Howard P. Weiss

May 13, 2003

Background – One of a team of health care consultants that helped form MIIX in late 1976 and early 1977. Stayed on with MIIX as a consultant until October 1978 when I joined them as a vice president and was subsequently promoted to Senior Vice President. I left MIIX in January 1992. My responsibilities included Legislative affairs (particularly the passage of tort reform), actuarial, statistical analysis, information services and general troubleshooting.

For the last 10 years, I have been with Second Opinion, Inc. a company that was created solely to assist plaintiff attorneys in the evaluation and screening of potential medical malpractice actions. During this period we evaluated 3576 cases for about 600 attorneys in 32 states. Out of these 3576 cases our clients have proceeded with 610 or about 17%. The other 83% or 2966 have been dropped by our clients.

In 755 of these 2966 cases which were not pursued it was our judgment that the health care provider was indeed negligent, but either the damages were not sufficient to pursue the matter or the negligence could not be causally linked to any damages. In essence in the 3576 cases we evaluated, more cases of negligence (755) were not pursued than pursued (610).

I can unequivocally say that this is a phony “crisis” created by the Medical Society of New Jersey, MIIX, Princeton Insurance Company and the Hospital Association of New Jersey. As in every so called medical malpractice “crisis”, these organizations have pitted the doctors against the lawyers. In doing this, they deflect the attention away from the “crisis” that they created. The doctors and lawyers, in essence, become chess pieces manipulated by these organizations. They coordinate the doctors’ moves and they know that the lawyers must respond with their own. They stay in the background, enjoying every minute, showing the doctors that they are doing something for them, while the fact remains, that they put the doctors in the position they are in, with their greed.

 This “crisis” occurred because the medical malpractice insurers underwrote bad risks at inadequate premiums in environments about which they knew nothing (Pennsylvania, Ohio, Texas, etc.). They then chose to pile the consequences of these atrocious business decisions on the backs of New Jersey physicians. I will get back to this in a few minutes.

 The medical malpractice insurers make all sorts of claims involving New Jersey losses driving New Jersey premiums, but they have never provided any detailed New Jersey data to support these claims.

They use all types of unsubstantiated statistics to demonstrate to the press, the legislature and the public that the medical malpractice crisis was created by an “unfair” civil justice system. By so doing they force the lawyers to defend the system. The statistics they quote are “plucked” out of the context in which they make sense and by themselves mean nothing.

These insurers also intentionally mislead everyone through omissions which lead people to come to wrong conclusions. I will give you a concrete example of this.

First let me read a paragraph from a letter to the editor of The Trenton Times, dated May 8, 2003 from Patricia Costante, Chairman and CEO of MIIX.

By cleverly putting the sentence about the $24.2 million verdict immediately following the sentence about increasing payout averages in New Jersey, she makes you believe that this was a New Jersey verdict. But it was not. It occurred in Pennsylvania. This is another instance of misinformation and another instance of trying to taint the stable New Jersey environment with out of state losses.

Let me tell you about this $24.2 million Pennsylvania verdict. This involved a uterine rupture of a pregnant woman during which obstetricians acted inappropriately. This resulted in a child with cerebral palsy. The child is blind and eats through a feeding tube. The child will never walk, talk, see or be able to feed itself. According to doctors, this child is expected to have a normal life expectancy. The life care plan that was done for this child, priced the cost of life time medical care at $30 million present value. The lost wage claim was priced at $1.5 million present value. Past medical bills were already $700,000.

The maximum offer made by MIIX was $2.8 million. The judge, a woman with 10 years experience as a medical malpractice defense attorney, had sat on the bench for 18 years hearing nothing but medical malpractice cases. The judge valued the case at $15-17 million, and in her opinion, it could go as high as $21 million. MIIX had only $15 million in coverage. The judge asked the defense counsel to have Pat Costante appear in court to make sure she understood the risk they were taking in trying this case. Instead of sending Ms. Costante, MIIX sent a representative from the claim department. This person was advised by the judge of the good possibility of an excess verdict which would put excess carriers at risk. The judge again asked for Ms. Costante to appear. Ms. Costante finally appeared in court, and the judge held a hearing that consumed 30 pages of text. During this hearing, the judge asked the plaintiff attorney to lay out the case. Ms. Costante was asked if she understood the risk, MIIX was taking.

MIIX best offer was $2.8 million. The demand was $20 million. MIIX could have settled this matter for $15 million, less than half the estimated economic loss of $32.2 million.

The jury came back with a $24.2 million verdict as follows:

$15 million for future medical bills. Evidently the jury members concluded that this child would live about ½ of a normal life span.

$1.2 million in future lost wages.

$500,000 for the mother for her ruptured uterus.

$500,000 for the father’s claim.

$700,000 for past medical bills.

$6.3 million for non-economic loss (pain & suffering)

This jury was conservative in the award of economic loss, cutting the life care plan for medical care in half and awarding only 80% of the lost wage claim. It is hard to see how this verdict was not just. Some would say that MIIX was in “bad faith” for not making a reasonable offer.

MIIX was formed in combination by the Medical Society and Osteopathic Association. MIIX was formed as a reciprocal insurance company and hence had a Board of Governors made up of 17 physicians. As a reciprocal, MIIX had no employees. It was run by an attorney-in-fact that was fully owned by the Medical Society of New Jersey. It had a Board of Directors made up of five physicians, Vince Maressa, the executive director of the Medical Society and Peter Sweetland, the President of the attorney-in-fact. Both the Board of Governors and the Board of Directors were “stacked” with physicians who also served on the Board of the Medical Society, Osteopathic Association or were otherwise politically connected with these organizations. Far and away the Medical Society had the most representation. As such, MIIX was always governed with an eye toward what was good for the Medical Society.

Premium discounts were given for being a member of the Medical Society even though there was no data to suggest that such membership reduced a doctor’s risk. This was done to encourage doctors to join the Medical Society. In essence premium dollars were used to subsidize Medical Society membership dues. Outlandish perks were given to Board members including million dollar life insurance policies. In the late eighties and early nineties after Peter Sweetland, the President of MIIX passed away, Vince Maressa used this opportunity to seize the Chairman of the Board spot. Up until that time, the Chairman had always been a physician.

Vince Maressa hired Dan Goldberg as President. He changed MIIX philosophy. Up until that time MIIX’s mission was to assure that the doctors in New Jersey would never be without a reasonably priced market for medical malpractice insurance and hence one of fiscal responsibility.

We were a not-for-profit company, who had returned money to the physicians in the form of dividends. Vince Maressa and Dan Goldberg, with an eye toward taking MIIX public, measured success in terms of market share. The more insureds the better, even at inadequate premium rates.

The expansion into other states was undertaken with the idea to write as many insureds as possible regardless of whether they were reasonable risks or whether the pricing was adequate. I personally saw Dan Goldberg take a large group of doctors away from Princeton Insurance Company by offering them a large reduction in premium after Princeton had quoted them a huge renewal increase because of their adverse claim experience. The difference in premium was over 50%.

More and more insureds and more and more premium income (immediate cash) would make it easier to take MIIX public and make several insiders very well off. In essence, the physicians in New Jersey were abandoned by MIIX and the Medical Society because of a few greedy individuals.

It is ironic that the same people who are screaming for tort reform just announced that MIIX’s first quarter of 2003 resulted in a $7.2 million profit. They suggest that this might be related to their new philosophy of “best practices.” In other words, why don’t we settle meritorious claims quickly thereby saving both indemnity and defense costs? Why now? Where were they all these years? The Medical Society and Vince Maressa hired, in succession, Dan Goldberg, Ken Koryeva and Patricia Costante to run MIIX. None of them had had any experience in insurance, no less a long tail and complicated line of insurance such as medical malpractice. As such, the Medical Society could control MIIX and its operations.

In closing, let me say that there are solutions to the medical malpractice problem.

Get insurance professionals to run the insurance company.

Get the State Insurance Department to verify accurate and valid rate making prior to putting premiums into use.

Get the State Insurance Department to verify that premiums of high risk specialties are being suitably subsidized by low risk specialties.

Get the State Insurance Department to ensure that doctors are being given adequate credit for long term investment income.

In the event that premium rates for high risk specialties are still out of reach for many doctors, get the State Insurance Department to reactivate the Reinsurance Authority. Evidently, the Insurance Commissioner believes this to be a “crisis of affordability” and not a “crisis of availability”. She is playing with semantics. Pricing a product so high as to make it unaffordable, is equivalent to making it unavailable.

Get the State Insurance Department to make “consent to settle” clauses illegal. This will encourage early settlement of meritorious cases.

Get the State Board of Medical Examiners to take repeat malpractice offenders seriously. A ‘norm” must be created for each specialty and the Board of Medical Examiners must at least investigate why those physicians who are one or two standard deviations from the norm are manifesting so many claims. That does not mean that every one of these physicians should be disciplined or sanctioned, but the public is owed an investigation that might result in positive practice changes.

Get the insurance companies to pay defense attorneys reasonable hourly rates. This will also encourage early settlement of meritorious cases.

A mechanism should be devised so that a meritorious case involving more than one insured can be settled and then liability apportioned through mediation or arbitration. Once again, this will encourage early settlement of meritorious cases.

During the next few days you may hear that I am just a disgruntled former MIIX employee. They may try to tell you I was fired. When Vince Maressa and Dan Goldberg assumed full control of MIIX, there was a systematic changing of department heads and most other personnel. I would estimate that of the approximately 100 employees at least 70% were forced out during the first two years of their control. I was one who was asked to leave. I stress asked to leave and not fired for cause. In fact, because I had 13 months remaining on my contract, they kept me on the payroll for the next 13 months, even though I did not have to show up for work. This included salary, pension contribution, 401K contribution and company car. You can see that this regime was not very frugal with the doctors’ money. While we were spending about 10 cents of the premium dollar for administrative costs, that figure has now tripled.

I would be happy to answer any questions you may have.

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