N.Y. Audit of Insurer Tied to Graft Probe May Spur Higher Rates

New York doctors, some of whom already pay 10 times more for malpractice insurance than physicians in San Francisco, may see their rates soar thanks to a state audit beginning this month.

Physicians’ Reciprocal Insurers, whose shaky finances are central to an Albany corruption probe, has said in annual reports since 2009 that the state could liquidate it absent a law that blocks that action. Medical groups say the new audit might drive away doctors, sending PRI into insolvency, raising costs for remaining companies and leaving patients with fewer options for care.

For surgeons and other specialists, that would increase an already heavy burden. In 2014, a Long Island obstetrician-gynecologist paid more than $179,000 for insurance, highest in the nation, according to a report this year by Excellus BlueCross BlueShield, a Rochester-based nonprofit.

The story of PRI, which has the second-biggest share of the state’s $1.6 billion malpractice-insurance market, shows how machinations in the capital directly affect New York residents. The company, though not charged with a crime, is at the center of allegations against former Senate Majority Leader Dean Skelos, who federal prosecutors say used his influence with the firm to secure a job for his son.

New York hasn’t completed or released its most recent review of PRI, which was conducted in 2009, according to the company. Martin Schwartzman, who retired from the Department of Financial Services in April as a senior adviser to the insurance superintendent, says Governor Andrew Cuomo’s administration is trying to hide damaging information.

“The state is deeply concerned about any disruption to the marketplace, and that is why they withhold publishing certain reports,” Schwartzman said. “Scaring the public and the medical community will only make matters worse.”

Matt Anderson, a DFS spokesman, said the audit wasn’t withheld. He said the state hadn’t finished it because it began before Governor Andrew Cuomo created DFS in 2011 by combining insurance and banking regulators into one agency. A new audit will start this month and survey the past five years.

Matt Cannon, a PRI spokesman, said the company has cooperated with DFS.

“The next report will show a continued strengthening of the firm,” Cannon said by e-mail. The company since 2009 has hired a new chief financial officer, actuaries and chief investment adviser, he said.

PRI has reported to the National Association of Insurance Commissioners every year since 2008 that it couldn’t meet its long-term obligations. While its finances have improved since bottoming out five years ago, they were still twice as poor this year as they were in the initial report.

Flame Burst

In New York, only five firms insure doctors against legal judgments, and the state sets rate increases. Those companies pay into a pool designed to back up the obligations of a failed firm. If one does, the costs would be passed along.

The new audit could cause PRI “to burst into flames,” if doctors leave for other insurers, said Michael Goldstein, a Manhattan ophthalmologist and president of the New York County Medical Society.

“Our premiums would rise to subsidize someone else’s mess,” he said.

New York has supported the industry for 30 years by extending a law that blocks regulators from liquidating companies unable to meet long-term costs, such as PRI. Governor Andrew Cuomo signed three extensions passed by lawmakers.

Rich Azzopardi, a Cuomo spokesman, declined to comment on the governor’s decision.

Cuomo’s extensions benefited PRI and Administrators for the Professions, the firm that manages its operations. The companies are housed in the same building in Roslyn, on Long Island.

The insurer, management firm and the manager’s chief executive officer, Anthony Bonomo -- along with his family members and company executives -- combine to rank among Cuomo’s biggest donors.

The giving includes $10,500 from Gerald Dolman, president of Administrators for the Professions, to cover Cuomo’s October private-plane flight to Buffalo for a televised debate, according to campaign disclosures and the governor’s schedules.

The group is also among the biggest donors to Skelos, a Long Island Republican who stepped down from his leadership post after his May arrest. Skelos had helped Cuomo pass the first five consecutive on-time budgets in more than 30 years, two of which included extensions to the law that helped PRI.

No-Show Job

Prosecutors say that in 2012 Skelos pushed a firm that manages a malpractice insurer to help his son in return for backing extensions to the law. The company gave Adam Skelos a $100,000 no-show job in January 2013, court documents say. A person familiar with the probe, who wasn’t authorized to speak publicly, said the firm was Administrators for the Professions. Dean and Adam Skelos have said they’re innocent.

G. Robert Gage, an attorney for Dean Skelos, didn’t respond to a request for comment on the case, nor did Anthony Bonomo. Christopher Conniff, an attorney for Adam Skelos, declined to comment.

Cannon, the PRI spokesman, said the company is cooperating with the investigation.

Its filings to the insurance commissioners group say that the state could liquidate PRI if it weren’t for the law blocking it. The 1985 measure was pushed through the legislature by Cuomo’s father, three-term governor Mario Cuomo, in an effort to stabilize the industry.

The state’s inaction has left the market in a risky position, said Ellen Melchionni, president of the New York Insurance Association, a trade group.

“A failure would mean the guaranty fund would be triggered,” Melchionni said. “Every single company writing property and casualty insurance would have to kick in, leading to higher insurance costs for all New York residents and businesses.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE