Medical Malpractice Reform in Pennsylvania

Medical Malpractice Reform in Pennsylvania April 28 2008 John B. Outrakis Health Care costs in Pennsylvania have become a major issue for many residents. Medical malpractice reform and its effects on health care costs, quality and access have contradicting views. The ending results are mixed and interpretation is based on individual priorities and perspectives. John Outrakis HPA 301W Page |2 Table of Contents Executive Summary……………………………………………………………………………………………………………. 2 Problem Identification……………………………………………………………………………………………………….. 3 Stake Holder Identification………………………………………………………………………………………………… 4 Changes in Medical Malpractice throughout American History………………………………………….. 6 Pros and Cons of Proposed Solution……………………………………………………..…………………………… 8 The Effect of limiting Non-Economic Damages on Access to Care……………………………… 9 The Effect of Limiting Non-Economic Damages on Quality of Care………………………….. 10 The Effect of Limiting Non-Economic Damages on Cost Containment……………………… 12 The Ending Effects and Events on Limiting Non-Economic Damages………………………. 13 Conclusion……………………………………………………………………………………………………………………… 14 Appendix……………………………………………………………………………………………………………………….. 15 Bibliography………………………………………………………………………………………………………………….. 18 John Outrakis HPA 301W Page |2 Executive Summary Over the past decade, the cost of health care has emerged as a center domestic issue. The rising costs of health care services and insurance rates have put both patients and providers in a tight situation. Placing a cap on non-economic damage awards is one proposed solution to cut health care costs. Medical malpractice non-economic damages are losses that are not monetary. They include pain and suffering, mental distress, or other hardships experienced as a result of medical malpractice. A good number of states have already set non-economic damage award caps for medical malpractice suits. Pennsylvania may consider doing the same. Today’s health care predicament marks the third medical crisis period in American history. The other two occurred in the 1970s and 80s. This one differs dramatically as America faces a much more complex and comprehensive world economy. There has yet to be any firm action taken by the federal government in regards to medical malpractice caps. All in all, health care can be viewed as a triangle made up of cost containment, access, and quality. If one of angle increases, one or both of the other two will decrease. A legislative action rests on the prioritization of the access, cost and quality of health care. John Outrakis HPA 301W Page |3 Problem Identification Medical malpractice is universally known as “liabilities arising from the delivery of medical care (American Academy of Pediatrics, 2002).” The controversy about medical malpractice in the United States did not begin until the 1970s. It was then when insurance premiums began to grow rapidly. The issue surfaced again in the 1980s, leading to the first sign of medical malpractice reform. More recently, Pennsylvania has seen increases in malpractice premiums anywhere from 26 to 76% (Thorpe, 2004). Many point to medical malpractice reform as a solution to the rise in health care costs. Increasing medical malpractice rates are causing doctors to flee states that have high premiums. The increasing rates are also resulting in the elimination of high-risk medical services. On the other hand, some claim that medical malpractice caps negatively affect the quality of care received. There are many contradicting views on the issue. Either ignoring the situation or acting on it could be devastating to the health care system in the United States. As for Pennsylvania, 44% of Pennsylvanians believe that the quality of health care in general is declining. Residents name malpractice lawsuits as the number one reason for escalating health care costs. Sixty eight percent of Pennsylvanians are in favor of setting a cap on non-economic damages. In this study, Larry Hugick of Princeton Survey Research Associates International points out “Their (Pennsylvanians’) increasing concerns about health care costs mirror and exceed the growing concern we are seeing nationally- meaning that addressing the rising costs of care and insurance is likely to be one of the leading domestic issues in the fall election” (Jobbins, 2004). John Outrakis HPA 301W Page |4 Another reason Pennsylvania should be concerned with medical malpractice liability reform is that the American Medical Association (AMA) named the state a “crisis state” in medical malpractice. Pennsylvania is classified as a crisis state because insurance premiums have tripled since the year 2000 (American Medical Association, 2008). The realm of medical malpractice is rather large. The most common cause of medical malpractice is negligence. The law of medical negligence is receiving less care than the “degree of care which a reasonably prudent person should exercise in the same or similar circumstances” (American Academy of Pediatrics, 2002). Other causes include intentional misconduct, breach of contract, defamation, divulgence of confidential information, insufficient informed consent, or failure to prevent foreseeable injuries to third parties (American Academy of Pediatrics, 2002). The purpose of medical malpractice is to compensate individuals who did not receive proper care and to provide consequences to physicians who do not perform safe and effective care (Fred J. Hellinger, 2006). There are a variety of medical malpractice damage award limits. For the most part, caps can be classified as either “hard” or “soft.” A hard cap is very objective. With a hard cap, there are no exceptions: The limit is not adjusted over time and it applies to every situation. A soft cap is very subjective: It allows for annual increases based on inflation, economic indicators, or a set schedule. It may also vary depending on individual situations (American Medical Association, 2008). Stakeholder Identification John Outrakis HPA 301W Page |5 Dictionary.com defines a stakeholder as a person or group that has an investment, share, or interest in an issue. Since healthcare is such a complex, comprehensive industry many stakeholders exist. Medical malpractice reform has a direct effect on health care consumers (patients), health care providers (physicians), insurance companies, and lawyers. Consumers are affected by medical malpractice. Basic economics assume that if physicians pay lower premiums on their insurance, they will charge less for services. For most consumers that would be a good thing. However, for those who have been adversely affected by the health care system, the situation may be different. The real question is: What would cause a patient to file a malpractice lawsuit? LaRae Huycke, MD at the Department of Veterans Affairs Medical Center conducted a survey to determine the main reason people filed medical malpractice lawsuits. LaRae found that 73% were provoked by television advertisements and27% said they were recommended to seek legal counsel (Huycke, 1994). Physicians are directly affected by caps on medical malpractice damage awards. Ann Mech, assistant professor of legal affairs at the University of Maryland School of Nursing, cites that doctors feel caps are needed mainly due to “trial lawyers seeking exorbitant damage awards for even the frivolous claims” (Mech, 2003). Leo V. Boyle, president of the Trial Lawyers of America disagrees. He contends, “The problem with medical malpractice is that it occurs far too often. It is the eighth leading cause of death in America, killing more people than AIDS, breast cancer, or John Outrakis HPA 301W Page |6 automobile crashes” (Mech, 2003). However, no scientific evidence has proven Mr. Boyle’s case. Insurance companies believe they are not to blame either. Dr. Martin D. Weiss has identified six factors that are driving up malpractice insurance premiums (Weiss, 2003). Six Factors Driving Up Malpractice Insurance Premiums       Inflation Nature of the market Need for reserves in a risk poll Decline in American investment Financial safety nets Supply and demand of the market Changes in Malpractice throughout American History Table 1 in Appendix Professional malpractice did not become a part of English theory until the beginning of the 18th century. Sir William Blackstone defined medical malpractice as “injuries by the neglect or unskillful management of a person’s [health care provider]” (Mohr, 2000). The progressive era in American history came about in the beginning of the 19th century. During this time states began to apply the res ipsa loquitur rule. This unwritten rule forced health care professionals to prove they did not neglect patients, rather than force plaintiffs to prove they were neglected (Mohr, 2000). Following the John Outrakis HPA 301W Page |7 progressive era litigation for medical malpractice soared due to the rise of religious perfectionism. By the 1860s medical malpractice cases rose 950%. This time period corresponded to the new idea of marketplace professionalism. Marketplace professionalism is the idea that power and authority do not have to be inherited, but rather earned through the marketplace of employment (Mohr, 2000). After this new theory of marketplace professionalism, the notion of medical malpractice today was established. The courts’ shift from malpractice litigation being a tort action to a contract action marked the latter half of the 19th century (Mohr, 2000). The history of malpractice crisis in the United States surfaced in the 1970s. Rising claims and high insurance rates forced a number of private insurers to flee the malpractice market. A variety of attempts to fix this problem ensued (American Medical Association, 2008). In 1972, Alaska became the first state to set a limit on noneconomic damage awards, which totaled $500,000. California, Louisiana, and Hawaii all acted on the crisis as well by setting their own caps before the 1980s (Weiss, 2003). In the 1980s, a second malpractice crisis emerged. Once again the number of claims increased and premiums increased (American Medical Association, 2008). Awards to plaintiffs in medical malpractice litigation tripled between the mid-70s and mid-80s (Mohr, 2000). Since the second crisis of the 1980s, fifteen other states have introduced non-economic damage caps ranging from $250,000 to $1,000,000. Idaho, Maryland, Michigan, Missouri, and Wisconsin have all set their limits to adjust annually with inflation (Weiss, 2003). The turn of the 20th century led the United States into a third medical malpractice crisis. This is a period marked by the conglomerating of physicians, insurers and John Outrakis HPA 301W Page |8 businesses. Together they are attempting to curb malpractice awards which have tripled over the past ten years. Over this time period the median award has increased from $157,000 to $487,500 (American Medical Association, 2008). In January 2003, 24 West Virginian surgeons protested the cost of their insurance for malpractice and walked off the job. They claim that they are better on in Pennsylvania, only a commute away, where insurance costs are lower (Mencimer, 2003). Most recently, Congress has put efforts towards passing multiple malpractice reform acts. The proposed bills range from restricting non-economic damages at $250,000 to allocating money to states for their own malpractice tort reform. None of the bills have passed to date. The only action that has been taken at the federal level was the “Patient Safety and Quality Improvement Act,” which was signed by President George W. Bush in 2005. This bill establishes a voluntary reporting system for health care providers. The information is collected by Patient Safety Organizations (American Medical Association, 2008). A timeline of events in medical malpractice can be found in the appendix. Pros and Cons of Proposed Solution One proposed solution is to place a cap on non-economic damages awarded for medical malpractice in Pennsylvania. Non-economic damages are “The amount of damages arising from non-pecuniary harm including, without limitation, paid, suffering, mental anguish, inconvenience, physical impairment, disfigurement, loss of capacity to enjoy life and loss of consortium” (Blunt, 2007). Basically, non-economic damages are setbacks that affect a person in a non-financial way. On the surface, many believe that John Outrakis HPA 301W Page |9 a cap would allow insurance companies to lower malpractice rates for physicians. This would allow them to charge lower rates for patients. This would also encourage more physicians to come to Pennsylvania, thus improving access, quality and costs. Another scope of the argument is that a price cannot be put on non-economic damages. Many also view the court system as a third-party that is capable of determining the amount of non-economic damages to be awarded based on a case by case basis. For the most part, physicians and insurance companies favor tort reform. Patients who have been harmed by malpractice and lawyers are opposed to caps that would limit the amount of non-economic damages. The Effect of limiting Non-Economic Damages on Access to Care Access to health care simply is being able to experience health services when needed, whether it is for prevention, secondary or tertiary care. A number of health care services are considered high-risk. Physicians believe that high malpractice premiums are forcing them to reduce, or even eliminate, these services from practice. This affects the physician’s autonomy and market environment (Michelle M. Mello, 2004). The Harvard School of Public Health and the Columbian Law School conducted a mail survey on six high-risk specialty practices in Pennsylvania. The specialties included emergency medicine, general surgery, orthopedic surgery, neurosurgery, obstetrics/gynecology, and radiology. The study was designed to determine the effects of high malpractice insurance rates on the access of care for specialty services in Pennsylvania. The study concluded that 42% of the health care providers surveyed reduced or eliminated high-risk services due to their malpractice insurance rates within the next two years (Studdert, 2005). A Pew Charitable Trust study on Pennsylvanians John Outrakis HPA 301W P a g e | 10 found that one in four were forced to change doctors in the past year because services were no longer being offered by their current physician (Jobbins, 2004). Rob Stein, writer for the Washington Post, claims “Americans are beginning to feel the effects of double digit increases in medical malpractice insurance premiums, which are prompting doctors to flee states with the highest premiums, refuse to perform high risk procedures, retire early out of frustration, or state protests such as the one underway in West Virginia” (Klick, 2004). In contradiction, the American College of Emergency Physicians (ACEP) conducts a yearly review on access to care in states across the country. The ACEP found that the states without a cap on non-economic damages fared well on their access to care ratings as indicated in Table 2 in the appendix. The liability environment grade is based on “the extent to which limits have been imposed on medical malpractice lawsuits” (American College of Emergency Physicians, 2006). The group also determined that the states with the highest liability environment grade had lower access to care as indicated in Table 3 in the appendix. This study suggests that access to care is actually higher where caps on non-economic damages are absent. David Matsa, a professor of finance at Northwestern University, researched the access to medical care in rural areas. He concluded that states with limits on noneconomic damages had 4% more physicians per capita in rural areas than states without limits on non-economic damages (Matsa, 2005). The Effects of Limiting Non-Economic Damages on Quality of Care John Outrakis HPA 301W P a g e | 11 Patients place a high priority on their relationships with their physicians. Many physicians claim that high liability risk and costs affect their relationship with patients in regard to establishing trust and communicating honestly (Michelle M. Mello, 2004). Patients expect doctors to only order testing and procedures that are vital to their health situations as a part of establishing trust and