Blue Cross-Blue Shield | Liability Insurance Crisis
Blue Cross-Blue Shield of Florida
by Russell B. Carson, M.D.
The fundamental element of the “Blues” was that they were “service type” insurance plans. Secondly, they were nonprofit plans. Service must be defined and contrasted with indemnity insurance. By indemnity, one identifies an insurance contract which provides a fixed compensation for damage, loss, or hurt, regardless of the economic circumstances of the insured. That is, so many dollars for an appendectomy or for a fractured toe, regardless of the fee charged for the care.
A service contract, on the other hand, provides a compensation for the appendectomy or fractured toe at a predetermined fee (based on a fee schedule). A payment in full is made for the service, provided the economic status of the person falls below a prearranged annual income. That is, if a workman has an income of $5000 per year .and has a service contract that pays in full for services given to the individual under contract with a $6000 income limit, there is no additional medical charge. Under a Blue Cross contract with these limits, the insured worker’s hospitalization would be paid in full, provided that he accepted accommodations allowed by the contract, usually a ward bed accommodation.
In the United States the first recognized service type medical assurance plans were started in the far west (in Oregon and Washington States in the early part of this century). They were designed to cover the cost of care of the men working in timber cutting and saw mills. Arrangements were made through the lumber companies for complete medical care for their workers, who paid a monthly fee for such service. No additional charge would be made.
Blue Cross was the first of the “Blues” to be started as an insurance plan with a service type prepaid in full arrangement. It began in 1929 in Dallas, Texas, with a group of school teachers, who found that they could not afford the medical care sometimes needed but did not want to ask for “charity.” The teachers approached Dr. Justin Kimball, Ex. V. P. of Baylor University, with a proposition in which they would prepay at .50 cents per month or $6.00 per year with the assurance that they would receive hospital care without charge when they needed it. In 1929 there were many empty hospital beds. Hospitals were in debt, and there was widespread unemployment. The stock market had crashed!
On December 20, 1929, approximately fifteen hundred teachers, as a group, began the “Baylor Plan.” Prepaid hospitalization was born. In a few months two other Dallas area hospitals joined in the venture. It proved to be a financial success, as utilization did not exceed the group payment for the year. Fortunately, the first group to come together had a favorable composition of people of a relatively healthy, younger age, exposed to minimal trauma, with single job types. It was a precursor of the type of organization that made up many of the early Blue Cross and Blue Shield groups, in contrast to coverage of individuals or a heterogenous mixed group of various ages or hazardous employment.
In 1932 a community-wide program began in Sacramento, California, to provide care in any participating hospital. That type of plan then rapidly spread to New Jersey, Minnesota, North Carolina, New York, and Louisiana.
In 1934 the Blue Cross symbol was exhibited along with the supporting American Hospital Association emblem. Each area set its own fee for service yearly rates. The hospitals had to agree to supply a prescribed limit of service. At this time there was a need for an overall coordinating body to set standards and develop basic programs. The Blue Cross Association was born with marked growth in interest in the concept of paid in full care for a preset insurance fee. After five years of operation, there were six thousand hospitals accepting Blue Cross with annual payments in the hundreds of thousands of dollars. In 1941, the 12th year of its operation, Blue Cross paid out $32.6 million to more than six million subscribers. In Florida the Blue Cross plan, which began in 1944, was 17th of 86 plans and paid more than one million dollars.
What about Blue Shield? This program began approximately ten years (1939) after the beginning of Blue Cross as a “Physician’s Service Plan” and also grew rapidly. Blue Shield’s initial concept was to provide paid in full coverage for services rendered to a person, whose annual income was at, or below, the level of the plan purchased to cover that income level. It began as a “service” plan, which paid the physician rendering the service directly. That is, if you purchased a plan with an annual income limit amount of $5000 or less, the plan would pay according to a preset fee schedule. The physician agreed to accept that amount as full payment. Simply speaking, if you could afford only a Ford, your transportation was by a Ford. However, if you could afford a Lincoln, then you were on your own to pay the bills.
