Caps top state medical liability reforms
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They reduce premiums, lure physicians, and improve access to care

With health system reform barely addressing medical liability reforms and the Help Efficient, Accessible, Low Cost, Timely Healthcare (HEALTH) Act of 2011 likely to get buried in a legislative stalemate, states are taking it upon themselves to usher in meaningful medical liability reform.

These reforms enacted in states, such as California and Texas, have resulted in reduced medical liability premiums, an influx of physicians, and improved access to patient care. Additionally, some states are involved in demonstration and planning projects that offer promising alternatives to medical liability reforms.

“Liability reform has clearly been identified as a significant way to bring about a meaningful reduction in the cost of health care in this country,” said Brian Atchinson, president of the Physician Insurers Association of America. It is considered a potential means to help bend the cost curve by reducing premiums and holding the potential to reduce defensive medicine, which was estimated to cost $45.6 billion in 2008. The Congressional Budget Office has estimated that national medical liability reforms would reduce the federal budget deficit by $54 billion between now and 2019. “That’s just the federal government savings,” he added. “That doesn’t touch on potential savings throughout the health care system.” At the state level, the savings are more than theoretical.

State roundup

To date, all states have a statute of limitations rule. Approximately 30 states have limits on non-economic or economic damages, collateral source rules, and periodic payment of future damages. Nearly that many states allow for joint and several liability. Approximately 16 states have limits on attorney fees and require cases to be heard by a pre-trial screening panel. Regarding caps, the amount and type of damages covered vary state by state. So do the versions that the other reforms take.

In 2011, four states passed medical liability reform. But just because a law is enacted doesn’t mean that it won’t be challenged. For example, caps on non-economic damages were ruled unconstitutional in Illinois and Georgia last year. Courts have overturned a cap in at least 11 states, some of which have enacted new laws once the old ones were overturned, according to the American Medical Association (AMA). In at least 16 states, including Colorado and Indiana, courts have upheld a cap as constitutional. Some state constitutions prohibit caps on damages altogether.[pagebreak]

Benefits

A number of different reforms and initiatives are thought to bring about a meaningful reduction in liability costs, Atchinson said. Among them are collateral source reform, pre-trial screening panels, limits on attorneys’ fees, and periodic payments. “But the one that is bringing about the greatest verifiable cost savings are caps on non-economic damages,” he noted.

Numerous studies have shown that caps, in particular, reduce the size of indemnity payments, constrain the growth of insurance premiums over time, and increase the supply of physicians. Overall, liability premium rates were reduced an average of approximately 17 percent for internists and nearly 21 percent for general surgeons in states with caps, according to a Robert Wood Johnson Foundation-funded study that examined state medical malpractice reform legislation from 1975 to 2004. If a cap of $250,000 on non-economic damages was introduced in all states without caps and damages were reduced to $250,000 in states that had higher caps, there would be an annual savings of $1.4 billion, or 8 percent of the total malpractice premium costs, the study asserts.

The gold standard of medical liability reform is California’s Medical Injury Compensation Reform Act (MICRA) of 1975, which included a $250,000 cap on non-economic damages along with limits on contingent attorney fees, collateral source rules, periodic payments of future damages, and a statute of limitations. Between 1976 and 2009, total medical liability insurance premiums across the country rose 945 percent; in California they rose only 261 percent, according to the National Association of Insurance Commissioners. “In California, the medical liability insurance rates are the most stable and lowest in the country,” Atchinson said.

Another leader in medical liability reform is Texas, which enacted a stacked cap on non-economic damages in 2003. (A stacked cap sets a maximum payout for which an individual may be responsible as well as a maximum total award that multiple defendants may have to pay.) All major liability carriers in the state have cut their rates, most by double-digits, according to the AMA. The state’s largest liability carrier — Texas Medical Liability — has reduced its premiums for nine consecutive years. Most physicians have seen their rates reduced by an average of 27 percent, according to the AMA.

New insurance companies have entered the Texas market, as well. Only four companies sold medical liability insurance in the state before reform and now there are more than 30 companies, said Atchinson, adding, “That’s a significant measurement of the effectiveness of reform.”

In addition, Texas has seen a dramatic influx of doctors. The state has experienced a 59 percent increase in newly licensed physicians in the past two years compared with two years prior to reform, Atchinson said. “This legislation has proven over the years to be highly effective in the area of business development for the state of Texas as well as in the recruitment and retention of physicians to the state,” noted Dan McCoy, MD, who serves on the Texas Medical Association Board of Trustees and is a former president of the Texas Dermatological Society. “It has helped recruit dermatologists to the state as they have found Texas to be a friendly place to practice.”[pagebreak]

Similarly in West Virginia, after passing medical liability reform in 2003, the Board of Medicine issued 377 new physician licenses in 2004, the most since 1999. In fact, several studies found that states with caps have a higher percentage of physicians, ranging from 2.2 percent to upwards of 4 percent, per resident than states without them.

