medical malpractice attorneys

Issue Brief Health Policy Studies Division Contact: Emily V. Cornell, 202/624-7879 or Ecornell@nga.org December 5, 2002 Addressing the Medical Malpractice Insurance Crisis Summary In some states, medical liability insurance carriers are getting out of the market, leaving either a few carriers with extremely high rates or no carriers at all. The insurance carriers that remain are quoting physician’s rates double or triple those of the previous year. There is little consensus between major interest groups on the nature of the malpractice problem, its severity, its solutions, or the proper role of government, state or federal, to solve it. The loss of affordable medical malpractice insurance for providers could eventually turn into a loss of affordable, accessible healthcare, especially for high risk medical specialties such as obstetrics and neurosurgery, or in communities that are considered medically underserved. States have several options open to them to address the medical malpractice insurance problem. • Insurance Market Interventions are stopgap solutions that address the lack of affordable or available insurance, such as providing subsidies to providers or creating state-run insurance programs. These measures typically are thought of as short-term or providing an option of last resort and may not solve the systemic issues that insurers and providers believe exist in the medical liability insurance market. • Tort Reforms target ways in which medical malpractice claims are processed through the court system. Tort reforms are aimed at reducing either the size of awards or the number of suits that make it to court. • Alternative Dispute Resolution programs try to resolve medical malpractice claims out of the court system altogether, or vet out the merits of a case What is Medical Malpractice? before it enters the court system. Medical malpractice (also called medical negligence) • Patient Safety Efforts focus on patient well being occurs when a physician fails to properly treat a medical condition and the negligent act or omission is as an approach to resolving the issues that the cause of a new or aggravated injury to the patient. contributes to medical errors. Most states will benefit from a careful analysis of the market forces and an analysis of the depth of the crisis. Recommendations for conducting an assessment of the medical malpractice insurance climate include examining the state-specific insurance climate, the past attempts to institute tort reforms, and gauging provider need. What is Medical Malpractice Insurance? Medical malpractice insurance covers doctors and other professionals in the medical field for liability claims arising from their treatment of patients. What’s Going on in the Medical Malpractice Insurance Market In some states, the cost of medical malpractice insurance or medical liability insurance for physicians has risen dramatically and continues to rise. Physicians carry medical malpractice insurance to cover claims of medical negligence. Some insurers are quoting rates double and triple the rates of just a year ago. In some cases, doctors are being charged higher premiums for less coverage. The high rates are not limited to doctors: hospital emergency rooms, trauma centers, birthing centers, and nursing homes are in jeopardy of closing because neither the doctors nor the hospitals can afford the insurance necessary to remain open. Physicians, feeling they have limited options, are threatening to retire early, to leave the state to practice in another state with lower premiums, or to cease performing the risky procedures that are largely responsible for higher premiums. For example, in some states obstetricians have stopped accepting new pregnant patients or will no longer deliver babies, and neurosurgeons will no longer staff trauma centers or emergency rooms, forcing those facilities to close or lose their rating. Page 2, Addressing the Medical Malpractice Insurance Crisis Insurance Market Forces Three factors have been cited as contributing to the current rise in insurance premiums. • Insurers kept premiums artificially low to gain market share. • Jury awards have been rising. • Major insurance carriers are leaving the market. Types of Medical Malpractice Insurance The availability and affordability of medical malpractice insurance tends to be cyclical. Insurers, vying for market share, enter new markets with low premiums to entice new customers. The strong economy and stock market of the 1990s enabled insurers to keep medical malpractice premiums low, and in some cases, even below market value since profits from investment income helped offset low premiums and underwriting losses. At the same time, jury awards for medical malpractice lawsuits have risen over the years. Jury awards in medical malpractice claims jumped 43percent in one year—from $700,000 in 1999 to $1 million in 2000. Juries are compensating plaintiffs more generously than in the past. From 1994 to 2000, Jury Verdict Research found that more than half of medical malpractice jury awards were for $500,000 or more.1 Finally, one of the largest medial malpractice insurers is leaving the market. The St. Paul Companies announced that it will stop writing medical liability policies by the end of 2002. St. Paul, while covering only 10 percent of the market nationwide, was one of the largest insurers in some states or the only insurer in some regions. St. Paul is leaving the market because they can no longer afford to offer medical malpractice. When one major carrier leaves the market there is less incentive for others to keep rates competitive. Claims-made insurance provides coverage for claims arising from incidents that occur and are reported during the time the insurance policy is in force. Insurance policies are renewed on an annual basis; therefore, a claims-made policy that is continually renewed will have continuing coverage for any claims that may arise from the inception date of the initial policy, regardless of the reporting date of the claim. Occurrence coverage provides ongoing insurance protection even if the policy is discontinued. Claims arising from incidents occurring during the policy period but reported after the policy's cancellation date are still covered in the future. It is, therefore, not necessary to purchase tail coverage when an occurrence policy is cancelled. Prior Acts Coverage is a supplement to a claimsmade policy that you can purchase from your new carrier when you change carriers. Prior acts coverage, also known as "nose" coverage, covers incidents that occurred prior to the beginning of the new insurance relationship but have not yet been brought to your attention as a claim. Prior Acts coverage is an alternative to a reporting period endorsement also known as tail coverage, which is purchased from the original carrier when a change in carriers is made. Companies typically require the new insured to purchase either tail or nose coverage to protect against claims arising from prior acts. Tail coverage is an option available from a former carrier to continue coverage for those dates that claims-made coverage was in effect. Once a claimsmade policy is cancelled, coverage does not continue in the future for any claims that might be reported unless tail coverage or prior acts coverage is secured at the time the policy is cancelled. If neither is purchased, any future claims that might arise from services performed during the policy period will no longer be covered. Policy Actions for States in Crisis Governors and states have a range of options that could provide some relief to the insurance shortage. However, none