An insurance policy, “Plan A,” calling for a $5000 income limit and a premium of $20 a month, had a fee schedule that paid $100 for an appendectomy. If you had a “Plan B” policy with a $7500 income level, the premium was $30 a month, and the fee schedule paid the surgeon $150 for an appendectomy. If your income was more than $7500 a year, you were responsible for your physician’s charge of $200 or $300 plus additional charges, depending upon your demands for service (private room, nurses, twice daily visits or personal factors).
An indemnity plan would pay a fixed amount per a fee schedule, dependent upon the monthly premium. The physician was under no obligation to accept that fee schedule as his full payment, regardless of your income.
The Florida Blue Shield plan began in 1944 under the guidance of Dr. Leigh Robinson of Fort Lauderdale (past president of the Florida Medical Association, 1939), who became its first president. Dr. Robinson employed Mr. Hilary Schroder of New Orleans Health Care Plan as chief executive officer in 1946. Florida Blue Shield, a service plan, began as an outgrowth of a committee of the Florida Medical Association. The first office was on the second floor of the Seminole Hotel Annex Building in 1946.
The following excerpts were taken from The 25th Anniversary Report: A History of Blue Shield in Florida 1946 – 1971:
The Blue Shield principle of paid-in-full benefits for low income subscribers was--and is--heralded as the doctors’ plan. Yet, especially, in the early stages the most aggressive opposition, often accompanied by bitter recriminations, came from the medical profession. Primarily due to misunderstanding and misinformation, suspicion and mistrust abounded.
In Florida ineffective communication between the plan and the medical profession threatened to destroy the program before it had the opportunity to demonstrate its feasibility and its value to physician and public.
High among the causes for dissatisfaction of physicians with their own plan was that services, normally performed by many of them, were not covered under the severely limited contract. The plan, however, had little choice. Lack of actuarial data in this new field demanded that coverage necessarily be limited to surgical and obstetrical procedures performed in the hospital, with correspondingly restricted coverage for the related radiology, pathology and anesthesia services, until experience could be attained. The cost of providing benefits for these services could be predicted with some degree of dependability. Because of inadequate information and unwarranted conclusion, some physicians found themselves in the contradictory position of opposing the service benefit principle, while at the same time protesting their ineligibility to participate in the program.
Most frequently voiced objections were those, purportedly, based on attitudes and philosophy. The reluctance on the part of physicians to embrace the idea of a voluntary method for prepaying the cost of medical care had been apparent in the discussions and decisions of the Florida Medical Association’s Board of Governors and House of Delegates, before less than unequivocal approval was given to a medical service benefit plan in Florida. High on the list of criticisms was the fear of third party interjection into the confidential relationship between physician and patient. This danger, in the minds of many physicians, was greater from a service benefit prepayment plan than from an indemnity type coverage beginning to be available through commercial insurance companies. To many of them, the threat of federal compulsory health insurance was remote, even improbable, and far less ominous than an organization, which could determine the maximum fee they would be able to charge to certain classifications of their patients.
The qualified endorsement of the Blue Shield service benefit philosophy by the Florida Medical Association and the relationship between the Association and Florida Blue Shield were stressed by president Robinson in his farewell address to the active members on April 25, 1954, when he said:
“It is well for all of us to clearly understand the relationship between the Florida Medical Association and Florida Blue Shield. The Florida Medical Association has on repeated occasions defined its position as to voluntary prepaid health plans. As late as 1953 the Board of Governors stated that the Florida Medical Association approved in principle all voluntary prepaid health plans, whether they were commercial or nonprofit like Blue Shield, but would not recommend any one particular plan. I mention this fact in order to clear up in the minds of anyone that might think that Blue Shield is a branch of the Florida Medical Association. As stated above, Blue Shield was incorporated, separately and independently of the Florida Medical Association, and was financed by private voluntary loans from doctors with no pressure of any kind from the Florida Medical Association, which is already stated, and have all been repaid (all loans repaid in full in 1951). Blue Shield is, therefore, on an equal footing with the commercial companies and must meet competition on her own grounds.”
