access to malpractice liability insurance for physicians began in earnest in December 2001 when St. Paul Cos., the nation's second-leading malpractice liability insurer, announced it was pulling out of the business, said Curtis Rooney, a lobbyist and lawyer for the American Hospital Association.

Since then, malpractice insurance has become increasingly scarce, drawing hospitals into the fray, Rooney said.

While the hospitals say they are insuring doctors to maintain services for the public, they are also protecting valuable revenue streams: The doctors that refer patients to hospitals and make use of the hospitals' resources.

And while the hospitals are keeping their doors open and doctors happy, many observers say that insuring physicians is a short-term strategy that does not have much of a long-term upside.

For instance, insuring a physician does not necessarily mean that she will stay at the hospital longer, or refer more patients there in the future, said Lawton Robert Burns, a professor of health care systems at the University of Pennsylvania's Wharton School.

"You can't buy the physicians' loyalty," Burns said. "Physicians are very independent."

Also, having hospitals take on a physicians' risk does not stop insurance premiums from rising. "It's really a subsidy more than a solution," Rooney said.

By Marc Levy

View CBS News In