of these provides a panacea. Some are short-term solutions that will relieve the immediate crisis but not solve the long-term cyclical nature of rising rates. Others may Source: Texas Medical Liability Trust solve the crisis in the long run; however, it my take some http://www.tmlt.org/products/coverage/Claims-made time before the market responds. • Insurance market interventions provide stopgap solutions that address the lack of affordable or available insurance, such as providing subsidies to providers or creating state-run insurance programs. These measures typically are thought of as short-term or providing a option of last resort and may not solve the systemic issues that insurers and providers believe exist in the medical liability insurance market. • Tort reforms target ways in which medical malpractice claims are processed through the court system. Tort reforms are aimed at reducing either the size of awards or the number of suits that make it to court. Page 3, Addressing the Medical Malpractice Insurance Crisis • • Alternative dispute resolution programs try to resolve medical malpractice claims out of the court system altogether, or vet out the merits of a case before it enters the court system. Patient safety efforts focus on ensuring patient well being as an approach to resolving the issues that contributes to medical errors. Insurance Market Interventions Insurance market interventions are targeted at the state’s insurance markets. In states that are facing the loss of the major insurance carriers providing medical malpractice insurance, these options may help relieve what might become an immediate shortage of affordable liability coverage. These options may help to alleviate the most immediate crisis, but may not solve the long term systemic insurance issues. • State-Run, Stop-Gap Medical Malpractice Liability Coverage. The state establishes its own insurance fund from which doctors can purchase insurance if there is no other insurance carrier on the market. Typically overseen in the department of insurance and administered by a third party administrator, these funds try to relieve the immediate crisis and provide immediate relief to physicians unable to find affordable insurance. Nevada and West Virginia established state-based medical malpractice insurance funds in 2002 in order to relieve the current shortage. See case studies in the appendix for more details. The benefit of this type of fund is that it solves the immediate shortage of available insurance but not always of affordable insurance. In addition it is difficult to price premiums that are affordable without putting the state at risk for being the sole insurer in the state. In West Virginia, the state was required to price premiums higher than what was available in the commercial market in order to not compete with the commercial market. State Patient Compensation Programs. Patient compensation funds spread the cost of high awards more broadly. The state creates a fund that pays the portion of a judgment or settlement against a health care provider that exceeds a designated amount— such as $200,000 per occurrence and $600,000 annually. The fund pays the remainder of the award or it may have a maximum – such as up to $1 million. The provider is responsible for awards beyond the funds’ maximum unless a corresponding limit on medical liability applies. These funds are funded through an annual surcharge assessed against healthcare providers that participate in the fund, and participation can be mandatory or voluntary. Seven states—Indiana, Louisiana, Nebraska, New Mexico, North Dakota, South Carolina, and Virginia— operate voluntary systems, and three states—Kansas, Pennsylvania, and Wisconsin—operate mandatory programs.2 Since patient compensation funds help spread the risk more broadly, they help maintain the availability of medical malpractice insurance. However, it means that health care providers may pay two premiums for malpractice insurance, and therefore does not address the affordability issues. State Subsidies to Providers. The state establishes a mechanism that subsidizes all or a portion of the provider’s insurance premium. This type of system could be set up as a one-time fund or continue for a limited number of years until insurance premiums stabilize. Subsidies could be made available to all providers, to a select group of providers who practice in high-risk specialties, or to providers in a select medically underserved geographical area within a state. Subsidies are simple to administer and easy to sell politically, especially if they are targeted to providers in a geographically underserved area. However, they do not address the underlying reason for high premiums. Arizona, Hawaii, Illinois, Louisiana, Maine, Nevada, New York, North Carolina, Texas, and Washington have tried this approach in the past to solve an immediate crisis.3 These programs were established in the late 1980s and abandoned as the liability crisis abated. • • • Joint Underwriting Associations. A Joint Underwriting Association (JUA) is a state sponsored association of insurance companies formed with statutory approval from the state for the express purpose of providing certain insurance to the public. JUAs are usually formed because the voluntary market is Page 4, Addressing the Medical Malpractice Insurance Crisis unwilling to write coverage. The advantage of a JUA is that is spreads the risk across several companies, instead of one. They may cease when the voluntary market becomes available for that line of business. JUAs address the lack of insurance. However, insurance from a JUA typically is more expensive than from the private market, since it is the insurer of least resort, particularly for high-risk specialties who have no other choice. • Physician Insurer Associations or Physician Mutual. Physician insurer associations are physician owned and operated insurance companies that provide medical liability. These insurance companies began in the 1970s during the first medical liability crisis. Doctors, with the support of medical and hospital associations, contributed their own funds as capital to start as many as 100 provider-owned specialty carriers across the country. They have been dubbed “bed pan mutuals” by their commercial competitors. Currently, physician insurance companies insure over 60 percent of the nation’s practicing physicians. Physician insurer associations create other carriers in the market to provide malpractice insurance and therefore address access to insurance for physicians. However, there is no indication that these types of insurance carriers are immune from the same issues that have driven out other commercial insurance carriers. State-Funded Indemnity for Specific Services. State-funded indemnity offers liability coverage for providers who typically have a relationship with the state--either through the state university hospital or another type of public hospital system--and who provide critical emergency services. A state indemnity program typically covers a claim against a physician when the physician is working directly for a city, county or state and/or providing specific services such as trauma or obstetrical. The liability is shifted from the provider to the government, and all claims are brought against the state rather than the provider. This option address helps cover providers who serve low-income populations and target liability protections to the groups of providers that have been hardest hit. However, there is the risk that the state becomes the deep pocket in malpractice cases. • Tort Reforms The tort system is the main vehicle through which