The belated entry of commercial insurance companies into the health insurance field, of which Dr. Robinson spoke, increased the hesitancy of some physicians to accept the service benefit principle. In spite of the earlier reluctance of commercial carriers to underwrite the costs of illness and their contention that hospital and medical expenses were not insurable risks, numerous physicians now advocated that health insurance be left solely in the hands of insurance people. To have taken this course would have meant that the physician had no voice in the type and the extent of coverage available to his patient. Likewise, it would undoubtedly have meant an inflexible indemnity coverage, which was likely to be inadequate and which would react slowly to a changing economy.
Fortunately, at this time Florida Blue Cross selected H. A. Schroder of New Orleans, Louisiana, as its executive director. Schroder was then designated to serve also as the executive director for the struggling Florida Medical Service Corporation (Blue Shield). It is of interest that Schroder took office on September 1, 1946, the effective date of the first Florida Blue Shield contract.
As previously noted, the coverage provided by the first contract was necessarily restricted. The unavailability of adequate actuarial information combined with meager operating and reserve capital made it advisable to limit coverage to surgery and obstetrical care performed in the hospital, along with their related radiology, pathology, and anesthesia services, for which the cost of providing benefits could be predicted with a reasonable degree of dependability. The only additional coverage provided was up to
$25 for emergency care in the outpatient department of a hospital within 24 hours following an accident.Although the first contract did not specify coverage for minor surgery and obstetrical services outside a hospital, provision for their payment was included in the original schedule of allowances, which bears an effective date of July 1, 1946. No benefits were available for accompanying radiological, pathological or anesthesia services outside a hospital.
The first contract contained a service benefit provision that guaranteed payment in full for covered services by participating physicians for a single person, whose annual income did not exceed $2000, $3000 for a family.
Maximum benefits for covered procedures were according to schedule of allowances listing some 266 surgical procedures, a maximum of $10 per procedure for anesthesia (based on time) and a radiology schedule of some 38 procedures for services in connection with a surgical procedure performed in the hospital, including obstetrical delivery. The maximum payment for all services during any one hospital admission was $150.
Maternity benefits were listed among the surgical procedures at the indemnity benefits of $50 for normal delivery, $100 for delivery by cesarean section. No benefits were payable for prenatal or postnatal care.
The first contracts were sold only to individuals through groups at a rate of
.80 cents per month for one person and $2.00 per month for family coverage, which included the spouse and all unmarried dependent children.
OTHER OUTSTANDING ACHIEVEMENTS
(From the 25th Anniversary Report)
Developing out of the sporadic, frequently stormy, progress of the Robinson administration were numerous advancements in addition to benefit expansions:
- June 25, 1947 — The establishment, at the request of Florida Blue Shield, of a fee schedule committee by the Florida Medical Association.
- June 25, 1947 — Joining the Associated Medical Care Plans, which was to be designated the National Association of Blue Shield Plans in 1960.
- In 1948 — The establishment of the first claims committee. (The claims committee is made up of a group of physicians representing various medical specialties. They meet regularly to review medically complex claims needing individual considerations for equitable payment decisions. Samuel M. Day, M.D. acted as Blue Shield’s medical consultant for a number of years. His official duties in the Florida Medical Association required him to give up these responsibilities for a time, but he returned to his former position with Blue Shield in August 1966. In his absence Ensor R. Dunsford, M.D. filled this position.)
- April 10, 1949 — Toe,first meet.ing of plan active members in conjunction with the annual meeting of the Florida Medical Association at Bellaire.
- April 22, 1951 — Name of the plan· officially changed from the Florida Medical Service Corporation to Blue Shield of Florida Inc.
