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The New Reality of Federal Medical Malpractice Reform

By Shep Tapasak

A New Day

On November 9, 2016, Donald J. Trump was elected the 45th president of the United States, which was considered a highly unlikely outcome by political experts, pollsters and historians. Likewise, with the election resulting in Republican majorities in both the House and Senate, there is heightened potential for changes previously thought unlikely to become reality.

Federal Medical Malpractice Reform legislation is one topic that may receive renewed focus—with a legitimate chance of success.

Consider the following statement as published by the Republican Platform 2016 Committee: “Medical malpractice lawsuits have ballooned the cost of healthcare for everyone by forcing physicians to practice defensive medicine through tests and treatments, which otherwise might be optional. Rural America is especially affected as obstetricians, surgeons and other providers move to urban settings or retire in the face of escalating insurance premiums. Many Republican Governors have advanced the legal reforms necessary to reverse that trend. We support state and federal legislation to cap non-economic damages in medical malpractice lawsuits, thereby relieving conscientious providers of burdens that are not rightly theirs and addressing a serious cause of higher medical bills.”

While some of the statements by the Republican Platform Committee are debatable, there is no doubt that the relatively high cost of healthcare in the U.S.[1] will continue to be scrutinized, with political pressure for new ideas/solutions.

Torts and a Historical Perspective of Medical Malpractice

A tort can be defined as: a wrongful act by a person, where there was a duty to act in a different manner, and where the result was injury or harm to another.  Modern concepts of Tort Law evolved mostly from the Common Laws of England. There are three broad categories of torts: 1) intentional; 2) negligence; and 3) strict liability. The “duty to act” or “duty of care” is a key differentiator among these different categories of torts.

The U.S. tort system is designed to provide compensation to those persons injured by civil wrongs. Also, it is intended to deter conduct which strays from appropriate “standards” of care. With general negligence, the focus is upon how a “reasonable” person should act, but with medical negligence (a.k.a. medical malpractice), the standard of care is higher—and more complicated. The focus with medical negligence is on how a reasonably competent and skilled health care professional should act.

Due to the higher standard of care and societal goal of high quality healthcare, medical malpractice litigation can often result in awards for both economic and non-economic damages. Economic damages are relatively simple to quantify and compensate those injured persons for the cost of necessary medical care and/or lost wages.  Non-economic damages are intended to compensate for pain, suffering, and anguish; are complicated to quantify; and, potentially, far exceed the monetary award of economic damages. Punitive damages are a separate category, and where allowed, can only be awarded where the health care professional deviated from the standard of care in such a way as to clearly suggest reckless or deliberate disregard.

Argument for Change

In support of medical liability legislation, Speaker of the House Paul Ryan’s “Better Way” policy paper states that enactment of meaningful reform would reduce health care system costs by as much as $300 billion each year.

The following summarizes the main points made by those who advocate Federal medical malpractice reform:

  • The current medical malpractice system is broken, and imposes substantial and unnecessary cost across the entire system, which ultimately is paid by all consumers.[2]
  • The frequency of frivolous lawsuits and the potential for irrational jury awards puts a strain on healthcare providers and discourages others from pursuing careers in healthcare.
  • Injured patients are not compensated in a timely or equitable way.[3]
  • In states where meaningful reform has been time-tested, evidence supports reduction in healthcare costs and an increase in availability of quality care.[4]
  • Federal legislation could be enacted that does not interfere with existing state law.
  • Attempts at national healthcare reform (i.e., the Affordable Care Act) are incomplete without also addressing malpractice liability.

Argument Against Change

The following summarizes the main objections to Federal medical malpractice legislation:

  • The amount of money spent on medical malpractice premiums and defense costs is a relatively small percentage of total health care spending in the U.S.[5]
  • The Federal government has questionable authority to regulate issues impacting malpractice insurance. Such issues should be addressed by individual states.
  • Capping the amount of non-economic damages deprives injured patients of fair trial and/or adequate compensation, especially in situations where their quality of life is significantly reduced.
  • There is no medical malpractice insurance crisis. In fact, insurance premiums have been decreasing for 9+ years.

What Medical Malpractice Reform Might Look Like

The Help Efficient, Accessible, Low Cost, Timely Healthcare (HEALTH) Act of 2016 is currently in the House Judiciary Committee.[6] This bill is very similar to H.R. 5, which was passed by the House in 2012, and never made it to the Senate floor. 

H.R. 4771 states the following as a key finding: “Congress finds that our current civil justice system is adversely affecting patient access to health care services, better patient care, and cost-efficient health care, in that the health care liability system is a costly and ineffective mechanism for resolving claims of health care liability and compensating injured patients, and is a deterrent to the sharing of information among health care professionals, which impedes efforts to improve patient safety and quality of care.”