medical negligence is resolved. In theory, the tort system is designed to compensate those who have been injured and to prevent future injuries to others. However, whether the tort system does either is arguable. In reality, medical malpractice claims are expensive to pursue, can take years to resolve, and can result in the injured party receiving little of the settlement. What is Tort Law? Torts are civil wrongs recognized by law as grounds for a lawsuit. These wrongs result in an injury or harm constituting the basis for a claim by the injured party. While some torts are also crimes punishable with imprisonment, the primary aim of tort law is to provide relief for the damages incurred and deter others from committing the same harms. Tort reforms for the purpose of medical malpractice are geared Source: Legal Information Institute at Cornell School of Law towards either reducing the size of awards or reducing the http://www.law.cornell.edu/ number of suits. In theory this should bring more predictability for insurers to the system. All states have enacted some form of tort reform or another in the past; however, many have not survived court challenges. Below are typical reforms that states have explored. • Abolition of Collateral Source Rule. The collateral source rule, as a part of common law, prohibits defendants from introducing at trial any evidence that a plaintiff has been or will be reimbursed by another person or company for a portion of their damages, i.e. health insurance or disability payments. Those in favor of abolishing the collateral source rule argue that in theory, it prevents a plaintiff from collecting twice from separate entities for the same injury. Those opposed argue that losses caused by negligence would be shifted from liable defendants to the government or other entities not responsible. They also argue that plaintiffs rarely collect twice and most third-party payers, like public and private Page 5, Addressing the Medical Malpractice Insurance Crisis health insurers, require plaintiffs to repay any benefits they receive from their insurer if the plaintiff also receives damages from a defendant. A further issue with collateral source is the potential impact on initial jury awards. Proponents of abolishing collateral source rules point out that juries may award higher sums if they believe that their award is the only source of payment, and that it will be reduced by 33-40% plus expenses for attorney fees. Even if a judge or other payer reduces the final award by the amount of collateral sources, the initial award may have been artificially inflated by a jury who believed that their award was the only source of funds. Opponents argue that informing juries could artificially deflate awards or bias juries against the plaintiff because of negative perceptions about their motives or true financial needs. • Place Caps on Damages. Medical malpractice damages are typically awarded in two areas: economic damages for the actual monetary losses due to negligence such as medical expenses, lost wages, rehabilitation costs or any other economic out of pocket loss suffered as the result of a health care injury; and non-economic damages for things such as pain and suffering, disfigurement, and loss of companionship. Some states allow punitive damages, which is an award over and above pain and suffering granted to a plaintiff that is intended to punish a reckless doctor. Most of the discussions around caps are for caps for non-economic damages. Those in favor argue that non-economic damages tend to be the largest and most unpredictable portion of an award. Since it is an award for intangibles and it is highly subjective, unlike economic damages which can be easily quantified and calculated. Those against caps on non-economic damages believe that caps discriminate against those who historically have had smaller economic losses due to their lower wages, i.e., women, children, the elderly, and minorities. In addition, those against believe that arbitrarily limiting an injured patient's award for a loss eliminates the intent of case-by-case adjudication. • Sovereign Immunity Caps. Some states may offer sovereign immunity caps to public hospitals and publicly employed health professionals such as doctors. In the case of Nevada, public entities have a cap of $50,000 on damages. This has the effect of lowering the exposure, and hence the cost, for these public facilities and professionals. The downside is that the private practice physician providing care in that facility could become the “deep-pocket” because of his/her million dollar or higher policy limit. That is, a patient may have an incentive to prove some degree of fault for the private physician so that the ultimate award is not limited to the $50,000 provided for the public hospital or employee. The issue is complicated by the fact that in exchange for privileges at the public hospital, a private practice doctor would have to assume emergency room or other duties that could expose him to excess liability. This is further aggravated by the fact that many of these are high-risk patients who have not received adequate prenatal or other care before they seek treatment at the public hospital. Regardless of whether such cases actually occur, there has been a chilling effect on the willingness of private physicians to see patients in these public settings for fear of becoming the “deep pocket” in a malpractice case. • Establish Expert Witness Rules. In most cases, a plaintiff cannot establish a case of medical negligence without the use of a qualified medical expert to establish that the defendant deviated from standard medical practices. States have enacted rules or panels that govern who may be called as an “expert” witness in a medical malpractice suit. These rules attempt to establish objective standards that recognize professional qualifications and experience of expert witnesses. Examples of some rules states have enacted are that an “expert” must: 1) be a licensed physician, 2) be board certified, 3) practice a similar specialty, 4) be currently practicing or practicing within a set time frame from the date of injury, or 5) be certified by the court as an expert. Elimination of Joint and Several Liability. The common law rule of joint and several liability makes each defendant in a tort lawsuit liable for the entire amount of plaintiff's damages, regardless of that • Page 6, Addressing the Medical Malpractice Insurance Crisis defendant's proportion of fault for the damage done. Those in favor of elimination believe joint and several liability encourages plaintiffs and their lawyers to go after those with the deepest pockets. Those against believe that this is a tool that ensures that the injured is compensated regardless of the proportion of blame. • Limits on Lawyer Contingency Fees. Most medical malpractice lawsuits are taken on by attorneys for a contingency fee—the attorney receives no upfront payment and is only paid if there is an award. Payment is based on a percentage, typically one third of the final award, which can push attorney fees to over 50%. The use of contingency fees allows those with limited means to access the legal system; however those with a small claim may have trouble finding an attorney willing to represent them. States have taken several approaches to limited lawyers’ contingency fees, such as: using a sliding scale that limits fees as the claimant’s awards increases, designating a specific percentage of the amount recovered, or having the courts determine the limit on attorney fees to a “reasonable” amount.4 Require Periodic Payment of Awards. Traditionally, awards are made in one lump-sum payment, even when the amount awarded is intended to cover future medical expenses and lost earnings. A periodic payment of an award would pay the award over a period of time in installments instead of in one lump sum. Those in favor of periodic payments argue that it allows the injured to receive payments over their lifetime or for the duration of the injury, ensuring that funds are available for future medical expenses, lost wages, and living expenses. Periodic payments may also help bring stability to the insurance market by giving more predictability of future payments and preventing overpayment. Advocates against periodic payments argue that it takes away the right of victims to invest large sums that may be necessary for future expenses. Establish Pre-Trial Screening Panels. A pre-trial screening panel is a select group, typically an attorney, a physician, and a lay person, who hears the merits of the case before it goes to trial and makes either a binding or non-binding determination on the merits of the case. In theory, pre-trial screening panels help to weed out and hopefully discourage frivolous lawsuits that clog the system. Some common elements of state pre-trial screening panels include: findings of the panel may or may not be allowed into evidence at trial, findings of the panel are either binding or non-binding, findings before a case may proceed to trial must be unanimous, or claims above a certain amount be subject to a pre-trial screening. Enact a Statute of Limitations. A statute of limitations sets the time the injured party can file a lawsuit to a set number of years past the date of the original injury. This is a major issue for the high risk specialties such as obstetrics. In some states, OB/GYNS must carry special coverage for 21 years past the date of the last baby born to cover any injuries that appear later in life. Those in favor argue that a statute of limitations limits the time frame in which one can file a lawsuit and therefore the number of lawsuits. Those against argue that some injuries do not appear for years after the incident that caused it and would unfairly harm injured patients. • • • Alternative Dispute Resolution Alternative dispute resolution programs are designed to either remove cases out of the tort system altogether or vet out the merits of a claim before it hits the tort system. These programs attempt to provide fairer, faster, and less expensive routes to a resolution for all parties. • No Fault Liability Funds. The state establishes a system like workers’ compensation that provides compensation for the injury over the injured person’s lifetime. Claims are filed with an expert panel of impartial physicians who review claims and to determine if the injury fits the definition established. Set time periods are established for the panel to make a determination. Compensation is limited to net economic losses only (i.e. no pain and suffering), which includes medical expenses, hospital and rehabilitative costs, lost wages, and reasonable attorney fees. These systems are designed for a specific type of injury such as birth-related injuries. All injured patients are compensated regardless of the Page 7, Addressing the Medical Malpractice Insurance Crisis culpability of the provider. This system removes narrowly defined catastrophic injuries from the tort system. It can be funded with state dollars and assessments on doctors and hospitals. The Virginia Birth-Related Neurological Injury Compensation Program (known as the Birth Injury Fund) was initiated to provide benefits to eligible children over their lifetime without having to resort to the tort law system for recovery; it also seeks to insure that the medical community would be able to continue to provide obstetric services within Virginia. The benefits of the Birth Injury Fund are limited to "medically necessary and reasonable expenses" of medical and hospital, rehabilitative, residential and custodial care and service, special equipment and facilities. The Birth Injury Fund is a payer of last resort; that is, the Fund pays after available insurance or governmental programs have paid. It provides for payments as "loss of earnings" to the child when he or she reaches the age of eighteen years based upon a formula set by law. The Birth Injury Fund is financed by assessments, in varying amounts, upon hospitals that have obstetric units; licensed physicians who practice obstetrics or perform services, including licensed nurse-midwives; all other licensed physicians; and the insurance industry. Claims for compensation under the Fund are made to and awarded by the Virginia Workers’ Compensation Commission.5 The Florida Birth-Related Neurological Injury Compensation Association began operation in 1988 and is similar to the Virginia model. It is notable that only two states have such a program, both established in the late 1980s in response to the last crisis of affordable medical malpractice insurance and its effect on availability of obstetrical services, especially those designed for low-income populations. National Vaccine Injury Compensation Fund (VICP) began operation in October 1988 and is a Federal "no-fault" system designed to compensate individuals, or families of individuals, who have been injured by childhood vaccines, whether administered in the private or public sector. Congress created the VICP to ensure an adequate supply of vaccines, to stabilize vaccine costs, and to establish and maintain an accessible and efficient forum for individuals thought to be injured by childhood vaccines. Since its inception, the VICP has been a key component in stabilizing the U.S. vaccine market by providing liability protection to both vaccine companies and health care providers, by encouraging research and development of new and safer vaccines, and by providing for a more streamlined and "less-adversarial" alternative to the traditional tort system for resolving claims. The VICP covers all vaccines recommended by the Centers for Disease Control and Prevention (CDC) for routine administration to children. The VICP is administered jointly by the U.S. Department of Health and Human Services (HHS), the U.S. Court of Federal Claims, and the U.S. Department of Justice (DOJ).6 • Arbitration Programs. An arbitration program (also called mediation) offers resolution to medical liability that does not involve going to trial. Typically these programs consist of a panel of an attorney, a health care provider, and a lay person. The panel, rather than a judge and a jury, hears the merit of a case and makes a decision on provider fault and patient compensation. These programs are typically voluntary, and the decisions are binding. The benefits of arbitration are that it takes less time to come to resolution and costs less for both sides to defend. However, arbitration typically results in lower award payments. Michigan enacted a voluntary arbitration program called the Michigan Medical Malpractice Arbitration Program in 1975. The Michigan program required that at or near the time of treatment, hospitals, insured by companies licensed to write malpractice policies in Michigan, must offer patients the opportunity to sign agreements to arbitrate any further disputes arising out of the care or treatment provided. Although not required, self-insured hospitals and health care providers could offer arbitration agreements as well. Participation was voluntary, and arbitration agreements would cover a single admission that could be revoked within 60 days of discharge. Patients who did not Page 8, Addressing the Medical Malpractice Insurance Crisis sign an initial arbitration