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Visit My New Blog

I’ve started a new blog,www.wvbusinesslitigationblog.com, which launched today. The focus will be on business and commercial litigation and developments in West Virginia state and federal courts. I will also discuss issues regarding health insurance and related topics, but the scope will be broader than this blog’s. Please visit and let me know what you think.

A couple of weeks ago, I discussed an article by Atul Gawande, M.D. about physician compensation, which appeared in The New Yorker in April 2005. I enjoyed his writing, which was clear and informative and lacked much of the jargon and terminology that most doctors (and lawyers) seem to think must be present in order for their work to be taken seriously.

Yesterday’s New York Times had an article on Dr. Gawande and his new book, “Better: A Surgeon’s Notes on Performance,” which goes on sale today. Dr. Gawande discusses his love of writing and his list of ideas for articles. He mentioned one that I hope he writes about soon: “why, if we have so many health-policy experts in this country, do we have such bad health policy?”

A few days ago, I wrote about the compensation paid to officers and directors of the West Virginia Physicians’ Mutual Insurance Company and discussed physicians’ malpractice premiums, which were largely the basis for malpractice reforms that were enacted in 2003.

Yesterday’s (Charleston, West Virginia) Daily Mail had a story about a multi-million dollar verdict in a medical malpractice case tried in New Martinsville (Wetzel County), West Virginia. In 1999, Kathy Roberts had elective surgery for acid reflux disease, which is relatively routine, but in this case resulted in her having part of her stomach sewed to the bottom of her diaphragm. Ms. Roberts then underwent more surgery at the Cleveland Clinic in an effort to repair the first surgery, where surgeons removed large parts of her stomach and esophagus and replaced them with part of her colon.

The jury awarded $5.76 million, although the article doesn’t describe how the damages were apportioned. The physician involved had malpractice insurance through Medical Assurance of West Virginia, which apparently made no offer to settle. This is typical of Medical Assurance, whose CEO has bragged in the past that it spends 88 cents of every premium dollar on defense. Its approach is not to settle and go to trial on every case. Admittedly, with medical malpractice cases, its insureds will win more than they lose, but when they lose, they lose big.

Bear in mind that this is the same insurance company that in 2001 consulted 66 experts in order to obtain an opinion favorable to its insured rather than engage in mediation of the plaintiff’s claim. What does it say about an insurance company that is willing to spend the time and money to contact several dozen experts in order to obtain a favorable opinion, when those same experts are offering opinions that support the plaintiff’s claim? Apparently not that the plaintiff’s claim has merit. Superficially, the physicians who are Medical Assurance insureds may be impressed with what they view as its aggressiveness. But ultimately, its approach may be counterproductive, as Kathy Roberts’ physician discovered.

This week, the Charleston newspapers reported the salaries of the officers of the West Virginia Physicians’ Mutual Insurance Company, which was formed as part of the 2003 medical malpractice legislation. The company’s CEO made $429,750 last year, an increase of 18.5% from the year before. Its COO received $227,250 last year. In addition, several directors were paid compensation ranging from $18,500 to $42,000.

So I was already thinking about West Virginia’s medical malpractice environment when I read an article in The New Yorker from April 2005 (I’m in the process of going through some old magazines) entitled “Piecework” by Atul Gawande, about physician compensation.

Dr. Gawande was trying to figure out how much to request as compensation from the hospital where he was applying to work, and attempted to project his income and expenses. He estimated grossing approximately $500,000 per year and having to spend $31,000 per year on malpractice insurance and $80,000 per year on office space.

Now, the point of the article was not tort reform or medical malpractice insurance, although Dr. Gawande basically blames health insurance companies for the cost of medical care in the United States. But what struck me was the fact that his malpractice insurance was going to be about one-third of the cost of his office space. Nationally, a physician pays about three percent of his gross income for malpractice insurance, and will pay, as Dr. Gawande shows, more for office space rental.

