Reforms Wont Work Without $ Caps, Insurers Say Doctors insurers point to California, Texas as models for med mal reform

With the issue of skyrocketing medical malpractice insurance premiums in the foreground of both the national and state political scenes, lawmakers and regulators battle over how to bring premiums under control.

For the insurance companies writing medical malpractice liability coverage, however, the path toward reasonable premiums leads directly to tort reform measures. More specifically, they advocate reforms that would impose caps on non-economic “pain and suffering” damages, or those damages that are not directly related to the costs of the injury involved in the case. These caps are based on legislation passed in California in 1975 and enacted a decade later after a lengthy court battle, known as Medical Injury Compensation Reform Act, or MICRA.

“The model for the whole country is MICRA,” said Dr. Richard Anderson, chairman and chief executive officer of The Doctors Company, a California-based national physician-owned malpractice insurer. “Anything less than MICRA is less than MICRA.”

Efforts to pass MICRA-based legislation in Congress, with a cap of $250,000 on non-economic damages, have repeatedly run into a dead end. The House has passed the legislation with strong support several times, but it has failed to gain any traction in the Senate. The debate has moved largely to the states, and at both levels it has turned into a heated, and sometimes bitter, conflict between insurance companies (typically aligned with Republicans) and the trial bar (traditionally aligned with Democrats.)

The MICRA law, according to Donald J. Zuk, president and chief executive officer of Los Angeles, California-based SCPIE, “has several components to it, but the most important is the cap on non-economic damages.”

To show the effectiveness the MICRA law has had in controlling medical malpractice liability insurance premiums, Mr. Zuk noted that between 1976 and 2000, premiums in California increased by 167 percent while the national average premium increased far more dramatically, rising 505 percent.

“That right there, in and of itself, shows something,” Mr. Zuk said, adding further that the difference is “an overwhelming piece of evidence that MICRA works.”

Additionally Dr. Anderson noted that the MICRA law has facilitated the claims settling process, with claims in California being settled on average one-third faster than elsewhere. “You don't have to spin the roulette wheel on pain and suffering,” he said.

Some consumer advocates have claimed that MICRA has not been the cause for California's lower medical liability rates. Instead, they point to rate reforms enacted as part of 1998's Proposition 103. But Lawrence Smarr, president of the Physician Insurers Association of America, a trade group for doctor- and dentist-owned medical malpractice liability insurers based outside of Washington, D.C., refuted this notion, pointing out that while Prop. 103 initially required insurers to roll back their rates by 20 percent, a court challenge by San Francisco-based NORCAL Mutual Insurance Company resulted in that being reduced to a one-time rebate of 20 percent of annual premium, and that the company's dividend would count toward that rebate.

“At the time,” Mr. Smarr said, “NORCAL was paying over 30 percent as a dividend,” he said.

Mr. Zuk, and SCPIE, have a unique perspective on the medical liability tort reform issue. Until approximately three years ago, he said, SCPIE was writing coverage in about 40 states when the costs of providing coverage began to increase.

Mr. Zuk noted that the frequency of claims was holding stable at roughly 20 percent, but that the severity of claims was rising dramatically. As the costs of providing coverage in different states became unbearable, Mr. Zuk said that SCPIE began pulling out of those markets. Today, SCPIE writes coverage in only two states?California and Delaware?with the vast majority of its business in the former.

“I'm back in California because you can't price it right in other states,” Mr. Zuk said.

There are no tort controls in Delaware, but Mr. Zuk said that SCPIE was maintaining a small book of business there, approximately $2-to-$3 million, because it is a “small, controlled” market. “There are basically two large brokerage firms that write all the coverage in the state,” he said.

However, Mr. Zuk said that even with a small book, SCPIE will not stay in Delaware if conditions start deteriorating. “If it started going south, I'd get out of Delaware,” he said.

Mr. Zuk hasn't been the only one to notice the deteriorating market conditions for medical malpractice liability insurance coverage over the past few years, however. Nor is he the sole proponent of enacting caps on non-economic damages. In fact, several states have enacted caps with varying levels of effectiveness, according to the Physician Insurers Association of America's Mr. Smarr.

“The most significant thing to happen was in Texas,” Mr. Smarr said. Prior tort reform efforts in the state had been challenged by the trial lawyers as unconstitutional, which Mr. Smarr said has been their basic strategy to head such efforts. However, lawmakers supporting a cap in Texas were able to place an initiative on the ballot amending the state constitution to allow for caps on lawsuit damages.

Voters approved the measure implementing a $250,000 cap in a referendum in September of last year.

As a result, Mr. Smarr noted that the leading carrier in the Lone Star State, the Texas Medical Liability Trust, reduced their rates by 12 percent across the board on Jan. 1 of this year.

“While those reductions don't seem large, they're a lot better than the increases the company had been doing,” he said.

Dr. Anderson also said that the effects of the Texas reforms will “grow and grow” once they have been given time to take effect. He added that the effects of the reforms were being slowed by a surge of complaints that were filed “in anticipation” of the reforms just before they were officially enacted.

Other states have passed caps but have not had as great an effect due to inconsistencies and exceptions in their legislation.

One such state is West Virginia.

Mr. Smarr said that the exceptions included in West Virginia's 2003 legislation enacting a $250,000 cap were a “concern” that could weaken its overall effectiveness. Those exceptions allowed for juries to award a higher amount in instances of wrongful death, the loss of a limb or organ system, or any injury that would prevent an individual from being able to take care of himself or herself.

West Virginia had a prior cap on non-economic damages of $1 million dollars, but that “had literally no effect,” Mr. Smarr said.

Nevada is another state that Mr. Smarr pointed to as having its caps weakened by exceptions to the rule. There, the law passed in August of 2002 implementing a $350,000 cap allowed for exceptions to be made in situations of gross negligence, which Mr. Smarr noted are “almost never seen,” or at the discretion of the judge presiding over the case.

Additionally, Dr. Anderson noted that the soft cap currently in Nevada allows for the limits to be multiplied by the number of defendants and plaintiffs.

With these exceptions, Dr. Anderson said it was “100 percent predictable” that Nevada's law would have no significant effects.

Mr. Smarr said that the PIAA does not believe the Nevada caps will be effective, “and the people of Nevada don't either,” adding that there is a ballot initiative there that would enact a hard $350,000 cap on non-economic damages.

Other states are continuing to work on the problem without enacting a cap, Mr. Smarr noted. Florida has passed some smaller tort reforms in August of 2003, but he added that work toward enacting a cap is continuing. Dr. Anderson added that Florida's reforms, along with similar actions taken in Ohio, are “good reforms, but they fall short” of resolving the medical liability crisis. Among those reforms are increased qualification for expert witnesses and an “I'm sorry” provision allowing physicians to make a statement in the event of an unanticipated outcome but protecting those statements from being used in court.

Pennsylvania, another state where an amendment to the state's constitution would be required before a cap on lawsuit damages could be implemented, has also tried to rein in the costs of malpractice liability insurance premiums by taking some of the burden off of insurers. In 2002, the state passed the Medical Care Availability and Reduction of Error, or MCARE Act. The act requires health care providers to have a minimum level of insurance?$1 million per occurrence with an aggregate annual coverage of $3 million?but limits the amount of punitive damages to twice the compensatory damages. Additionally, part of the damages would go toward an MCARE fund created to offset some of the costs of medical liability insurance.

However, the changes to the tort system under MCARE only apply to cases that arose on or after the date the legislation was enacted, March 20, 2002.

A spokesperson for PMSLIC, a medical liability insurer founded by the state Medical Society in 1978, said that it is “too soon to measure the impact of the reforms” enacted under the MCARE act.

A “frustrating” problem for insurers seeking to ease the medical liability insurance crisis, Dr. Anderson said, is that “every state looks upon this as though they were the first state in the history of the planet” to do so. Many states ask the same questions and debate the same issues, he said, rather than looking at the 25 years of experience in California.

Reproduced from National Underwriter Edition, October 28, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Reforms Wont Work Without $ Caps, Insurers Say

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