agreement could request arbitration if malpractice did arise. Cases were heard by a three-person panel, consisting of an attorney, a health care provider, and a lay person. Panel decisions were based on a majority ruling and were binding. The U.S. General Accounting Office (GAO) conducted an analysis of the program in 1990. GAO found that the program had an extremely low participation rate and therefore made it difficult to determine its effect on medical malpractice insurance rates. However GAO found that those claims it did resolve took less time to resolve and generally resulted in lower awards.7 Because of a lack of consumer interest, this program is no longer operational. • Fault-Based Administrative System. In 1988, the American Medical Association proposed a new alternative for resolving medical liability disputes that would remove disputes from the traditional tort system and decide liability on the basis of fault through existing Medical Boards. This theoretical proposal was never implemented in any states at the time; however, it remains a viable option for states to explore. Under this model, an administrative fault-based system would be established in existing state medical disciplinary boards or in a new state agency. The administrative system would consist of a pre-hearing process, formal hearings before a hearing examiner, full appellate review by a state-chartered board, and a limited review in the courts. Pre-hearing: all claims would be reviewed quickly for merit. Those without merit would be dismissed; those with merit would be submitted to an appropriate expert in the same field as the health care provider for further review of merit. Patients would receive free legal assistance in litigating the case and in evaluating settlement offers. Formal hearing: if the claim is not settled, it would be assigned to a hearing examiner who would pursue the case and conduct a formal hearing. The examiner would oversee the expedited discovery and ensure that the parties have valid expert evidence available to support their case. At the hearing itself, the examiner has broad authority to conduct the proceedings, and will issue a written decision within 90 days. The examiner would determine whether the health care provider is liable for the claimant’s injury and if so, the size of the award. Appellate review: The examiner’s decision is subject to a review by the medical board. The medical board consists of three members who make a full independent review of the case and of the health care provider’s liability. Appeals of the medical board’s review are made to the intermediate appellate court of the state, where the review would be limited to whether the medical board acted contrary to the statute of the board’s own rules.8 • Early Offer and Rapid Recovery Model. An Early Offers model is similar to a no-fault model in that compensation is paid periodically as losses accrue for economic damages only and are delivered more swiftly and with less difficulty than under the current tort system. A defendant of a medical malpractice claim, physician or hospital, is given the option, within 120 days after a claim is filed, of offering a nofault like periodic payment toward a claimant’s net economic loss. The defendant who promptly offers to pay a claimant’s net economic losses forecloses further pursuit of a normal tort claim for non-economic losses. Offers can be turned down by a claimant, but only in cases where the defendant’s injurious acts were the result of intentional or wanton misconduct provable beyond a reasonable doubt.9 Enterprise Liability. An enterprise liability system shifts the legal liability for medical injuries from the individual to the health care institution – hospitals, group practices, clinics, HMOs, integrated health systems, or health plans. The health care institution would be exclusively liable in a malpractice lawsuit for any medical errors committed in the institution by physicians practicing there. The benefit of enterprise liability is that by removing the fear of personal physician liability it could eliminate the incentives to hide errors and encourage physicians and other health providers to report mistakes with the appropriate reporting system.10 In addition, enterprise liability helps institutions think about ways to • Page 9, Addressing the Medical Malpractice Insurance Crisis improve patient safety from a systems perspective. The criticism is that for those institutions that are physician owned and therefore have a stake, there are strong economic incentives to not report errors. Moreover, enterprise liability does not address physicians not connected to a larger institution such as a hospital or HMO. Patient Safety Systems Another option with the potential to reduce medical malpractice insurance is to create patient safety systems that help to reduce the incidences of medical errors in the first place. States can influence patient safety through licensure of healthcare facilities and providers and enforce sanctions against those that are negligent. In addition, states can encourage innovative solutions to make healthcare safer and of higher quality. • State Medical and Licensing Boards. The structure and function of state medical boards are determined by a unique state statute, usually referred to as a medical practice act. The medical practice act governs the composition, structure, functions, responsibilities, powers, and funding of medical boards. The primary responsibility and obligation of a state medical board is to protect consumers of health care through proper licensing and regulation of physicians and, in some jurisdictions, other health care professionals. A state medical board is usually composed of physician and public members who are, in most instances, appointed by the governor. Some boards are independent in structure, exercising all licensing and disciplinary powers, while others are part of a larger umbrella agency, such as the Department of Health, exercising varied levels of responsibilities or functioning in an advisory capacity. Funding for the medical board’s activities comes from licensing and registration fees. State medical boards are often criticized for taking too long to investigate negligent providers; for not dispensing stiff penalties for those found guilty of negligence; and for not providing adequate public information about those physicians who have had disciplinary action taken against them or were accused of malpractice. State medical boards argue that they can only perform their mission if they are properly organized, effectively empowered, and adequately funded. States that wish to enhance or update the powers of their medical boards should review their medical practice act for ways in which to enhance the power of the state medical board. The Federation of State Medical Boards has developed “A Guide to the Essentials of a Modern Medical Practice Act,” which serves as a model for states.11 • Reporting Systems. Medical boards are the traditional institution to which negligence is reported. However, providers do not voluntarily report their own errors to their respective state boards. Hospitals, managed care organizations, and medical colleagues are charged with reporting their members or peers. State requirements of reporting errors and malpractice by managed care organizations and hospitals vary. Currently twenty states require mandatory reporting of medical errors and adverse events.12 Patient safety reporting requires a delicate balancing act between the roles of public accountability and learning from errors. Additionally, error reporting mechanisms must balance legitimate reports