The more physicians, the better the access to care for patients. Addressing some of the liability costs has allowed doctors who considered ceasing to practice in rural and underserved areas to continue practicing in those areas, Atchinson said. A study by the Center for Delivery, Organization, and Markets of the Agency for Healthcare Research and Quality (AHRQ) found that rural counties in states with caps have 3.2 percent more physicians per capita than states without such limits. Other research suggests that rural areas benefit from a greater number of surgical and support specialists, according to the AMA.

Benefits are attributed to other medical liability reforms, as well. For example, in states that have adopted collateral-source offsets, there are lower total indemnity payments and less double payment of medical expenses, according to a recent study. In Maine, pre-litigation screening panels have resolved 70 percent of cases before trial, according to the Maine Medical Society.

Alternative options

A handful of states are participating in AHRQ-funded three-year demonstration grants and one-year planning grants that explore alternatives to current tort litigation. “All of the three-year projects are making very good progress,” said James Battles, PhD, a social science analyst for AHRQ’s Center for Quality Improvement and Patient Safety. Approximately half of the one-year planning projects have requested extensions, he said. The others are wrapping up and are expected to provide final reports in March.

The most promising of the demonstration projects is the New York judge-directed negotiation program, Dr. Battles said. For this project, the program currently used in New York courts will be expanded and coupled with a new hospital early disclosure and settlement model. Co-run by the Department of Health and the New York court system, this program won’t require legislation, at least in New York, he explained. This type of program can be challenging because it requires buy-in from hospitals, trial lawyers, and risk managers. “But when you begin to get consensus, then things start moving along,” he said, adding, “One of the best ways to reduce liability is to reduce risk.”[pagebreak]

The Massachusetts Medical Society and Beth Israel Deaconess Medical Center joined together to develop a roadmap for implementing a disclosure, apology, and offer approach to medical liability as part of a one-year planning grant that is also promising. The medical society and trial lawyers are supporting this effort, which dramatically reduces the amount of liability, Dr. Battles said. Findings from a recent study about the University of Michigan Health System’s disclosure-with-offer program demonstrate significant cost savings. Since implementing its program in 2001, the health system’s average monthly rate of new claims and monthly rate of lawsuits decreased as did the total liability, patient compensation, and non-compensation related legal costs.

In addition to the demonstration and planning grants, Congress created a separate medical liability grant program as part of the health reform law focusing on statewide efforts. Under this program, participating states would develop an alternative liability reform and promote a reduction of health care errors by encouraging the collection and analysis of patient safety data. The $50 million of funding called for by the law, however, has not yet been made available.

“The unnecessary defensive medicine practices, which are a huge cost driver for our health care system, do drop when you have meaningful tort reform and medical liability reform,” Atchinson concluded. “These types of reforms can bring about significant cost savings and overall improvement in terms of patient safety, which at the end of the day is the primary concern.”


HEALTH Act of 2011

The HEALTH Act of 2011, one of the first bills introduced in the House of Representatives this year, would enact federal medical liability reform. Specifically, it would:

  • Set a $250,000 cap on non-economic damages
  • Set a statute of limitations
  • Limit attorney fees
  • Allow for collateral source rules
  • Limit punitive damages
  • Provide for periodic payments


“If the HEALTH Act of 2011 were to pass it would be of benefit to states, particularly those that don’t have medical liability reforms currently in place,” said Brian Atchinson, president of the Physician Insurers Association of America. “It would protect the state laws that are already in place and would pre-empt weaker state laws.” He is cautiously optimistic that the bill will be given a lot of attention in early 2012.


Liability reform terms defined

The terms of the medical liability reform debate are often as clear to non-lawyers as identifying a lesion would be to a non-dermatologist. Below, some of the keys terms of the debate are defined.

Collateral-source offsets: Damage awards take insurance payments to plaintiffs into account, reducing economic damages owed by defendants.

Disclosure-with-offer: In tests of this concept, physicians admit they have made a medical mistake and potential plaintiffs are offered compensation. Test pilots suggest this can reduce the number of lawsuits and overall liability expenses.

Joint and several liability: Plaintiffs can seek portions of a judgment against a group of defendants from any or all of them. Defendants are typically responsible for sorting out how to apportion payment of damages among themselves.

Judge-directed negotiation program: A pilot in New York is testing the idea that involving judges at the beginning of a lawsuit can avoid years of litigation by facilitating negotiations between lawyers for plaintiffs and defendants. The approach is designed to save defendants money on litigation and potentially reduce damage awards while getting plaintiffs their awards sooner.

Non-economic damages: In addition to economic damages related to the actual cost of the injury suffered by a plaintiff, judges and juries in some states can award non-economic damages for intangible suffering. Capping such damages has been one of the major changes sought by advocates of medical liability reform.


 

Related Resources

HEALTH Act of 2011
Liability reform terms defined