- May 19, 1951 — Florida Blue Shield joined with Florida Blue Cross in the dedication of their new home,office building at 532 Riverside Avenue, Jacksonville. (Although used jointly as headquarters by Florida Blue Cross and Florida Blue Shield, ownership of the physical plant remained solely with Florida Blue Cross until January 1, 1970, at which time a joint ownership of the physical facilities was agreed upon.)
END OF A TUMULTUOUS ERA
(From the 25th Anniversary Report)
At the annual meeting of Florida Blue Shield on April 25, 1954, Dr. Robinson announced to the active members that he wished to be relieved of the responsibilities of the presidency. This brought to a close the distinguished first administration of Florida Blue Shield by a dedicated physician, whose interest in prepayment program for medical care in Florida had begun more than ten years before.
Dr. Leigh Robinson’s eight year presidency was terminated on April 25, 1954. Dr. David Murphey of Tampa was elected to his place. Dr. Murphey had a medical problem, which allowed him to serve only one term. His chief accomplishment of that year was the promotion of a proposal to have the Delegates to the Florida Medical Association also be designated as the active physician members of the governing body (House of Delegates) of Florida Blue Shield, who together with the officers of Blue Shield and a lay group of elected Floridians, which constitute 10% of the total body, would become the corporate controlling organization of Florida Blue Shield. This proposal was voted upon and passed at’the Annual Meeting on April 6, 1955, at which time election of a new president was necessary. A urologist, Russell B. Carson, M.D. of Fort Lauderdale was elected, and held the office, as had Dr. Leigh Robinson, for a period of e ght years, not standing for election in 1963.
One of the first, and, mos1’significant, actions of President Carson was taken in September 1956, when he promoted through the Board of Directors of Blue Shield a request to the Florida Medical Association that a standing Advisory Committee of Blue Shield, commonly known as the Committee of Seventeen, be established. This committee was to serve as a means of better educating and informing the members of the Florida Medical Association regarding Blue Shield’s roll in the providing of prepaid service contracts and of asking for their support. This committee was very instrumental in promoting expansion of the Plan, in growth of the Plan, and in establishing a firm Physician Relation Department to assist physicians who might have problems.
MORE FROM THE 25TH ANNIVERSARY REPORT
The committee was represented geographically and by specialty of the practice of medicine in Florida. Many hours were spent in studying Blue Shield and educating both themselves, as a committee, and other physicians a5 well. As early as August 1956, the Physicians Relations Department published its first issue of News Notes, a newsletter approach to providing systematic and consistent communication between the plan and its participating physicians.
Timely assistance to the professional educational program came from the national level in the form of a comprehensive definition and characterization of Blue Shield. President Carson presented this definition to the active members at the 1961 annual meeting:
“Blue Shield is a nonprofit community service, designed to provide economic security against the cost of necessary medical care. Created and sponsored by the medical profession, Blue Shield represents a collective contribution of participating physicians to the welfare of their communities. The policies and the services of Blue Shield are guided by physicians and civic leaders without compensation as trustees or directors of Blue Shield’s member plans throughout the United States.
“Blue Shield serves all segments of the community--not just those who have the most favorable economic and health status. Blue Shield continuously seeks to equate its benefit payment to the normal charge of physicians, in order to assure the patient that his benefits will meet the cost of covered services. Blue Shield members have the right to continue their enrollment for life, regardless of age, health or work status.”
Now with the Florida Medical Association House of Delegates in control of policy, promotion of Florida Blue Shield, and an active liaison committee keeping the entire physician population informed, a phenomenal growth took place in group insurance membership and in payments to physicians of Florida. By our fifteenth year in 1961, Florida Blue Shield had grown to 862,774 members, had 369 employees, and a $13 million physical plant (together with Blue Cross). In those fifteen years the plan had paid to the physicians of Florida and their patients $53,989,000, much of which was paid for services given to persons of low income who might have been unable otherwise to meet their medical bills.