against the use of reports as economic, political, or other leverage against providers and their reputations. Many state medical boards make information about physicians available to the public via a searchable Web site. New York has required hospitals to report adverse incidents since 1985 to a system called the New York Patient Occurrence Reporting and Tracking System (NYPORTS). Adverse events include both unexpected bad outcomes and medical errors. NYPORTS was created in partnership with hospital industry representatives, consumer advocates, and representatives of medical specialties. NYPORTS was phased-in over three years through a series of regional pilot projects. It was implemented statewide in 1998. The information is used by the NY Department of Health for advisories, news, and alerts for hospitals; public reports; and internally within the NY Department of Health for surveillance activities and statewide and regional council quality improvement activities. Hospitals use the information to compare themselves with peer groups in their region, statewide, or with their own performance over time; to share information with their boards and plan quality improvement Page 10, Addressing the Medical Malpractice Insurance Crisis initiatives; to focus on occurrences that appear to involve outliers; to look for patterns and trends; to identify system improvements; and to measure the effectiveness of improvements on reducing occurrences. The public has access to aggregate hospital-specific data to inform healthcare decisions. National Practitioner Data Bank (NPDB) was created by Congress in response to what Congress perceived to be the increasing occurrence of medical malpractice litigation and the need to improve quality medical care. NPDB serves as a nationwide flagging system intended to augment, not replace, traditional forms of credential reviews. It assists state licensing boards, hospitals, and other health care entities in conducting extensive, independent investigations of the qualifications of the health care practitioners they seek to license, hire, or to whom they wish to grant clinical privileges. Only eligible entities, defined by statute and regulations, may report and query the NPDB; it is not open to the general public. The NPDB collects and provides information on specific areas of the practitioner’s licensure, professional society membership(s), medical malpractice payment history, and record of adverse actions on clinical privileges. The NPDB began collection and dissemination of information in September 1990.13 Many provider groups and others have looked to the Federal Aviation Administration’s (FAA) reporting system, known as Aviation Safety Reporting System (ASRS), as a model for medical errors. The system, operational since 1975, collects, analyzes, and responds to voluntarily submitted aviation safety incident reports in order to lessen the likelihood of aviation accidents. Pilots, air traffic controllers, flight attendants, mechanics, ground personnel, and others involved in aviation operations submit voluntary reports to the ASRS when they are involved in, or observe, an incident or situation in which aviation safety was compromised. Reports sent to the ASRS are held in strict confidence. ASRS de-identifies reports before entering them into the incident database. The ASRS acts on the information these reports contain, identifies system deficiencies, and issues alerting messages to persons in a position to correct them. Those who report to the system or who are reported are immune from disciplinary action, unless the infraction is deemed criminal. The ASRS is effective in improving air safety because it relies on free, unrestricted information from its users. The ASRS analyzes data to improve safety of the overall system.14 • Medical Guidelines. Medical guidelines set risk management protocols and practice parameters for specialists in obstetrics/gynecology, emergency medicine, anesthesia, and radiology or other high risk areas. Sometimes referred to as “cookbook medicine”, medical guidelines use scientific evidence on efficacy and safety to promote best practices in specific areas of medical care. Physicians who can demonstrate that they followed the practice criteria set forth in the guidelines will have an affirmative defense against medical malpractice claims. The plaintiff may offer rebuttal evidence that supports noncompliance with the guideline. If the jury decides that the physician followed the published guidelines, the physician cannot be sued for malpractice. In turn, doctors agree to limit their use of defensive medicine—doctors order tests, procedures, or visits, or avoid certain high-risk patients or procedures, primarily (but not solely) because of concern about malpractice liability. And, in theory, guidelines should improve outcomes and reduce injuries without the need for legislation.15 Maine established the Medical Liability Demonstration Project as an experiment to lower treatment costs and reduce malpractice claims. Doctors who volunteer for the program agree to limit their use of “defensive medicine” in exchange for being able to cite practice parameters when defending against malpractice claims.16 The Project developed practice parameters or guidelines in four medical specialties: obstetrics and gynecology, radiology, emergency medicine and anesthesiology. The program began initially as a five-year project in 1992; the state’s legislature expanded the program in 1996 for an additional three years in the hopes that cases would be filed. At the end of 1999, it was not renewed since no cases were ever filed and the constitutionally of the Project was never tested. Page 11, Addressing the Medical Malpractice Insurance Crisis • Patient Safety Centers. In addition to reporting requirements for medical errors, states can create centers to collect data on medical errors for research and evaluation; to coordinate state agencies and develop innovative strategies to reduce errors; to promote collaboration between state agencies and private partners; to develop provider profiles and provide information to the public, and to provide educational materials and training to providers and consumers.17 In 2000, the Iowa Department of Health created the Iowa Patient Safety Program to develop a collaborative strategy to improve patient safety and health outcomes in Iowa. The program focuses on improving patient safety system-wide; developing evidence-based best practices, creating a learning environment that nurtures information sharing, is non-punitive, and relies on evidence to generate innovations; engaging stakeholders to ensure a long-term commitment on a statewide basis; involving consumers in all stages of the improvement process; developing a strategy that addresses the legal issues surrounding the rights and responsibilities of health care providers and patients; and assuring confidentiality of data for all stakeholders. First Steps to Assessing a Medical Malpractice Insurance Climate For states that are just beginning to hear the rumblings of a crisis brewing, there are a few first steps states can take to assess the situation: • Examine medical malpractice insurance data for trends and signs of an impending crisis. Useful state data on medical malpractice would include medical malpractice insurance premiums, rate trends, rate setting practices, and insurance reimbursements. • Identify the places in the healthcare system where physicians and other healthcare providers may be able to limit or deny access to care; i.e. trauma surgeons refuse to work thus shutting down trauma center, or obstetricians refuse to accept new pregnant patients. Develop a plan to deal with restricted access to care. • Touch base with major medical malpractice insurance carriers in the state to gauge future plans. • Talk to state medical societies to determine the impact of rising rates on physicians. Some state medical societies have conducted surveys of their members to assess the impact of rising premiums. Some may have data on when physicians stop practicing and for what reasons they stop. • Talk to hospitals, health clinics, birthing centers, nursing homes, and trauma centers to gauge their perception of the market and explore if they foresee sustainability in an impending climate of high premiums and fewer insurance providers. • Study state insurance regulations for where there may be gubernatorial authority to create state insurance programs, or provide state indemnity in an emergency. • Examine current tort laws in conjunction with previous tort reform efforts for what has been implemented, what has failed legislatively, and what has not withstood state constitutional review. • Examine the powers of the state medical board to discipline and license physicians and for medical error reporting systems. • Examine patient safety efforts across the state for what already exists and for where more state government oversight or involvement would enhance current efforts. • Invite all the players to the table— insurers, physicians, and lawyers—for frank and open discussion aimed at solving the problem or averting a crisis. The debate on what is the best mix of options to make medical malpractice insurance available and affordable to providers and at the same time make healthcare safe has no easy answers and no cure-all solution. State policymakers would be wise to conduct an assessment of the availability of medical malpractice insurance, while assembling the major interest groups for their input and while mediating some common ground. Page 12, Addressing the Medical Malpractice Insurance Crisis APPENDIX State Case Study—West Virginia Factors contributing to the crisis • High medical liability premiums: Medical liability premiums in West Virginia were substantially higher than physicians in boarding counties in neighboring states of Virginia and Ohio. • Higher defense costs: A leading liability carrier in West Virginia reports substantially higher defense costs than national average. • The largest commercial carrier left the market: The St. Paul Company announced it would no longer write policies in West Virginia or elsewhere in country. • Physicians were leaving the state: Physicians, responding to a survey from the state medical societies, were considering moving out of state (40 percent) or considering retirement (30 percent). • Small commercial market for physicians: West Virginia is a rural state, with 50 of 55 counties considered medically underserved. Resolution to date In late 2001, Gov. Bob Wise called a special session to address the medical malpractice crisis in West Virginia. By December 2001, the Governor signed the “West Virginia HealthCare Provider Professional Liability Insurance Availability Act,” which included provisions for: • state-based medical malpractice insurance fund for all health care provider; • civil litigation reforms; and • administrative changes to assure that the state’s medical liability insurance program is efficient and effective. State-Based Medical Malpractice Insurance Fund The state established its own state-run medical malpractice insurance program through the Board of Risk Management and Insurance, which is the state entity charged with providing insurance to all state agencies. Physicians can purchase up to $2 million per claim in coverage, with a $4 million annual limit. Hospitals can be covered up to $3 million per claim. Coverage for punitive damages is excluded. The plan offers coverage to any health care provider, group practice, clinic, hospital, and ambulance service that cannot obtain coverage at an approved rate from a commercial carrier. Eligible providers may not exclude Medicaid, Workman Compensation, State Children’s Health Insurance Program (SCHIP), or Public Employees Insurance Agency (PEIA) patients. The plan became operational on January 1, 2002. Civil Litigation Reforms Cases filed on or after March 1, 2002, will require a screening certificate from a medical expert before they may be filed with a West Virginia court. Health care providers can insist upon pre-filing mediation, and pretrial mediation is required in all cases. In civil cases of medical liability, juries must be composed of 12 members, and consensus of nine is required for a decision. When all the parties agree, cases can be moved to a quicker and less expensive summary trial. Fees for filing a case were increased. Administrative Changes Administrative changes were enacted to make the state medical malpractice insurance fund more efficient and effective. The Board of Risk and Insurance Management will have its members increased to five, and one member will be the vice chancellor of health sciences of the West Virginia Education Policy Commission. It creates a seven-member advisory panel that includes three healthcare providers, a hospital administrator, a consumer representative, an insurance underwriter, and an experienced insurance company manger. The Board must provide the Legislature and the public with financial reports and five-year plans to monitor the financial soundness of its operation. The Act establishes the legal framework to create a joint underwriting association, which can be activated by the Legislature in the future. It creates the legal framework for establishing a physician’s insurance association as well as the possibility of providing start-up capital. Page 13, Addressing the Medical Malpractice Insurance Crisis State Case Study—Pennsylvania Factors contributing to the crisis • Medical liability costs increased: In 2002, medical malpractice premiums increased 20 percent, which was on top of a 20- to 60-percent increase imposed in 2001. Medical malpractice insurance premiums, in some parts of the state, are among the highest in the nation. • Commercial carriers left the market: At the end of 2001, two of the state’s largest insurers, PHICO and Reliance, stopped writing medical malpractice policies altogether due to insolvency and had to be liquidated by the state. • Difficulty recruiting physicians to the state: A survey of over 400 members of he Pennsylvania Medical Society found that over 80 percent of doctors who have attempted to recruit new physicians into Pennsylvania have faced difficulty in doing so. Resolution to Date In March 2002, Gov. Mark Schweiker signed legislation that dramatically reforms the state's medicalmalpractice insurance system, saving doctors as much as 20 percent on insurance premiums and protecting Pennsylvanians with strong new patient safety measures. The legislation addresses tort reform, insurance premiums, and patient safety. Highlights of the bill include: • Requiring hospitals to report medical errors to a new Patient Safety Authority that seeks to identify preventable trends and problems. • Providing immediate relief to physicians by giving them a Medical Catastrophe Fund (CAT Fund) discount in 2002 through 2004. • Strengthening the state Medical Board's power by granting it enforcement authority to investigate physicians. • Privatizing the claims handling of the Pennsylvania CAT Fund beginning in the fall of 2002, and phasing it out entirely beginning in 2006. • Allowing malpractice judgments for future medical costs to be spread over time. • Requiring claims to be filed within seven years of the date of injury. • Eliminating