WEST VIRGINIA RECORD

CHARLESTON – West Virginia Physicians' Mutual Insurance Company has started paying off a $24 million state loan, 28 years ahead of schedule.

Company president David Rader said directors of the nonprofit malpractice insurer have approved returning $8 million to taxpayers.

They do not have to pay off any of the loan until 2035. They only have to pay interest, around 1.5 percent, with a "balloon note" at the end.

"If we were a for-profit company we would never pay it back," Rader said. "We are doing it because it's the right thing to do."

The West Virginia Legislature authorized creation of the company in 2004, finding it difficult if not impossible for doctors to buy liability insurance.

Legislators supplied $6 million in cash and the $24 million loan so the insurer could open with a $30 million surplus.

In three years the surplus has doubled, according to Rader.

"Because we have gone from 30 to 60 million, we are asking the insurance department to let us pay it back," he said.

He said Physicians' Mutual opened with 138 claims against it. He said about 30 remain open.

"We have been very effective managers on those claims," Rader said.

Physicians' Mutual also took on the commitment of paying for negligence that had already occurred, if the patient had not yet sued.

"We have been very fortunate that there have been no adverse events within that package, none," Rader said.

He said Physicians' Mutual has reduced rates twice.

He said the insurer's success made it a model for BrickStreet, the workers compensation insurer the Legislature created in 2005.

"BrickStreet is just us times 10," Rader said.

BrickStreet, however, will compete in the free market starting next July 1.

Physicians' Mutual competes in a limited fashion. Rader estimated that it serves 70 percent of the market.

He said some doctors obtain coverage through hospitals where they work. He said Physicians' Mutual does not insure hospitals.

He said it does not insure nurses unless they work for doctors.

He said some emergency room physicians and ophthalmologists choose insurers that specialize in their risks.

"We are starting to see some competition in the form of risk retention groups," Rader said. "They are not regulated by the state and don't have to meet the requirements."

Physicians' Mutual operates as a private business, but not purely private.

The West Virginia Supreme Court of Appeals classed it as a "quasi-state agency" in a June 27 decision.

The Justices held that Physicians' Mutual must afford policyholders the same due process rights that a state agency would afford.

Rader said 11 directors run the company, including six doctors. He said the doctors make up the underwriting committee and the claims committee.

"The doctors can get involved in every claim and that's terrific," he said.

The company motto is, "Physicians insuring physicians."

He said the company reduced rates 5 percent overall on Jan. 1, 2006, and reduced them 15 percent overall on this Jan. 1.

"The biggest drop was at the expensive end," Rader said. "Orthopedic surgeons went down 27 percent."

"It's kind of like baseball. You keep statistics on everything. The law of large numbers is effective at 1,250. We have 1,700 policyholders."

Current approved rates run from $6,685 for a new dermatologist to $114,360 for a neurosurgeon covering the last five years.

Rader said that with debits and credits, Physicians' Mutual seldom issues policies exactly at approved rates.

Rader said he started companies in Michigan, Kentucky, Indiana, Wisconsin, Florida and Puerto Rico.

"It's what I do for a living," he said. "I was retired and they hired me from Florida.

"I signed for three years and at the end of the contract I upped for three more."