MORE FROM THE 25TH ANNIVERSARY REPORT
On July 1, 1966, the special Senior Citizen Program was replaced by the joint Blue Cross and Blue Shield complementary coverage desigued to supplement Medicare. Along with most other subscribers age 65 or over, those enrolled in the Senior Citizen program and eligible for Medicare were automatically transferred to complementary coverage on that date. A few older subscribers in all categories preferred not to participate in Medicare part B (Medical Insurance), which is elective and for which they must pay a portion of the premium. At their request, such subscribers were permitted to retain their Blue Shield contract in lieu of complementary coverage (not applicable to Blue Cross). This same option is open to Blue Shield subscribers reaching age 65 and electing not to enroll in Medicare Part B.
CLOSE OF A DISTINGUISHED ADMINISTRATION
In 1963, citing the tradition established by the first president, Leigh F. Robinson, M.D., of serving a maximum of eight years as President of Florida Blue Shield, Dr. Carson, announced at the annual meeting of active members his decision to relinquish this responsibility. In his farewell address May 1963, Dr. Carson urged the members to demonstrate their confidence in the board of directors by dictating principles and guidelines for the board to follow, leaving the details to the board and administrative staff, and to authorize the development of a variety of contracts and riders with wide range of coverage.
In looking to the future of Blue Shield, Dr. Carson reminded its members of the challenges they faced:
“Today Blue Shield faces the greatest challenges in its experience. Some of these challenges are:
A tightening economy with less reserves and capital to continue private enterprise.
A frightening change of philosophy of our government toward disregard for fiscal soundness and toward unbridled spending.
Growth of industry into the hands of a few from the hands of many.
Competition from within the insurance field which, if not met and overcome, can produce a strangling defeat. We must not sacrifice our sound basic principles, but we must meet the competition with a better product than he can produce. This we can do if we will, because the product--good health care-- is in our hands, and we can provide it at a reasonable but fair rate of compensation.
We are challenged by a new generation of physicians who have new economic problems to face and we must be prepared to do for them what Blue Shield did for us in the past.
We have the challenge of not only keeping up to date but leading the field of prepaid health care, if we are to maintain our strength of acceptance by the public we serve.
It is my feeling that Blue Shield has reached a point where change in our provision of health care security has been reached. We must lead the way toward making the best of health care obtainable within the reach of every person, but with the preservation of our American way of freedom and self respect.”
During the eight years of the Carson presidency many new and innovative policies were developed or expanded. Instead of a purely surgical and obstetrical insurance, many general medical problems were covered. The range of single and family incomes was expanded, and contracts were developed to permit participation in the new government employees insurance programs. Age limitations were removed and fewer deductibles were established.
It must be remembered that Blue Shield and Blue Cross were non profit corporations. It is to the credit of Blue Shield, for instance, that as the number of subscribers increased and operative efficiencies improved, the cost of doing business markedly decreased. In 1947, for instance, operating expense was 27.4%. By 1957 this had been reduced to less than 15%, while the competition of commercial for profit companies were spending 25% to 55%, for operating expenses in salaries to officers and directors plus dividends to stock holders. Physician administration contributions and no stock holders, only patient contractors, made a huge difference in value of the Blue Shield Policy.
MORE FROM THE 25TH ANNIVERSARY REPORT
In 1965 a liberalization of policy permitted acceptance of a physician’s usual and customary charge for a covered service in administrating special national accounts such as the Schlitz Brewing Company, members of the “Motors Group,” (automobile manufacturing), and steel workers. At this time, pending accumulation of more detailed and credible information of physicians’s charges through different areas of the state, the appropriateness of physician’s fee was based on a comparison with the maximum allowance for the procedure under the federal employee program high option schedule of allowances. (In September 1969, usual and customary charges for physician services became applicable to the high option federal employee program service benefit plan in Florida).