the duplication of recovery for past medical expenses. • Allowing doctors and hospitals to have verdicts lowered by a judge if it would force a doctor out of business or force a hospital to cut services, thereby damaging the community. Overall, it is estimated that physicians can expect to save up to 20 percent annually, once all reforms are in place. Tort reforms will lead to 10-percent savings; the phase-out of the CAT Fund will mean an additional 5 percent; and patient-safety measures also will provide up to 5 percent in savings. Page 14, Addressing the Medical Malpractice Insurance Crisis State Case Study—Nevada Factors contributing to the crisis • Largest commercial insurance carrier left the market: The St. Paul Insurance Companies stopped writing medical malpractice policies for physicians in December 2001, leaving 60 percent of Nevada’s physicians without insurance. Not long after, at least three other insurance providers also left the state. • Insurance premiums increased: Of the few remaining insurance carriers willing to write policies, physicians were facing triple or quadruple increases in malpractice premiums above the previous year’s cost. Physicians were unable to pass the increase on to patients because of set reimbursements levels from commercial and government insurance programs. • Physicians were leaving the state: A Nevada Hospital Association survey found that hospitals were losing specialty surgeons, emergency room physicians, and obstetricians because of rising malpractice rates. Obstetricians in the state stopped accepting new patients. • Trauma center closes it doors: The only level I trauma center in Nevada, and one the five busiest in the nation, was forced to close its doors in July 2002, for 10 days because all but one of the 58 trauma surgeons had resigned because of unaffordable medical malpractice premiums, and to pressure the Governor and Legislature enact tort reform. The next closest trauma centers were hundreds of miles away in southern California and Arizona. The trauma center reopened after 10 to 15 private practice orthopedic surgeons agreed to become county employees for 45 days, and therefore be covered by the hospital’s $50,000 liability cap. Resolution to date • A state-underwritten insurance fund allowing surgeons and other high-risk physicians to obtain affordable insurance was created by Gov. Kenny Guinn in April 2002. Rates were reduced slightly after passage of new tort reform law, and rates seem to have stabilized to some extent, although they are still high. • Reimbursement rates for OB/GYN services were raised: In May 2002, at the urging of Governor Guinn, one of the managed care plans covering services to families covered by Nevada Medicaid raised reimbursement rates for OB/GYN services and significantly increased reimbursement for prenatal care and delivery services. • Comprehensive tort reform: In August 2002, after calling a special legislative session to debate the medical malpractice insurance crisis, Governor Guinn signed the most comprehensive tort reform legislation in Nevada history. Elements of the bill include: A $350,000 cap on non-economic damages in medical malpractice cases A $50,000 limitation of damages for hospitals and doctors when treating trauma patients Adopting a several liability standard for medical malpractice cases when non-economic cases are considered. Shortening the statute of limitations for the filing of medical malpractice cases Allowing judges discretion to enter a judgments that provide that money for future damages be paid periodically. Abolishing the medical and dental screening panels and requiring the establishment of expedited procedures for medical malpractice cases. Strengthening the reporting requirements regarding disciplinary actions, claims and settlements against physicians, including a medical error reporting system. Requiring improved training for judges handling medical malpractice litigation. Forcing attorneys to personally pay for the cost and expenses that result from their unreasonable conduct in civil litigation. Page 15, Addressing the Medical Malpractice Insurance Crisis Endnotes: This Issue Brief was written by Emily V. Cornell. Support for this brief was provided by the Maternal and Child Health Bureau, Health Resources and Services Administration, U.S. Department of Health and Human Services . “Medical Malpractice Verdict and Settlement Study Released,” Jury Verdict Research News Release, Horsham, Pa., March 22, 2002. Available at: http://www.juryverdictresearch.com/Press_Room/Press_releases/medmal_01/medmal_01.html 2 Cheye Calvo, State Patient Compensation Funds (Washington, D.C.: National Conference of State Legislatures, 2002.) 3 American College of Obstetricians and Gynecologists, AGOG State Legislative Fact Sheet “Radial, Innovative State Legislative Remedies” (Washington, D.C.: American College of Obstetricians and Gynecologists, 2001). 4 U.S. General Accounting Office, Medical Malpractice: A Framework for Action (Washington D.C.: U.S. General Accounting Office, May 1987). Cheye Calvo, Medical Liability Statues State Summary Chart (Washington, D.C.: National Conference of State Legislatures, 2002). 5 Virginia Birth-Related Neurological Injury Compensation Program, Guidelines for the Virginia Birth-Related Neurological Injury Compensation Program (Richmond, Va.: Virginia Birth-Related Neurological Injury Compensation Program, September 2000). Available at: http://www.vabirthinjury.com/. 6 For more information see the National Vaccine Injury Compensation Program (VICP) Web site at: http://www.hrsa.gov/osp/vicp/INDEX.HTM. 7 U. S. General Accounting Office, Medical Malpractice: Few Claims Resolved through Michigan’s Voluntary Arbitration Program, GAO/HRD-91-38 (Washington, D.C.: U.S. General Accounting Office, December 1990). 8 American Medical Association, A Proposed Alternative to the Civil Justice System for Resolving Medical Liability Disputes: A Fault-Based, Administrative System, (Washington, D.C.: American Medical Association, January 1988). 9 Jeffery O’Connell and Patrick B. Byron “More Hippocrates, Less Hypocrisy: ‘Early Offers’ as a Means of Implementing the Institute of Medicine’s Recommendations on Malpractice Law” Journal of Law and Health, Volume 15, Issue 1, 2000-1. 10 National Institute of Medicine, To Err is Human (Washington, D.C.: National Academies Press, 2000). 11 See the Federation of State Medical Boards at: www.fsmb.org for more information about their guide. 12 National Academy for State Health Policy, Mandatory Reporting Rules and Statutes (Portland, Maine: National Academy for State Health Policy, 2002). Available at: http://www.nashp.org/_docdisp_page.cfm?LID=2A7899095310-11D6-BCF000A0CC558925. 13 National Practitioner Data Bank, National Practitioner Data Bank Guidebook (Washington, D.C.: U.S. Department of Health and Human Services, Health Resources and Services Administration, Division of Quality Assurance, September 2001). Available at: http://www.npdb-hipdb.com/pubs/gb/guidebook.pdf. 14 See the Aviation Safety Reporting System Web site at: http://asrs.arc.nasa.gov/ for more information. 15 Randall Bovbjerg, Medical Malpractice: Problems and Reforms, A Policymaker’s Guide to Issues and Information (Washington, D.C.: The Urban Institute & Intergovernmental Health Policy Project, 1995). 16 Ruslan Novik, Risk Management Information “Medical Malpractice” available at: http://www.ucalgary.ca/MG/inrm/industry/Professional/med/med.htm. 17 National Academy for State Health Policy Web site “Quality and Patient Safety” available at: http://www.nashp.org/_catdisp_page.cfm?LID=59D44F84-32B5-11D6-BCEA00A0CC558925. 1