honest communications. Defensive medicine has generated headlines recently and is considered to be a major consequence of malpractice lawsuits. Defense medicine can be defined as “those actions undertaken by a physician specifically to lower claims incidence” (Quinn, 1998). Studdert’s survey on high risk specialists in Pennsylvania found a high correlation between defensive medicine and liability concerns. He found that 93% of the physicians interviewed engaged in some type of defense medicine. He found that of the 93% of physicians engaging in defensive medicine, 90% of them ordered what they called, unnecessary testing. About 60% of the physicians also admit to requesting unnecessary invasive diagnostic procedures (Studdert, 2005). Evaluated fully, defensive medicine includes any actions a physician takes to lower malpractice claims. These actions can affect quality in a positive way. For example, Studdert claims that physicians spend extra time with each patient to ensure the patient understands treatment risks and alternative options (Studdert, 2005). Here, defensive medicine positively affects quality. Placing caps on non-economic damages may decrease the time and effort physicians put into each patient. In a study, Jonathan Klick at George Mason University found a cap on non-economic damages “leads to a statistically significant increase in infant mortality” (Klick, 2004). This would be a result of physicians not being concerned with the possibility of a malpractice lawsuit. John Outrakis HPA 301W P a g e | 12 An American College of Emergency Physicians (ACEP) study also evaluated quality and patient safety. When assessing the relationship between quality and patient safety and liability environment, they found a negative relationship. Grades for states with failing liability environment grades are listed in Table 4 in the appendix. The results conclude that if legal accountability for health care services is reduced, patients may receive poorer care in a more dangerous health care environment (American College of Emergency Physicians, 2006). Jonathan Klick offers an explanation for the findings. He suggests that “because malpractice insurance premiums are generally not experience rated, there might be little correspondence between doctor’s care level and the financial cost he bears,” (Klick, 2004). The Effects of Limiting Non-Economic Damages on Cost Containment Dr. Martin D. Weiss, author and consumer financial safety advocate, examined the effect of medical malpractice caps. Among other things, he discovered that between 1991 and 2002, malpractice insurance rates for physicians increased at a slower rate in states without limits on non-economic damages. In states without limits, the annual premium increase was just over 35%. In states with limits, the annual premium increased by just over 48%. Out of the states with limits, only 10% of them experienced declining or steady premiums. That is compared to approximately 19% of states without limits. Weiss looks toward insurance companies to blame for the rising cost in medical malpractice, and not the law governing the states (Weiss, 2003). Dr. Weiss’s study fails to account for defense fees that doctors pay at trial. The U.S. Department of Human and Health Services found those in cases where physicians John Outrakis HPA 301W P a g e | 13 win lawsuits; the average defense cost was still around $94,000 per claim (American Medical Association, 2008). The cost burden is thought to transfer from the physician to the patient. As the United States faces an older population, more citizens rely on Medicare to cover costs. The United States Congressional Budget Office (CBO) finds that Medicare Part A expenses are 5% lower in states where caps on non-economic damages exist (Congressional Budget Office, 1998). Medicare Part A covers hospital expenses, while Part B helps fill in the gaps left through Part A, mainly including physician services. Brandon Roberts,president of Premium Insight, and Irving Hoch, professor of economics at University of Texas at Dallas, studied Medicare Part B spending. They concluded that every lawsuit per 100,000 people adds $1.40 to $2.49 of Medicare Part B spending per beneficiary. This also implies that around 1% of Medicare Part B spending is a result of malpractice litigations (Roberts, 2007). The Ending Effects and Events of Limiting Non-Economic Damages In the end, 74% of medical malpractice liability claims result in no award to the plaintiff (American Medical Association, 2008). As previously stated, there is still a cost to the physician for defense fees. Many opponents to cap limitations believe there to be a legal protection in the courts of law. In fact, ten state courts have dismissed limitations on award settlements. Florida and Texas state courts upheld the caps but intervened with some restrictions. On the other spectrum, Indiana, Louisiana and New Mexico courts not only allowed for caps on non-economic damages, but also allowed caps on economic damages. John Outrakis HPA 301W P a g e | 14 A plaintiff in Wisconsin found a loophole in the non-economic damage cap law. The person was awarded $26 million from a suit against a resident. The law did not protect the resident because he was not a licensed physician (American Medical Association, 2008). Other factors driving the increasing costs of health care need to be reviewed as well. For instance, medical inflation over the past 12 years