Malpractice insurers focusing on risk management; tightened reporting requirements.(Practice Trends)

PMA Medical Specialists, a 24 physician multispecialty practice in suburban Philadelphia, was facing a crisis. Since buying out the previous owners--the University of Pennsylvania--in 2002, PMA had been struggling to get malpractice insurance. The group had managed to get a policy for 2002 from St. Paul Fire and Marine, only to find that the company planned to exit the malpractice market altogether beginning in 2003. That left PMA wondering how it would find insurance again.

Meanwhile, attorneys at Duane Morris, a Philadelphia law firm, decided that the malpractice crisis in Pennsylvania was getting way out of hand. Their solution was a bit unusual: They started a malpractice insurance company.

"We went and looked at what the costs of claims were, and why we believe there is a crisis," explained Duane Morris partner C. Mitchell Goldman. "It's part bad regulation by the insurance department, part bad pricing by insurers, and some bad performance by small numbers of physicians."

The attorneys then looked at what they and the physicians could do to help stabilize malpractice premiums, he continued. One way was to tighten reporting requirements.

"Doctors are always very late to report incidents," Mr. Goldman said. "If the first thing you hear about is a lawsuit, you're stuck with [making a] legal defense, but if you've got lots of time to work with the claim before it becomes a lawsuit, there is lots of opportunity to keep the lawyers out before it becomes a loss."

Then there is the issue of working with hospitals to keep malpractice claims to a minimum. "Historically, [doctors and hospitals] have each viewed the other as the enemy. The plaintiffs played off the hospital against the doctor, and the hospitals would usually lose," said Mr. Goldman.

With these ideas in mind, the law firm created a subsidiary called Wescott Holdings and used it to start up the Pennsylvania Healthcare Providers' Insurance Exchange. Duane Morris does not provide any legal services to the company; instead, it receives a fixed tee for managing it. So far, the exchange insures just under 700 physicians, including the members of the PMA group. Clients must: