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Vol. 28, No. 1

States consider medical malpractice caps . . . again

by Clifton Barnes

The issue of caps on medical malpractice awards is back, and it’s not just the same old story ... or is it?

The current medical malpractice insurance premium crisis is strikingly similar to those in the mid-1970s and mid- to late-1980s, some say. Doctor groups and insurance companies are looking to put caps on malpractice awards at, in fact, the same dollar figure—$250,000—that was pushed for more than two decades ago.

“The increase in insurance premiums is due to the fact that investment returns are down,” says immediate past ABA president Alfred P. Carlton Jr. “The insurance business is simple. They collect premiums and invest the money. This is exactly the same situation as before. As soon as investment returns picked up, there was no crisis.”

But what might be different this time is the tenacity of the supporters of a cap, along with a broad-scale coordinated effort on the state and national level. In July, a proposed federal bill that would have capped jury awards for noneconmic damages (such as pain and suffering) at $250,000 died in the U.S. Senate. However, many speculate that the issue will figure largely in next year’s presidential and congressional campaigns.

“Bar leaders need to be aware of the fact that there is a public relations effort by the health care industry and business groups that has turned this into an attack on lawyers, and it’s incredibly unfair,” says Tom M. Golden, president of the Pennsylvania Bar Association. “There is so much rhetoric we are seeing that is designed to attack the profession.”

Golden says the attacks could fundamentally change the civil justice system for the negative, and affect access to justice. “We have to fight the fact that people are buying into the idea that lawyers are not good people,” he says. “We’re not opposed to new ideas, but tort law is a consumer issue and it’s the average person, the injured parties, who get hurt.”

Pennsylvania is one of more than 20 states considering medical malpractice reform, with most of the hubbub revolving around caps on noneconomic damages.

“It’s the one thing that gets the most attention from the proponents of tort reform and the thing they have developed their media message around,” says Gail Stone, director of legislative affairs for the Washington State Bar Association.

The crisis

Though lawyers and doctors may disagree over how to solve the problem of soaring malpractice insurance costs, few could deny that there is a problem, and that it’s a serious one.

Health care systems in some states are “headed toward an implosion unless the hemorrhaging costs of the current medical liability system are addressed,” says Dr. Donald J. Palmisano, president of the American Medical Association. He points to 18 states where patient access to care is seriously threatened: Arkansas, Connecticut, Florida, Georgia, Illinois, Kentucky, Mississippi, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Texas, Washington, and West Virginia.

Doctors in states without tort reform legislation that includes caps are rallying at legislatures and conducting “walkouts” and even “strikes.” Many others are leaving the medical profession because they simply cannot afford the insurance.

Palmisano says that the AMA does not endorse strikes but does believe physicians are entitled to petition for change.

“The individual decisions of physicians to reschedule nonemergency patient visits and elective procedures are intended as a political statement to get the attention of their elected officials and regulators,” he says. “The vast majority of patients understand that physicians are taking these actions to protect the future of patients’ access to health care.”

Palmisano says that attempts to underscore the need to protect patients’ access to health care will likely continue unless state legislatures and Congress pass “proven medical liability reforms.”

Bar leaders, too, are well aware of the problem, and some are working toward a solution in their state. Within the last five years, for example, liability rates in Pennsylvania have risen by 250 percent. “We realize this is a health care crisis, not just a tort reform crisis,” Golden says. “Physicians have understandably been politically motivated and very vocal. The rates have gone off the charts.”

While the malpractice insurance rates have been going up, the amount of money allowed to physicians has also been cut dramatically. Pennsylvania doctors are some of the most poorly paid in the country, Golden says.

The Pennsylvania bar has set up a task force to deal with the whole issue of health care. “There’s no question that we’re going to try to come up with some program that will address the issues,” Golden says. The resolution to the problem “goes way beyond” caps, Golden says: “We need to get it back to the question of what to do to solve this rather than attacking each other.”

Already, the Pennsylvania bar has helped eliminate venue shopping, where lawyers would get a case moved to an area where awards were traditionally higher. In addition, the bar has been instrumental in working with the state supreme court to make rule changes that reduce the filing of “frivolous” lawsuits—though that word can be a bone of contention.

“I don’t use that word— ‘frivolous’—because the system is self-correcting,” Carlton says. “If lawsuits are being filed without a proper basis, there are ways to go at that.” He notes that in his home state of North Carolina, for example, before a medical malpractice case can be filed, an expert has to be certified and available to say there is reason to bring the suit forward.

North Carolina is one of the states considering a $250,000 cap. State Insurance Commissioner Jim Long, speaking to legislators recently during a special state Senate committee meeting, acknowledged that lower investment returns have been a cause of the problem.

Long also said that the decision by St. Paul Cos., one of the nation’s largest medical malpractice insurers, to get out of the malpractice insurance business in 2002 is a sign of deeper problems. Because St. Paul continues to provide other forms of insurance, Long said that indicates that the company viewed losses in malpractice as “unsustainable.”

Do caps work?

The major provisions of the health act that came before Congress this year, and that have been incorporated into bills in state legislatures across the country, are based on a California law known as the Medical Injury Compensation Reform Act of 1975 (MICRA). Palmisano claims that MICRA has saved California from the medical liability insurance crisis of states that lack similar reforms.

In addition to a $250,000 cap on noneconomic damages, MICRA includes other reforms, such as money awarded by the court for damages going primarily to the patient, not the lawyers, Palmisano says. “MICRA’s fee schedule provides incentives for attorneys to accept ‘smaller’ cases, while ensuring patients receive 85 percent of awards greater than $600,000,” he explains.

He says that since the MICRA law was enacted, liability insurance costs nationwide have seen an average increase of more than 573 percent, but in California, rates have risen by only 182 percent. He adds that California’s medical negligence disputes are settled 23 percent faster than the national average and cost 53 percent less to settle.

“The fact of the matter is that MICRA reforms have been proven to stabilize the medical liability insurance market in California since 1975,” Palmisano says. “Thanks to the law, access to care has increased for California’s patients, and doctors in the state have saved more than $1 billion per year in liability premiums.”

Opponents, including Golden, argue that it took Proposition 103, which regulated the insurance industry, to moderate the rates in California. Proposition 103 repealed the antitrust exemption that most states have and, opponents argue, it rolled back rates by 20 percent. Opponents say that between 1975, when MICRA was signed into law, and 1988, when Proposition 103 went into effect, there was little difference between liability insurance costs in California and the rest of the country.

Further, opponents note that adjusting for inflation from when that cap was put into place produces a figure three or four times that amount. “If you are looking for logic and rationality [for the $250,000 figure], it doesn’t exist,” Carlton says.

The California experience shows that the $250,000 cap does not reduce insurance premiums for doctors, Stone says. “The insurance industry admitted at a hearing that even if the bill passes the best they can offer would be that the increase in premiums would moderate in five years,” she notes.

In North Carolina, Long told legislators that if they cap damage awards, they had better use the law to make sure savings go to lower premiums. “That’s the only way you can prove it is going to work,” he said.

All caps that have been challenged have been found constitutional, but the ABA, and other legal groups, oppose caps of any amount.

“The ABA’s position since day one is that we are against caps,” Carlton says. “There is no credible evidence that increasing medical malpractice insurance premiums has anything at all to do with the justice system. There is no credible evidence that caps reduce insurance premiums, period.”

Legislation varies

Tort reform through the Washington state legislature failed during the most recent session, even after a state Senate committee raised the noneconomic damages limit to $350,000 and put in a provision to cap attorney contingency fees. Alternate bills failed that would have required arbitration and would not have held doctors liable after eight years. “The liability coalition, working for the doctors, said it’s all or nothing,” Stone says. “Caps were evidently their biggest piece of the legislation.”

Legislation regarding caps fared better in West Virginia, where Gov. Bob Wise, in March, signed into law a tort reform bill that limits compensation for noneconomic loss at $250,000 (except in cases of wrongful death, permanent and substantial physical deformity, or permanent physical or mental function injury that permanently prevents the person from caring for himself or herself, in which case the limit is $500,000). Those caps will be adjusted annually for inflation.