The following summarizes the key provisions of the Bill:

  • Statute of Limitations; The maximum time for the commencement of a health care lawsuit shall be 3 years after the date of manifestation of injury or 1 year after the claimant discovers, or through the use of reasonable diligence should have discovered, the injury, whichever occurs first.[7]
  • Caps on Non-Economic Damages; the maximum recovery for non-economic damages would be $250,000 per injury regardless of the number of healthcare defendants involved.
  • Caps on Punitive Damages; if punitive damages are permitted at the State level, there must be clear and convincing evidence of malice or deliberate disregard. The maximum award for punitive damages would be either $250,000 or two times the amount of economic damages; whichever is greater. Also, punitive damages would not be available for medical products that meet FDA standards.
  • Limitations on Attorney Fees; for contingent arrangements, there would be a sliding scale for maximum attorney fees that could be awarded by a court as follows: (1) 40% for the first $50,000 of recoveries; (2) 33.3% of the next $50,000 of recoveries; (3) 25% of the next $500,000 of recoveries; and (4) 15% of any recoveries excess of $600,000. 
  • No Preemption of State Law; if the State law specifies a different monetary cap on non-economic or punitive damages, for example, that State Law shall apply.

Potential Impact on Medical Malpractice Premiums

For states that have already enacted meaningful medical malpractice reform that meets Constitutional muster, the proposed Federal legislation is unlikely to mean lower rates. However, for other states, premium rates could decreases between 10% and 30%. As noted previously, caps via the Federal statute would not override higher caps where enacted by the states. However, some of the other provisions in the bill (e.g. reduced contingencies, statute of limitations, etc.) could result in premium rate reductions in those states. 

The below table illustrates the current landscape as respects caps on non-economic damages.

No Statutory Caps for Non-Economic Damages

Previous Statutory Caps for Non-Economic Damages: Overturned by State Courts

Current Statutory Caps for Non-Economic Damages

Arizona
Connecticut
DC
Delaware
Iowa
Kentucky
Maine
Minnesota
New Jersey
New York
Rhode Island
Vermont
Washington
Wyoming

Alabama
Florida
Illinois
New Hampshire
Oregon

All other states

Note: This chart only illustrates statutory caps on non-economic damages. Some of these states may have other related legislation; for example, damage caps on wrongful death suits, or caps on punitive damages.

Conclusion

Federal medical malpractice legislation has been attempted previously without success. The topic is polarizing with perspectives very much divided along party lines. Nevertheless, several states that have successfully adopted reform arguably present a roadmap for success. 

Caps on the non-economic portion of awards/judgments are an important and hotly debated component of medical tort reform. There is evidence that suggests enactment of such caps would mitigate the practice of “defensive medicine,” resulting in a reduction of healthcare costs. Given the focus around healthcare spending in the U.S., and an Administration with a Republican majority, there is a real chance for the passage of Federal reform, which may be just as surprising as the signature enforcing it – Donald J. Trump.

 

[1] According to the Organization for Economic Development (OECD), the U.S. spends 17.1% of its GDP on health care.  This is the highest spend among all developed countries, with 11% noted as the average for comparable developed nations. 

[2] Proponents of Federal Medical Malpractice legislation often point to widespread “defensive medicine,” in which medical professionals order (and bill for) testing or treatment that is not necessary, with the objective of mitigating the potential of an adverse outcome in the event of a malpractice suit.

[3] While studies vary, many estimates suggest that successful plaintiffs receive only 45% - 55% of the amount awarded, with the remainder going to pay attorneys and other administrative expenses.

[4] California and Texas are often suggested as the states that clearly support the benefits of medical malpractice reform. Ryan’s “Better Way” paper states: “From 1976 through 2012, California’s medical liability insurance premiums increased by 241% compared to a total increase of 679% for the other 49 states. From 2003 through 2015, the Texas Medical Board saw an increase of roughly 109% in their new physician licensure applications.  While other states were losing obstetricians, Texas actually gained obstetricians; the number of obstetricians in Texas increased by 429 between 2003 and 2015 to a total of 2,732.”

[5] A Harvard School of Public Health study in 2010 concluded that the costs of medical malpractice, including costs associated with defensive medicine, was 2.4% of total health care expenditures.

[6] H.R. 4771

[7] There are several tolling provisions, including providing an extended timeframe for minors under the age of 5.


This material is for informational purposes only and not for the purpose of providing legal or insurance advice.  Insurance coverage, and the terms and conditions relating to such coverage, will vary.  No representations or promises are made that any particular insurance coverage will be available to any individual or entity seeking such coverage.  Integro is not a law firm and does not provide legal advice.  If such advice is needed, consult with a qualified adviser. 

About the Author

Shep Tapasak is based in Integro’s Atlanta office, and a leader within the firm’s healthcare practice. Email: shepherd.tapasak@integrogroup.com; phone: 404.439.8975


About Integro’s Healthcare Practice

Integro’s healthcare team delivers exceptional brokerage and consulting services to the healthcare industry. We design and implement customized solutions for all healthcare entities, protecting clients from the full range of risks through our integrated service delivery model that combines proven analytics, coverage counsel analysis as well as seasoned and respected healthcare brokers. For more information, visit: integrogroup.com/industries/healthcare-provider-insurance.


About Integro

Integro is an insurance brokerage and risk management firm. Clients credit Integro’s superior technical abilities and creative, collaborative work style for securing superior program results and pricing. The firm’s acknowledged capabilities in brokerage, risk analytics and claims are rewriting industry standards for service and quality. Launched in 2005, Integro operates from offices in the United States, Canada, Bermuda and the United Kingdom. Its U.S. headquarter office is located at 1 State Street Plaza, 9th Floor, New York, NY 10004. 877.688.8701. www.integrogroup.com

The content contained herein is not intended as legal, tax or other professional advice.  If such advice is needed, consult with a qualified adviser.

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