has reached 75% (Weiss, 2003). The high inflation may have caused skewed data in some of the studies. Conclusion Pennsylvanians desire to take action in an effort to lower the cost of health care. Physicians in Pennsylvania are being forced out of the state or out of practice due to rising costs in malpractice insurance. This poses a dilemma between improving access, cost containment, or quality of care. According to the ACEP study, non-economic damage caps on medical malpractice awards decrease access. Other studies show that they decrease quality. As for cost containment, research was inconsistent. Although there is no clear-cut solution to the rising health care costs in Pennsylvania, action can be taken. A choice must be made regarding the emphasis on cost, quality, or access. At this time there is no method of increasing all three branches. John Outrakis HPA 301W P a g e | 15 Appendix Table 1. Historic Timeline of Malpractice Litigation and Important Events 18th century The general concept of professional malpractice is well embedded in English theory. 1800-1820 (Progressive era) 1820s and 1830s 1840-1860 1850 1850-1900 1970s 1972 1975 1976 States apply the res ipsa loquitur rule- place legal burden on physicians to prove they were are negligent. The onset of medical malpractice litigation due to a dramatic rise of religious perfectionism. Malpractice cases rise 950% due to America’s idea of marketplace professionalism. Medical malpractice litigation as America recognizes it today is established. Courts begin to treat malpractice as a contract action rather than a tort action. First malpractice crisis: Several private insurers leave the market because of rising claims and inadequate rates. Alaska sets non-economic damage cap at $500,000. California sets non-economic damage cap at $250,000. Louisiana sets non-economic damage cap at $500,000. Hawaii sets non-economic damage cap at $375,000. 1975-1985 Average award in medical malpractice tripled. (Consumerconscious) 1980s 1986 Second malpractice crisis: claim frequency and severity increase again and premiums rise rapidly. Maryland sets non-economic damage cap at $805,000 to be adjusted annually with inflation. West Virginia sets non-economic damage cap at $1,000,000. 1987-1999 1988 1990 Soft insurance market occurs. Missouri sets non-economic damage cap at $547,000 to be adjusted annually with inflation. Idaho sets non-economic damage cap at $682,000 to be adjusted annually with inflation. John Outrakis HPA 301W P a g e | 16 Indiana sets non-economic damage cap at $1,000,000. 1992 1993 1994 1995 1996 Virginia sets non-economic damage cap at $1,000,000. Michigan sets non-economic damage cap at $624,000 to be adjusted annually with inflation. Kansas sets non-economic damage cap at $250,000. Wisconsin sets non-economic damage cap at $350,000 to be adjusted annually with inflation. New Mexico sets non-economic damage cap at $600,000. North Dakota sets non-economic damage cap at $500,000. Utah sets non-economic damage cap at $250,000. 1997 1998 2000-2007 Massachusetts sets non-economic damage cap at $500,000. Montana sets non-economic damage cap at $250,000. Colorado sets non-economic damage cap at $250,000. Physicians join insurers and businesses to curtail tort actions and to cap or reduce tort awards. Third malpractice crisis: physicians reduce high-risk procedures, median medical liability award triples from 10 years ago 2003 2005 2007 Two dozen surgeons walk off the job to protest malpractice insurance rates in West Virginia. President Bush signs “Patient Safety and Quality Improvement Act”requiring a voluntary reporting system. 110th congress introduces: “Fair and Reliable Medical Justice Act of 2007”- fostering state alternatives to current medical tort litigation “Help Efficient, Accessible, Low-Cost, Timely Healthcare (HEALTH) act of 2007”- limit non-economic damages to $250,000 “Medical Justice Act of 2007”- cap non-economic damages, cap wrongful death damages “Medical Care Access Protection Act of 2007”- limit non-economic damages to $250,000. “Healthy Mothers and Healthy Babies Access to Care Act of 2007”- limit non-economic damages to $250,000. John Outrakis HPA 301W P a g e | 17 Table 2. States without a cap on non-economic damages State Access to Care Grade District of Columbia A+ Pennsylvania A Massachusetts A Maine A Rhode Island A Ohio AConnecticut A- Liability Environment Grade F F D D F D F Source: American College of Emergency Physicians. (2006, January). States without Medical Malpractice Damage Caps have Better Emergency Care and More of it. Public Citizen , 1-2. Table 3. States with caps on non-economic damages State Access to Care Grade Texas D+ California C Montana C+ Nevada D+ South Carolina C Georgia D+ Colorado C+ Liability Environment Grade A+ A+ A A B+ B B- Source: American College of Emergency Physicians. (2006, January). States without Medical Malpractice Damage Caps have Better Emergency Care and More of it. Public Citizen , 1-2. Table 4. States with failing liability environment grade State Access to Care Grade New Jersey A+ Connecticut A+ District of Columbia APennsylvania AMaryland B+ Rhode Island B+ North Carolina C Vermont C Tennessee C Liability Environment Grade F F F F F F F F F Source: American College of Emergency Physicians. (2006, January). States without Medical Malpractice Damage Caps have Better Emergency Care and More of it. 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