In this edition of Reality check, Sam Brock takes an in-depth look at what raising the cap in California would do to medical malpractice costs.
As long as California remains in penny-pinching mode, and it certainly is right now, voters will inevitably ask one question when they evaluate ballot initiatives: How much does it cost?
For some measures, the answer is a lot more straightforward than others.
And if you put on your glasses and dive into the research of medical malpractice reform, expect to be reading for a while.
California voters could be weighing a proposal in 2014 to raise the medical malpractice awards cap for non-economic damages, should Bob Pack, the measure’s sponsor, succeed in gathering enough signatures and gain certification from the state.
Pack filed the initiative last month, backed by Santa Monica-based Consumer Watchdog.
“In today’s value, you cannot file a lawsuit for the loss of a loved one for $250,000,” said Pack, a Danville father who lost two children nearly a decade ago in an accident spawned by a drug-abusing driver.
Pack said the woman responsible should never have been prescribed drugs in the first place.
Yet holding physicians accountable, he said, is increasingly difficult when the maximum payout for emotional damages and suffering is $250,000, a limit set in 1975 under California’s Medical Injury Compensation Reform Act, or MICRA.
Pack would like to see that ceiling raised to its present-day value of about $1.1 million.
“Victims literally can’t get [legal] representation because of the limited amount of dollars available to navigate two or three years through the court system,” Pack concluded.
Admittedly, Mr. Pack said he’s not concerned “about the business issues of insurance, the medical community, the legal community,” or anything unrelated to victim’s rights and patient safety.
Supporters and opponents of his initiative, however, are quite concerned with the financial and business implications of raising the non-economic cap.
(It should be noted, there is no cap in California for ongoing medical costs or wages lost as a result of medical malpractice).
“Lawyers want to change this in order to file more lawsuits and make it easy to file meritless lawsuits,” said Kathy Fairbanks, a spokesperson for Californians Allied for Patient Protection, or CAPP. “And if it passes, health care costs will go up.”
CAPP represents a swath of 800 organizations comprised of doctors, hospitals, taxpayer groups, public safety organizations, EMTs, labor unions and more, Fairbanks said.
“The reason these groups like MICRA [the current law] is two reasons,” she continued. “Victims are fairly paid out for *economic damages and punitive damages, and current standards cut down on frivolous lawsuits.”
For a look at whether higher caps necessarily lead to more lawsuits, and the quality of representation for victims, please view our initial story here:
As it pertains to higher health care costs, Fairbanks is presenting an argument endorsed by many in the medical community: Namely, that a raised non-economic cap will lead to higher medical practice insurance rates, more hesitant doctors prone to performing extra tests and physician shortages for community clinics.
Are these claims true? There’s no question the research is hotly-contested.
Let’s start with the claim medical malpractice insurance rates are bound to rise with a higher cap.
The Medical Liability Monitor tracks the latest trends in the medical liability insurance market and publishes an annual rate survey with a state-by-state overview.
Both sides have cited the publication as a source of information.
NBC Bay Area interviewed the Medical Liability Monitor’s editor, Mike Matray, about the most recent survey published in October of 2012.
We wanted to know if conclusions can be drawn by comparing states with different levels of non-economic caps to each other, or to those without any caps.
“We’ve been collecting this information since 1991, and one of the things that’s been apparent to us from the very beginning is that medical malpractice insurance rates vary so wildly from state-to-state, and even county-wise within states,” Matray said.
“If you add all the county territories together with their premiums and divide it by that number of territories, you get a number that really applies to nobody,” he continued. “And it muddies the water more than it actually illuminates the state of the medical malpractice insurance industry.”
So comparing state-to-state, according to Matray, will not tell us very much.
Instead, we looked into CAPP’s contention that comparing California’s large, high-cost-of-living areas to similar regions throughout the country would be more telling.
Thus, we lined up major metropolitan areas in California, New York and Florida.
California has a hard $250,000 cap on non-economic damages, Florida has a soft $500,000 cap that can rise to $1 million for certain exceptions, and New York has no cap at all.
The Medical Liability Monitor measures rates for three different fields: Internal medicine, general surgery and OB/GYN. Obstetricians tend to have the highest rates because of the risks involved with childbirth.
Counties and territories in the report are spliced up in many different ways.
For simplicity’s sake, we took the Los Angeles/Orange County division for one of California’s biggest players, NORCAL Mutual Insurance Company, since it was the only California territory in the report that neatly encompassed a large city.
In 2012, the average OB/GYN in Los Angeles County and Orange County commanded a liability premium of $71,248. For general surgery physicians, the average was $54,400. Lastly, for internal medicine doctors it was $15,415.
Now, compare those to the premiums for New York City and Orange, Rockland, Sullivan and Westchester Counties under the Medical Liability Mutual Insurance Company:
OB/GYNs netted an average of $132,116, general surgeons an average of $95,506, and the internal medicine doctors required a premium of $25,546.
Lastly, compare California’s big city rates to those in Florida and Miami-Dade County under the First Professionals Insurance Company, and the difference becomes even more pronounced:
Average annual premiums were $190,926 for OB/GYNs, $190,926 for general surgeons and $47,731 for internal medicine physicians.