Medicare Part B: No other single incident had the resounding impact on Florida Blue Shield as being selected by the Social Security Administration, on the recommendation of the Florida Medical Association, as the carrier to administer the medical insurance portion of Public Law 89-97 (Medicare) for social security beneficiaries receiving medical care in Florida. (The Medicare Law includes benefits for age 65 and over beneficiaries of the Railroad Retirement Act in addition to Social Security beneficiaries. Part B benefits for eligible railroad retirees are administered nationally, including Florida, by a commercial insurance company.) Concurrently, Florida Blue Cross was selected by most Florida hospital and many extended care facilities participating in Medicare as the intermediary in Florida for Medicare part A, the hospital insurance portion of the program.
The combination of administering both parts of Medicare set off an explosive expansion that required the addition of hundreds of new personnel and the acquisition of additional space outside the home office complex to house them. The “tooling up” process became number one priority, and the activity became frenzied. The large number of new personnel had to be located, hired, and trained in short period of time. Existing equipment was sadly inadequate and computer capacity insufficient to handle the greatly increased work load. There was a mad scramble to “beef up” communication facilities, particularly in the telecommunications areas, without which handling the heavy volume would be impossible.
OTHER SIGNIFICANT EVENTS FROM THE 25TH ANNIVERSARY REPORT
1963 — Florida Blue Shield and Florida Blue Cross initiated the joint underwriting of the master medical endorsement. This contract now became a single document. Previously, each plan had its own separate endorsement with individual underwriting.
1964 — Past President, Russell B. Carson, M.D., was elected chairmen of the Board of Directors of the National Association of Blue Shield Plans.
Considerable consternation was caused in Blue Shield Plans throughout the country when the American Medical Association canceled its Blue Cross Hospital Care Employee Group Program. Florida Blue Shield protested this action through the Florida Medical Association.
1965 — In a nationwide Blue Shield test performance survey, Florida Blue Shield was shown to pay an average of 64 percent of all charges billed for physicians services, 4 percent higher than the national average. At the same time, 91 percent of the charges for covered physicians services under the high option federal employee program were payed in full.
An interesting note might be added here by giving the financial statement for the one year of 1968:
Paid to physicians on Blue Shield claims$8,104,782
Amount paid for services rendered by Florida physicians and for care received by subscribers traveling from other states$20,240,154
Total subscription income$24,389,746
Portion of subscription income for operation13.95%
Medicare B: For handling 1,696,396, claims paid out$87,108,587
Champus: For handling 52,000 claims, paid out$4,151,609
Florida — National Leader in Blue Shield
The Florida physician control of the Blue Shield insurance plan, through its House of Delegates corporate control, served as a forerunner model for health insurance programs in the United States. Florida also was a leader in monitoring and in leading th1/ resistance of medicine to more government controls. In our state a dominant proponent of federal or socialized medicine was Senator Claude Pepper. Through the efforts of organized medicine in Florida the Senator was deposed and replaced with a friend of medicine, George Smathers, a senator who believed in the autonomy of medicine and in the private practice of our profession.
In order to help the other state Blue Plans with their relationship to state organized medicine, officers of the Florida Blue Shield and of the National Association Blue Shield Plans; appeared before the House of Delegates of several states. Dr. Carson appeared before the State of Michigan Medical Society in Grand Rapids, Michigan, before the House of Delegates of Indiana, Kentucky, Georgia, Texas, and twice before the House of West Virginia. Trips were also made to Puerto Rico and Jamaica Blue Shield Plans to attempt to improve the Medical Association and Blue Shield relationship and to promote the service plan concept.
