Medical Malpractice Insurance

• Randy Jenkins, Esq., Coordinator of Insurance and Risk for UF Self-Insurance Program

• Introduction: Patch Adams Video Clip

• See Health Law Cases, Materials and Problems, 3rd edition by Barry Furrow et.al. for additional information and specific cites.

I. Sources of the Malpractice Crisis

• Nature of the Insurance Industry

• Insurance Availability and Cost

Nature of the Insurance Industry

• 1970’s crisis = increased premiums– Legislature response: Physician owned

insurance companies

• 1980’s crisis = large jury verdicts = increased premiums

Nature of Insurance Industry- Insurance Types

• Occurrence v. claims made policy

• Tail coverage- covers claims filed after claims-made policy expires

• Dollar limit per occurrence and in aggregate for policy period

Nature of Insurance Industry-Layers

• First layer of coverage = basic coverage

• Coverage above basic = excess coverage

Nature of Insurance Industry- Rates

• Rates must generate funds to cover losses during the period, the administrative costs of running company, and amount for unknown contingencies

• Past experience predicts severity of losses and frequency of claims

• Varies by specialty and geographic location

Nature of Insurance Industry- Reserves and Reinsurance

• Reserves are liabilities based on estimates of future amounts needed to satisfy claims-include indemnity payments and legal expenses

• Reinsurance allows insurance companies to buy reinsurance from other insurers to cover potential losses to large for an individual company to absorb

Insurance Availability and Cost

• Florida physicians experienced substantial increases in premiums due to increase in loss payments to claimants not the frequency of claims payments

• For surgical specialties and obstetrics the malpractice premiums consume a large portion of gross income

II. Responses to the Crisis

• Benchmarks for Evaluating Reforms• 1) Do reforms improve the operation of the

Tort system for compensating victims?• 2) Do reforms create incentives for the

reduction of medical error and resulting injury to patients?

• 3) Do reforms encourage insurers to make malpractice more available and affordable?

Improving Insurance Availability for Physicians

• Multiple new sources of insurance such as Joint underwriting associations, reinsurance exchanges, hospital self-insurance programs and provider owned insurance companies

• Insurers writing policies on a claims-made basis rather than occurrence basis

Altering the Litigation Process: Common Tort Reforms

• 1) Reducing the filing of claims:

a. Reduced statute of limitations

b. Controlling legal fees

c. Payment of costs for frivolous claims

Altering the Litigation Process:Common Tort Reforms

• 2) Limiting the plaintiff’s awarda. Elimination of the ad damnum clause-

states the total monetary claim requestedb. Periodic Payments- convert awards for

future losses from lump sum to periodicc. Collateral Source Rule-prevents jury

from learning of sources of compensationd. Limits on Liability-Noneconomic cap

Altering the Litigation Process:Common Tort Reforms

• 3)Altering the Plaintiff’s Burden of Proof

a. Res Ipsa loquitur- Modified to require expert testimony to establish negligence

b. Expert Witness rules- Expert qualified in particular specialty to reduce hired guns

c. Standards of care- From locality rule to National Standard

Altering the Litigation Process:Common Tort Reforms

• 4) Changing the judicial role:

a. Pretrial screening- panels rule on merits of case before it can proceed to trial and promote settlement by pricing case

b. Arbitration- intended to replace jury trials rather than supplement

Altering the litigation Process:Judicial Responses

• 1) Equal Protection– Challenges based on denial of EP or DP guarantees of

14th amendment

– Medical malpractice claimants signaled out as a class

– Courts may discriminate as long as rational relationship between classification and state objective (e.g. reforms rational relationship to valid St. purpose of reducing insurance cost and assuring health care delivery

Altering the litigation Process:Judicial Responses

• 2) Due Process– U.S constitution insures State action will not

deprive a citizen of “life, liberty, property without due process”

– A cause of action = property– Compensation schemes eliminating/restricting

patient’s ability to bring suit can be challenged as a taking of the patient’s property (right to sue)

Altering the Litigation Process: Judicial Responses

3) State Constitutional Provisions

- Challenge administrative mechanisms that supplant or replace right to a jury trial

- Caps on damages as invading the province of the jury

Altering the Litigation Process:Judicial Responses

• 4) Common Law Arguments

- Engalla v. the Permantente Medical Group: Arbitration system involving K between provider and patient re: method of resolution if injury