One reason physicians and insurance companies were successful in pushing malpractice reform in West Virginia and other states was that they focused on the amount of malpractice premiums that physicians were paying, without revealing what the physicians were grossing in their practices. For instance, if a physician says that his annual malpractice premium is $150,000, your reaction is that he’s paying too much for insurance. At least that’s what insurance companies want you to think. But what if he also said that his practice (or his group’s practice) grossed three or four million dollars? That would make the insurance premium about four or five percent of his income. It’s still a lot of money, but unless you know the doctor’s gross income, in addition to the cost of the insurance, the amount of the premium is misleading, to say the least.

In the article, Dr. Gawande describes an interesting exchange with a physician who specialized in laparoscopic procedures — surgeries using small incisions and fiber optic cameras. The surgeon’s net annual income was $1,200,000, which he had earned for the past ten years. His secret? He didn’t take insurance. His patients paid cash. Of course, he also charged ten or twelve times what an insurance company would pay for a procedure (for example, he charged $8,500 for removing a gall bladder, for which the insurance company would pay $700), but he had no shortage of patients. Ultimately, Dr. Gawande concluded that that business model was inconsistent with the reasons he had become a doctor.

This item doesn’t concern health insurance, but it demonstrates what happens to ordinary people when insurance companies and government join forces.

In 2005, West Virginia’s newly-elected Governor, Joe Manchin, proposed to abolish the State’s third-party bad faith laws, in exchange for which insurance companies would rebate millions of dollars in premiums to automobile insurance policyholders. Members of the Legislature fell over themselves in their rush to repeal the legislation so that West Virginians could receive their windfalls.

Here’s the press release issued by the Governor’s office when he signed the legislation in April 2005. You will note that the press release said that West Virginians will receive “at least $50 million” from the insurance companies, but didn’t specify an exact amount. I don’t know how much has been refunded to date, but State Farm has announced that it’s refunding $2.8 million to its West Virginia automobile insurance policyholders, which works out to an average of $8 per vehicle.

To say that West Virginians got conned by the insurance companies (again) is an understatement. Unfortunately they were enabled by the Governor and majorities in the House of Delegates and Senate. My guess is that executives from State Farm, Erie, Allstate, and other carriers are still laughing about how easy it was to get rid of bad faith claims in West Virginia when they offered a little money.

Caught in the Crossfire

A story in yesterday’s Charleston (West Virginia) Gazette illustrates what happens when your insurance company gets in a fight with your healthcare provider. I’ll provide the details, but the short answer is that you lose.

Last year, United HealthCare Services, Inc. (United) removed Charleston Area Medical Center (CAMC), which is by far the largest healthcare provider in southern West Virginia, from its network of covered hospitals. The removal also extended to most of the physicians affiliated with CAMC.

United removed CAMC because CAMC turned down United’s request for the same discount that CAMC gives another insurer, Blue Cross Blue Shield Association. United’s problem is that it is a much smaller insurer, percentage-wise, than Blue Cross in the West Virginia market. United insures about 9.2 percent of the market in West Virginia, while Blue Cross insures about 33 percent. CAMC won’t agree to United’s requested discount because it fears that other smaller insurers would want the same discount.

The patient profiled in the article, Lynn Kramer, has been receiving treatment from CAMC for breast cancer for the past two years. But now, she has to change doctors, which she understandably doesn’t want to do, or pay an annual deductible that is triple the amount for visits to doctors in her network ($6,600 versus $2,200). Even after she meets that deductible, United only pays for 60% of subsequent costs, as compared to 90% for in-network visits.

For now, Mrs. Kramer intends to keep seeing her physician at CAMC, despite the additional expense. She and her husband have been pursuing an administrative appeal of United’s decision through AT&T, Mr. Kramer’s former employer, but no decision has been reached. And their pleas to CAMC and United have not been successful.

What if the Kramers weren’t willing or able to incur the additional cost? Where would Lynn Kramer be?

In December, I wrote about West Virginia’s distinction as “the number one judicial hellhole in America,” according to the American Tort Reform Association. Now, a corporation that was found liable by a West Virginia jury last month for $404 million in damages is claiming that title is accurate.

In a story in today’s Charleston, West Virginia Daily Mail, Chesapeake Energy’s CEO, Aubrey McClendon, says that his company is being punished even though it’s done nothing since arriving in West Virginia (as the new owner of defendant Columbia Natural Resources) except try to be a good neighbor. “Particularly when you think you are a force for good in the state. Ever since we arrived there all we’ve tried to do is hire people, pay people well, donate money. ‘No good deed goes unpunished,’ I suppose. This is what we get back. It’s a real negative feedback we’ve received, and we take it seriously.”

Apparently, a jury in Roane County, a very conservative and rural jurisdiction in West Virginia, didn’t see it that way when it awarded a class of approximately 8,000 landowners $134 million in compensatory damages and $270 million in punitive damages. Since the verdict, Chesapeake has been threatening not to go forward with plans to build a regional headquarters in Charleston, and in this article, McClendon says the company’s natural gas exploration program in the State is now up in the air as well.

Although McClendon characterizes Chesapeake as the “victim,” my guess is that the 8,000 landowners, who, according to the jury, were systematically cheated out of royalties by Chespeaks’s predecessor, Columbia, would disagree. This article, which appeared in yesterday’s Sunday Gazette-Mail, discussed the mix of plaintiffs suing Columbia Natural Resources, and pointed out that in addition to individuals, the class of plaintiffs includes many small and large businesses.

According to the American Tort Reform Association (whose stated purpose is “Bringing Greater Fairness, Predictability and Efficiency to the Civil Justice System”), the State of West Virginia is the number one “judicial hellhole” in the United States. For those of you who may be unfamiliar with ATRA’s rankings, “judicial hellholes” are “places where judges systematically apply laws and court procedures in an unfair and unbalanced manner, generally against defendants, in civil lawsuits.”

West Virginia earned this ranking due largely to its Supreme Court of Appeals’ decision in Morris v. Crown Equipment Corp., 633 S.E.2d 292 (W.Va. 2006), which found that a non-resident of West Virginia could bring suit in West Virginia against a corporation that was not incorporated or located in West Virginia. I have recently posted an entry discussing Morris, but I encourage you to read the decision for yourself, and not rely on ATRA’s characterization. The decision is well-reasoned and reaches a logical result.

To the extent that you are inclined to take the ATRA survey seriously, let me point out that in the past few years, West Virginia has enacted some significant tort reforms, including medical malpractice reform in 2003 and the elimination of third-party bad faith in 2005. Despite these actions by the Legislature, West Virginia’s annual position on the ATRA rankings has only “improved.”

ATRA’s survey is simply propaganda by the United States Chamber of Commerce and similar organizations. Leaving aside ATRA’s obvious bias, its results aren’t logical. By any objective measure, West Virginia’s position should drop, based on the anti-plaintiff and anti-consumer reforms that have been enacted within the past few years.

But the fact that West Virginia has now attained the number one position, based ostensibly on the decision in Morris, shows that any jurisdiction that enables civil plaintiffs to file and maintain lawsuits against ATRA’s constituency is going to be treated unfairly.

The United States Supreme Court has declined to review a recent decision from the Supreme Court of Appeals of West Virginia, which has been attracting quite a bit of attention, at least from the business community.

In Morris v. Crown Equipment Corp., 633 S.E.2d 292 (W.Va. 2006), the West Virginia Supreme Court reversed a circuit court’s dismissal of a civil action on the grounds that venue was improper in West Virginia. The plaintiff, Bart Morris, filed suit for a personal injury that he alleged was caused by a defective piece of equipment manufactured by Crown Equipment Corp., an Ohio corporation. Morris lived in Virginia, which is also where the injury occurred. The subject equipment was distributed and sold by the Jefferds Corporation, which is incorporated and located in West Virginia.  On the basis that Jefferds Corporation was the venue-giving defendant, Morris filed suit in Kanawha County (Charleston), West Virginia.

The trial court had granted the defendants’ motions to dismiss on the grounds that venue was improper in West Virginia, as Morris was a nonresident and no substantial part of his cause of action arose here. Morris argued that the Privileges and Immunities Clause of the United States Constitution entitled him to bring suit in West Virginia, as a finding that venue did not exist would categorically bar nonresidents of West Virginia from access to West Virginia courts, where a West Virginia resident would not experience such a bar.  Morris also claimed that a substantial part of his claim arose in West Virginia as Jefferds Corporation had distributed and sold the equipment, which made venue appropriate.

The Supreme Court, after thoroughly reviewing the authorities, concluded that under the Privileges and Immunities Clause, the West Virginia statute upon which the defendants relied in arguing against venue, West Virginia Code 56-1-1, did not apply to civil actions filed against West Virginia citizens and residents.   The defendants’ position would categorically bar nonresidents of West Virginia from access to West Virginia courts and would violate the Constitution.

The Court also addressed Crown Equipment’s argument that, despite West Virginia’s jurisprudence that one venue-giving defendant established venue as to all defendants, Morris, as a non-resident, had to show separate acts by Crown that occurred in West Virginia.  In other words, Morris would still have to establish venue for Crown, even though venue existed as to Jefferds Corporation.

The Supreme Court rejected Crown’s argument, and pointed out that Crown’s position ”that the plaintiff independently ‘establish venue’ with respect to the out-of-state tortfeasor would effectively prevent joinder of the out- of-state tortfeasor. This would be an absurd result, contrary to all established procedure.”  Consequently, the Court found that West Virginia law does not require a nonresident plaintiff to establish venue separately for each defendant.   

On December 11, 2006, in case numbers 06-487 and 06-503, the United States Supreme Court denied the petitions for certiorari filed by Jefferds and Crown Equipment, which enables Morris to continue to prosecute his lawsuit.  
 

The Atlanta Journal Constitution reports that Charles Rehberg, an accountant, who, along with Dr. John Bagnato, a surgeon, sent anonymous faxes to Albany, Georgia community leaders, complaining about various aspects of Phoebe Putney Health System’s operations, has settled his defamation lawsuit. Phoebe Putney describes itself as southwest Georgia’s leading healthcare provider.

Phoebe Putney hired ex-FBI agents to learn the identity of those sending the faxes. After Rehberg’s and Bagnato’s identities were discovered, Phoebe Putney sued Rehberg. He filed a counterclaim for defamation, which he continued to pursue, even after Phoebe dismissed its lawsuit against him in October 2004. In the meantime, Rehberg and Bagnato had obtained information regarding Phoebe’s treatment of uninsured patients, and its possible practice of charging uninsured patients and attempting to collect for their services, thereby violating its tax-exempt status. Rehberg and Bagnato took their information to Richard Scruggs, who has brought such suits against other hospitals. Scruggs’ case against Phoebe was dismissed by a Georgia state court, but he has cases pending in other jurisdictions.

Misdemeanor charges against Rehberg and Bagnato were dismissed. Last Friday, Rehberg settled his counterclaim against Phoebe Putney. The terms of the settlement were confidential, and Phoebe didn’t admit any wrongdoing, but Rehberg feels “vindicated,” which may mean Phoebe paid him quite a bit of money.

The article isn’t more detailed about the contents of the faxes, but does say that they (the faxes) “outraged” Phoebe Putney, which provides some indication about the information Rehberg and Bagnato managed to disclose.

I don’t know anything about Phoebe Putney in particular, but I do know about other hospitals and healthcare systems. Why is it that hospitals, more than most institutions (except for, perhaps, banks), always want to portray themselves as concerned and caring (which I know some are), yet act, even in circumstances like these, without regard for those who have had the temerity to raise some objection or make some complaint about the hospital’s conduct?

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