A significant contribution made to the participating physician’s status was the election of Florida’s president, Dr. Carson, to the National Association of Blue Shield Plans, located in Chicago, Illinois. The association coordinated and standardized the policies of some 72 to 78 separate Blu_e Shield Plans throughout the United States, a few in Canada, Puerto Rico, and Jamaica. Dr. Carson advanced from board member to Secretary to Chairman of the National Association of Blue Shield Plans between 1958 and 1966. It was during his two years as Chairman of the Board of National Association of Blue Shield Plans that a crisis came to medicine in the form of the government’s determination to pass the Medicare Program. The principal benefit gained for the practicing physician was the separation of the Medicare program into parts A and B. The physicians’ care was, therefore, taken out of the domination of hospital control. Blue Shield was the doctors’ advocate at this junction. Blue Shield won the separation of Medicare into two parts with Medicare B for physician’s services.
Liability Insurance Crisis
by John P. Scheuren, M.D. and Ralph R. Madio
1945 to 1965
Until the mid sixties, the term “medical malpractice” was rarely used and even more rarely considered as a major line of insurance and risk by the United States insurance companies. Florida was comparatively tranquil and sleepy in those early post World War II years. Medical negligence was even less of a major issue here than in the more established northern states. So minor was its impact on the total insurance industry picture that providing coverage for it was offered to physicians and surgeons as an add-on to other policies, such as personal liability or homeowners coverage. The premium was in the low hundreds for as much as $1,000,000 or more per claim protection.
1965 to 1976
Slowly, but with gathering momentum, medical malpractice took on a defined shape and rapidly developed into an issue of note in Florida. There were several reasons for this phenomenon, as it was initially thought to be. A large population explosion created a need for more physicians and surgeons, as well as allied medical services. The introduction of a larger base of attorneys moving here from other states, as well as the increase of the home-grown variety, contributed to this development, as did the growing recognition by the public that they were entitled to accountable standards of care from the practitioners of the medical profession.
The Florida Medical Association developed a state society-sponsored program with the Aetna Insurance Company to provide their members with professional medical liability coverage. Premiums began to escalate. By the late 1960’s, the premiums had doubled and in some areas of the state (particularly Dade and Broward Counties) had tripled. Premiums were approaching the $1,000 yearly level for $1,000,000 per claim. The Florida Medical Association changed its sponsorship from Aetna to Employers Fire Insurance Company of Boston and one of its subsidiaries, Employers Surplus Lines Insurance Company (the latter for less desirable risks and emerging disciplines such as osteopathy). The number of claims and suits rose steadily and precipitously causing the Employers Group to abandon the line during 1970. The new statewide-sponsored carrier became the Argonaut Insurance Company of Menlo Park, California. Their “15 minutes ” of fame lasted about four years, until increasing losses and reserves caused their departure. The Florida Medical Association then turned to another California company, Signal-Imperial Insurance Company of Los Angeles. In the early 1970’s they began to write more restrictive, but more costly, malpractice coverage. Some typical premiums and classes of coverage introduced at that time were:
|Major Surgery Including Urology
||Dade and Broward Counties
|Major Surgery Including Urology
||Rest of State
1976 was the most critical year in the medical malpractice spectrum in the State of Florida. With the demise of the Signal-Imperial Companies of Los Angeles, all primary and reinsurers of the line abandoned the state. That caused the State Legislature to enact laws enabling physicians and surgeons, as well as hospitals, to form self insured trusts.
The main enabling feature was the creation of the Florida Patient’s Compensation Fund, which provided (certainly unbelievably by today’s standards) unlimited excess of loss reinsurance limits. In other words, the per claim amount of the self insurance fund’s retention per physician was supplemented by an unlimited higher limit. The funding for this catastrophic coverage was not actuarially sound, and the State Legislature knew it. However, they incorporated a fall back position in the enabling law, which made the individual physicians and surgeons personally assessable, both severally and jointly, for any deficits in the Florida Patient’s Compensation Fund. Similar hospital assessments were based on a per bed ratio. The initial FPCF excess of loss of a premium was $2,000 per physician.