- Appellate court reversed trial court and upheld arbitration system

III. Alternative Compensation Approaches for Patient Injury

• A. The rationale for an alternative system1. The Tort System fails to compensate

injured patients2. The Tort System sends an inaccurate

deterrence signal3. The administrative/social costs of the

Malpractice System4. Patient access impaired by Malpractice

costs

Rationale for an Alternative System

• 1) Tort system fails to compensate injured patients

- The current system compensates far fewer patients than actually suffer injury

- Fewer than 2% of negligent adverse events resulted in claims

- Current system functions for larger claims- e.g. bad baby case

Rationale for an Alternative System

• 2) The Tort System sends and inaccurate deterrence signal

-Random jury awards bearing little relationship to physician negligence fail to influence providers to reform their practice

-Anesthesia related injuries study found payment made in more than 80% of claims where pt received substandard care but payment also made in 40% of claims when anesthesia care appropriate…Is the false positive rate fair?

Rationale for an Alternative System

– Physicians overreactions to the fear of liability results in defensive medical practices which creates an inflationary cost in healthcare (e.g. CT scans in ED)

– Tort litigation has a substantial psychological impact on physicians and can determine a physician’s choice of specialization

Rationale for an Alternative System

• 3) The administrative and social costs of the Malpractice System

- Excessive costs of Tort system leaves little of the malpractice premium dollar going to the plaintiff

Rationale for an Alternative System

• 4) Patient access impaired by rising Malpractice costs

- Rising malpractice exposure, such as in obstetrics has driven physicians out of state leaving rural communities without

-Rising premium costs have altered physician practice patterns

B. Reforms- Medical Practice Guidelines

-Guidelines treated as standard of care and could be treated as negligence per se or treated as rebuttable presumption

- AMA has opposed adoption as a legal standard- A clinical standard may be presumptive evidence

of due care but expert testimony still required to introduce the standard and establish relevancy

B. Reforms- Alternative Dispute Resolution

• ADR decision is comparable to jury verdict

• Mediation v. Arbitration

• Mediation is voluntary and agreement reached by parties alone without judge

• Arbitration is binding and requires an independent third party who serves as judge

B. Reforms- No Fault Systems

• NICA- Neurological Injury Compensation Act creates a compensation fund for neurologically damaged newborns and excludes all other Tort remedies– Compensation is for net economic loss only

including medical expenses, rehabilitation expenses, loss wages; No compensation for non-economic losses or pain and suffering

Reforms- No Fault Systems

• NICA physicians pay $5,000 into the fund annually and may elect not to participate; Hospitals may $50 per delivery per year into the fund and may elect not to participate

• Each claim filed is automatically referred to the State Board of Medicine to decide if injury resulted from substandard care

Reforms-Enterprise Liability

• Clinton’s health reform proposal of 1993 called for Health Plans to bear liability for medical malpractice

• Enterprise liability changes to the locus of liability for patient injuries without other significant alterations to existing rules

• Exculpates physicians for liability and forces hospitals to assume liability

Reforms-Enterprise Liability

• Benefits of Enterprise Liability1)Insurers have improved ability to price insurance since problems with high risk specialties eliminated2) Physicians no longer face fluctuating premiums3) Physicians freed from psychological stress inflicted by being a defendant

Reforms- Enterprise Liability

• Benefits continued:4) Administrative and litigation costs reduced by only having one defendant5) Patterns of poor medical practice deterred by placing liability on institutions rather than individuals since institutions have better management tools for managing risks

Reforms- Social Insurance

• General Tax revenues fund a pure social insurance system

• E.g. New Zealand’s Accident Compensation Act removed all damage claims for accidental injuries from the Tort system– Compensation includes loss of earnings,

reasonable costs of medical treatment

Reforms- Social Insurance Cont.

– Injured person files claim with Accident Compensation Corporation which decides if a claim is covered and how much is paid

– 40% of claims for medical injury are denied– The decision may be appealed to the courts

Reforms- 2003 Medical Malpractice Legislative Changes

• See attached article

• Highlights include:

1. Caps in “Routine” medical malpractice cases…but do exceptions swallow the rule?

2. Caps in Emergency Room Situations

3. Good Samaritan Immunity

4. Pre-suit reforms and much more!