“Once the session ended and the bill was signed into law, doctors, lawyers, insurance people, and the general public started waiting to see what cases would go through the court system,” says Tom Tinder, executive director of the West Virginia State Bar. “We’re just waiting to see what happens. There are a lot of unanswered questions.”

Because there is no other court of appeals in West Virginia, Tinder said he expects a case challenging the law to go fairly quickly from trial court to the state supreme court with a decision sometime in 2004.

Trying another solution

During a special session of the West Virginia legislature last year, the West Virginia State Bar suggested setting up a mutual insurance company for doctors, similar to ones for lawyers.
“We wanted to suggest a long-term solution by setting up a mutual insurance company for physicians and run by physicians,” Tinder said. “That’s being set up now. In the meantime, the state set up an entity to administer a separate fund for doctors. More than 1,000 doctors signed up to get insurance from that entity.”

In July, physicians in West Virginia were assessed a one-time fee of $1,000 for the privilege of practicing medicine in the state. The money collected will be used to establish the insurance company. The West Virginia Medical Association hopes to have its physicians mutual insurance company in place sometime in 2004.

What happens next?

Although the federal bill was defeated, the debate rages on, both at the state and federal level, as states consider their own legislation and as Congress considers a compromise proposed by Sens. Richard J. Durbin (D-Ill.) and Lindsey O. Graham (R-S.C.). This alternative, which at press time had the support of many Democrats but not of most Republicans, would seek to improve information on medical errors, repeal the insurance industry’s exemption from federal antitrust laws, and provide tax relief for doctors in high-risk specialties.

Stone says the defeat of the federal bill “gives state legislatures time to continue to search for real, creative solutions to the problems that doctors face.”

That search should involve “close study, factual inquiry, and deliberation,” Carlton notes, adding that the North Carolina state Senate has appointed a special committee to consider the proposed legislation there, and that both he and Palmisano have addressed the North Carolina Senate.

If legislation similar to the defeated bill is enacted in the future at either the federal or state level, it will affect lawyers’ ability to achieve just resolution for their clients, Carlton says, adding that it would be an infringement on the jury system and a violation of the rights of patients and injured people.

“If the cure doesn’t fix it, why do we need it?” he asks.

—Clifton Barnes

AMA president, a lawyer, talks about healing

The new president of the American Medical Association says the damage to the relationship between doctors and lawyers caused by the recent medical malpractice/tort reform debate will be very difficult to repair.

“I am concerned that the current liability crisis may permanently damage physicians’ faith in our judicial system and the rule of law,” says Dr. Donald J. Palmisano.

That might not be a surprising statement from a physician, but this doctor is a lawyer. In 1982, Palmisano received his juris doctor from Loyola University New Orleans School of Law, where he was elected to the Blue Key National Honor Society. He is licensed to practice law in Louisiana.
“As a doctor and a lawyer, I truly hope that our two professions can come together to work for what’s best for our patients and clients,” Palmisano says. “Doctors are so discouraged by their experiences in the courtroom that bringing them back will be very difficult.”

Physicians view lawyers as members of a respected profession who play an important role in safeguarding our freedoms, he explains, but they are discouraged by what they see as a lack of accountability for attorneys who file suits without merit.

“The failure of bar associations to address this issue is a serious impediment to having harmony between the professions,” Palmisano says. “The standard response of lawyers who say sanctions are available for those who file suits without merit rings hollow with physicians because they are rarely imposed.”

Medical liability litigation has become an increasingly irrational “lottery” driven by open-ended noneconomic damage awards, Palmisano says. That’s why the AMA is pushing for medical liability reforms, which include caps, in legislatures around the country, including the U.S. Congress, he adds.

“Doctors are sick and tired of the continuing crisis and we will press for real reforms until we accomplish our goals,” Palmisano says. “We will not rest until the stage is set for doctors to worry more about taking care of their patients than whether they will have to relocate, drop patients, drop services, or just quit medicine because of the litigation climate.”