The emergence of runaway malpractice verdicts and the ever increasing number of malpractice claims soon showed the thinking to be hopelessly flawed. The Legislature’s response was to enact certain malpractice reforms by law. Those reforms led to a re-entry of some major U.S. insurance companies into the Florida market. While this re-entry was welcome news, it was at considerable premium cost, which many of the physicians and surgeons resisted. So, for an approximate ten year span, the 1976 self insurance laws were utilized by a handful of self insurance trusts, which had organized in that critical year of formation in the State.
Paragon Fund was one of those self insurance entities, which developed as a high bred, urology-only insurance vehicle from a number of earlier organized funds such as FMA-PIMCO, Physicians Protective Trust Fund, and Caduceus Self Insurance Fund. John P. Scheuren, M.D. of St. Petersburg, Michael P. Small, M.D., and William H. Shaw, M.D. of Miami, and A. C. McCully, of Tallahassee were the original four trustees who started the Paragon Fund.
The organizers of Paragon chose John P. Scheuren, M.D. as their Chairman. The choice of Dr. Scheuren proved to be of great benefit to the urologists in Florida. Under Dr. Scheurens’s leadership, Paragon developed into the lowest loss ratio malpractice entity of its type and was extremely well underwritten and operated. Dr. Scheuren remained as chairman for the entire six-year existence of Paragon. He continued on as chairman, after it evolved into Unisource in 1990.
During the first year the Board of Trustees was expanded and the original Board consisted of:
John P. Scheuren, M.D.St. Petersburg
Michael P. Small, M.D.Miami
William H. Shaw, M.D.Miami
C. McCully, M.D.Tallahassee
Robert W. Lankford, M.D.Deland
Robert R. Ross, M.D.Venice
Morteza G. Yavari, M.D.Jacksonville
James M. Porterfield, M.D.Orlando
Since its beginning in 1976, the Paragon Fund, subsequently Unisource, has continued a close relationship with the Florida Urological Society. Paragon, by virtue of its exclusive composition of Florida urologist policyholders, was symbiotically related to the Society. Consequently, a synergy developed between the two organizations, which has been maintained to the present and has proved mutually beneficial. Paragon, and then its successor Unisource, sponsored many activities for the Florida Urological Society and each year presented a medical-legal seminar topic aimed to better inform the urologist physician of the changing malpractice climate.
By 1989 many major U.S. insurance companies had re-entered the Florida malpractice market. This was the result of some of the effects of lasting malpractice reform laws and the premium greed machine, which drives many of the insurance companies. What then transpired was a series of premium wars, which began to undermine the more actuarially sound medical self insurance trusts which had survived from the pioneer group. In order to protect the premium return possibilities (which is the favorable side of assessable funds) that few, but some, of the malpractice trusts retained for the benefit of their founder members, one of the more forward thinking trusts, namely Paragon, decided to transform into a licensed Florida property and casualty insurance company. That company is Unisource. One of its initial transitions involved the adding of nephrologists to its physician policyholder line. The same careful underwriting utilized in the selection of urologists and responsible for the success of Unisource was applied to the selection of nephrologists. As the years went by, other carefully selected medical practice specialties became part of the group.
Another of the original self insured trusts that went through the metamorphosis of trust to company was the originally sponsored FMA PIMCO. After several years of operation they were allied with PICO (Physicians Insurance Company of Ohio) and, subsequently, their current company, Florida Physicians Insurance Company, was developed.
The situation now, in 1997, as we approach the millennium, has been rapidly changing under the impetus created by managed care. Health Maintenance Organizations and their counterparts have become a fact of life, as is the power and control they exercise over the practice of medicine. While still charged with the individual responsibility for patient care, the physician has seen his or her authority substantially diminished by federal and state laws. Consequently, physicians’ expectations of their ability to deliver the best care possible, as well as to receive the economic benefits to which they are entitled, have been significantly diminished.
(Editor’s Note: The Paragon Trust was a highly successful self insurance trust, which provided insurance. Upon its termination it returned several thousand dollars of unused premium to each of its members. John P. Scheuren, M.D. was largely responsible for creating and successfully managing the fund.)