There are plenty of caveats to point out, however.
For starters, New York has lower rates on average than Florida, yet no cap. In theory, New York should have the highest rates if maximum liability is the primary driver of cost.
Secondly, there are some areas or territories in California that are more expensive than some in
New York or Florida, although not many.
Thirdly, California’s average rates fell across the state between 2011 and 2012, often by more than
20 percent, despite the fact nothing changed with respect to malpractice law.
How could that be?
“We have the toughest regulation in the country,” said Jamie Court, president of Consumer Watchdog.
Specifically, California passed Prop 103 in 1988, a voter ballot initiative that created an elected Insurance Commissioner tapped with the power to review and regulate rates for automobile insurance, property/casualty insurance and medical malpractice insurance.
“Groups like ours have intervened and stopped medical malpractice insurers from raising rates,” Court said. “Those companies have to ask for higher rates, and they can be challenged by the public as well as rejected by the Insurance Commissioner.”
In fact, in the last 18 months California Insurance Commissioner Dave Jones has ordered the top six medical malpractice insurance companies in the state to reduce their rates, saving what he says amounts to tens of millions of dollars.
The move likely explains why California’s medical liability rates have dropped, despite no change to the law.
On KNBC’s weekend talk show, ‘News Conference,’ Jones recently shot down the idea a higher cap would necessarily mean higher insurance rates.
“These MICRA caps, as they’re called, which the opponents to the initiative argue are necessary to keep rates down, haven’t actually worked to keep rates down,” Jones said. “What helps keep rates down is rate regulation, which is an authority I have and have used successfully on behalf of providers to try and reject excessive rates.”
Department of Insurance spokesperson Nancy Kincaid told NBC Bay Area that the office cannot comment conditionally on what might happen if the voter initiative gets on the ballot in 2014 and passes.
She did add, however, that any future rate increases by medical malpractice insurers would have to be justified, numerically, by more claims and higher payouts.
Court contends that even if claims and payouts increase, that doesn’t mean rates should or will rise.
“These companies are still making so much in profit, and they have for years, that there’s a lot of room left to pay victims and not have to implement rate increases,” Court said.
We went back to Matray and asked what the national data suggests about states that have recently raised or lowered caps.
“Texas has had success with their medical malpractice cap on non-economic damages,” Matray said.
The Lone Star State implemented a hard $250,000 non-economic cap in 2003 and has seen its rates dip, according to Matray. But, he added, there are other factors at play besides
the presence of a cap.
“Texas amended their constitution in 2003, making it much harder to bring a [malpractice] case to trial in the state of Texas in the first place,” Matray said. “That’s had an effect on bending the curve downward on medical malpractice insurance premiums.”
As we warned you, the data is abundant and full of nuance and contradiction, meaning both sides can make a case for what might happen to malpractice insurance rates under the proposed initiative.
To further investigate the claim, however, let’s suppose hypothetically that a higher cap does lead to inflated premiums.
What about the second part of the CAPP contention, that clinics serving needy populations- and operating on thin margins- will lose access to specialists and OB/GYNs?
Dr. Thomas Halligan is the Chief Medical Officer for La Clinica De La Raza, a network of 34 clinics primarily concentrated in Oakland that serves all patients regardless of ability to pay.
Dr. Halligan recently told NBC Bay Area that higher medical liability rates could have a devastating impact on the clinic’s resources.
“We know that comparing other states that don’t have medical liability reform, it’s harder to attract and retain physicians,” Halligan said.
As examples, he cited New York and Florida.
“In California, medical liability reform has prevented a pronounced doctor shortage,” he continued. “When rates for medical liability premiums for obstetricians and surgeons are two-to-three times higher, it does affect decisions about where to practice and how to practice.”
Court counters the entire notion that clinics might succumb to higher insurance rates and lose access to doctors, particularly in depressed communities, is a calculated narrative intended to elicit sympathy.
“The average clinic that takes care of the poor has almost no exposure to malpractice,” he said. “They are able to claim exemption under the Federal Tort Claims Act, so it’s dishonest to claim that there will be any impact on clinics [from a higher cap].”
The Federal Tort Claims Act, or FTCA, was first enacted in 1946.
The original idea behind the FTCA was to provide a blanket of protection for federal employees. Anyone injured by a federal employee and seeking damages for a “negligent or wrongful act or omission” would sue the federal government, not the insurance provider. http://www.hhs.gov/hhsmanuals/logisticsmanual/Appendix%20R_CRS%20Report%20to%20Congress,%20Federal%20Tort%20Claims%20Act,%20Order%20Code%2095-717.pdf
The legislation made the U.S. government liable for injuries caused by the negligence of its employees, with the U.S. Treasury paying out the claims.
During the mid-1990’s, however, Congress took a number of steps to expand the reach of the FTCA to cover health centers. Qualifying centers had full-time employees who were treated as federal workers, and therefore covered by the government.
In 1995 and 1996, Congress adjusted the parameters of the law to cover not just health centers and their various officers, employees and contractors, but also volunteers at free clinics.
Here is where the fingers start to point.
Court says that centers like La Clinica De La Raza can qualify and receive federal recognition under the FTCA, and therefore would be unaffected by increases in medical malpractice premiums.
“But from a public relations perspective, the medical insurance complex is hiding behind clinics that serve poor children because they know they’re a more sympathetic face than hospital executives that make $5 million a year,” Court said.
Cathy Frey, a board member for CAPP and the CEO of the Central Valley Health Network, says there’s no merit to Court’s allegations and the idea that health centers and free clinics have full protection under FTCA is absurd.
“First of all, FTCA is only available to health centers that are federally funded,” Frey said. “There are many community health centers, or community clinics, rural health clinics, and Federally Qualified Health Center look-alikes who are not federally eligible. They have to buy malpractice insurance on the open market, just like doctor X down the street does. They don’t have special circumstances.”
Frey said qualifying for federal funding for those who are eligible isn’t exactly a layup, either.
“The way that a clinic gets that designation is they go through a grant process, and it’s a very competitive grant process,” Frey said.
Sometimes that process is open on a yearly basis, and sometimes it’s not, she added.
We asked Frey what would make a clinic or health center an attractive candidate for federal status.
“The federal government is looking for areas in high need, with no real access to primary care, and sometimes those grant proposals
are 150 pages or longer to demonstrate [that need].”
Frey estimated that in the last round of funding, the Bureau of Primary Health Care received about 800 applications nationally
and granted funds for about 300 sites.
Even if a clinic has federal status, however, she says that’s not a guarantee of full liability coverage.
The Central Valley Health Network is made up of roughly a dozen Federally Qualified Health Center corporations that manage around 100 clinics and centers.
In essentially all of those locations, Frey said, the centers need supplemental insurance on top of the federal protection.
“There are a couple of disconnects here,” Frey said.
“The first disconnect is if you read what the regulations say, the employees have to work 32.5 hours a week. That’s a full-time position. If you have a provider that works 20 hours a week, 25 hours a week, even 30 hours a week, they don’t meet the threshold for federal coverage.”
Secondly, Frey says the FTCA only covers medical care that’s considered a form of primary care. Everything else requires additional insurance called ‘wraparound coverage’ in the industry.
“Let’s talk about OB/GYNs,” Frey said. “The FTCA covers prenatal visits in the clinic, but when that doctor goes to the hospital to deliver the baby, it’s not covered under the FTCA.”
Court, in turn, points out that the clinics are intended to serve as primary care facilities, not specialized surgical centers.
“The clinic is not an acute care facility, generally,” Court said. “The clinics are not hospitals, they’re primary care facilities.
If you need surgery, you will go to a hospital.
“I don’t know how many clinics specialize in childbirth. But if you’re poor, you get Medi-Cal and Healthy Families. And you will be given birth services at a hospital.”
As for the physician hours requirement in the law, Court said, that too needs some explaining.
“The people who are working less than 32.5 hours are not full-time employees, they’re people who volunteer at a clinic and also have a private practice,” Court said.
“Her employees, full-time workers, should be covered under the FTCA for what that clinic does,” he continued. “The doctors volunteering there
should be carrying their own malpractice insurance, particularly because in their own private practice they have it.”
So- what medicine and which physicians does the FTCA actually cover?
Here’s the specific language of the law as it pertains to individuals, according to a memorandum prepared by Jay Angoff, the former Insurance Commissioner of Missouri:
“The FTCA provides protection to both full and part-time employees—including clinicians, administrators, directors, nurses and other personnel; officers and governing board members; all full-time contractors—those working at least 32.5 hours a week; and part-time contractors in the fields of family practice, obstetrics and gynecology, general internal medicine, and general pediatrics.”
Angoff prepared the memo for Consumer Watchdog and is supporting the initiative to raise California’s non-economic cap.
We asked him if Frey’s contention is true that a large number of health center and clinic employees are excluded from coverage because they don’t reach 32.5 hours of service a week.
“Presumably if a doctor works fewer than 32.5 hours a week at a community health center, he or she has another job,” Angoff said. “Doctors who have a standard practice and who work relatively few hours at a community health center, it’s not reasonable for them to expect full coverage when that’s not their main business.”
Thus, there appears to be no debate that the FTCA does not cover all physicians practicing at free clinics.
Whether those with fewer than 32.5 hours a week deserve the same federal coverage, however, presents a subjective question heavily disputed by the two sides.
The extent of medical coverage that falls under the FTCA’s umbrella also remains a matter of interpretation.
Frey, for example, who’s spent more than 20 years working at community health centers, adamantly maintains that even core primary care physicians do not have ‘full’ coverage under the FTCA, forcing clinics to buy supplemental insurance at a greater expense.
Angoff, a former state insurance commissioner, just as adamantly responds that general medicine physicians, OB/GYNs and the like are completely covered under the FTCA, provided they meet the hours requirement.
The varying interpretations of the law, and conflicting figures when it comes to forecasting medical malpractice rates under a ‘raised cap’ scenario, make it nearly impossible to answer the question, ‘How will a higher non-economic cap for medical malpractice affect California?’
Should the issue find its way on to the ballot in 2014….good luck.