Caps on malpractice awards: Update

by
Bruce L. Allen, MD, FACS, San Mateo, CA
Josef E. Fischer, MD, FACS, Cincinnati, OH

Unfortunately, we live in a society in which litigation is a way of life. Law schools continue to churn out 42,000 lawyers annually while it is generally acknowledged that we have far too many lawyers per population, especially as compared with the rest of the world, where litigation is far less prevalent. Litigation costs and insurance costs have cut into the profitability of our global companies. The public seems fascinated by the legal profession; witness the profusion of TV situational shows about lawyers and the legal system.

Almost weekly we read of runaway jury awards for offenses which, if existent at all, seem trivial. The reasons for these awards include:

• Emotionalism on the part of the juries toward an unfortunate plaintiff.
• Plaintiff views suite as chance to change his/her economic lifestyle.
• Plaintiff wants to teach a lesson to an arrogant company.
• Inappropriate defenses. Executives of companies often do not show up at trials. When they do, they are remarkably overdressed when compared with the juries that will judge them.

However, plaintiffs' attorneys have a point. Patients are sometimes grievously damaged, with loss of life or limb. The reality is that this country is facing a crisis of litigation that threatens to dismember society, result in counterproductive redistribution of wealth, limit innovation, and make insurance difficult to obtain. In the medical setting, it leads to the practice of "defensive medicine," with a resulting annual expenditure of at least $60 billion per year. Litigation also raises malpractice insurance rates, drives practitioners out of practice or, in areas in which litigation is uncontrolled, drives fees to a prohibitive level. Physicians are retiring early at an increasingly rapid rate, representing a loss of experienced productive practice years to the medical profession and to society. While the hassle index as far as dealing with managed care companies and insurance companies probably plays the major role, litigation and high premiums for malpractice also play a role.

ACS on tort reform

The American College of Surgeons has long advocated tort reform as a component of a patient-based professional liability system. These components of tort reform include:

• Caps on non-economic damages. While caps may vary, caps from $250,000 to $500,000 have been most effective.
• Collateral source offset. Insurance payments for medical care must be included so that the patient is not paid twice for medical expenses.
• Periodic payments. Payments for medical services are made as incurred rather than estimated in advance. Many estimated payments are never incurred. Payments that are paid in lump sum initially tend to overpayment.
• Limit on contingency fees. Many of the awards to patients go, after contingency fees and expenses, mostly to the trial bar.
• Reasonable statutes of limitations for adults and for minors. The statutes of limitations may not be identical, but there should be some reasonable limitation on how long an individual would be allowed to bring suit.
• Eliminating joint and several liability. Individuals should only pay that portion of the award for which they are liable.

Of these points, the absolute caps on non-economic damages are by far the most effective with respect to reigning in the costs of runaway professional liability insurance.

Absolute caps

There are a number of advantages to absolute caps on non-economic damages, especially for "pain and suffering":

• Caps on non-economic loss modulate increases in insurance premium levels.
• Absolute caps slow the frequency of professional liability suits.
• Since the pot of gold is smaller, absolute caps cut down the frequency of frivolous professional liability suits.

Absolute caps, since they set realistic and reasonable limits on what might be achieved, prevent pressure on the defendant to settle. Since there is a realistic and reasonable limit to what may be lost, more physicians and their attorneys and carriers tend to defend suits rather than settle in the hope of avoiding a multimillion dollar award.

A number of positive results occur with absolute caps:

• More insurance companies are willing to write in the state. For example, with the passage of House Bill 350, Ohio's tort reform law, which went into effect in 1997, many more insurance companies are writing insurance at lower rates than previously in Ohio.
• Primary insurance companies have a much easier time obtaining reinsurance under tort reform than otherwise.
• While not entirely relevant to other jury awards, absolute caps serve as a guide to juries with respect to a dollar figure of what is reasonable and what is not reasonable.
• There appears to be a direct relationship between absolute caps, insurance fees, and physician fees in a given area. It is obviously in the best interests of physicians not to have outrageous or outlandish fees in an effort to pay their malpractice premiums.

Shapes and sizes

Caps comes in various shapes and sizes:

• Absolute caps on the entire award regardless of circumstances.
• A limit on certain types of caps. This usually takes the form of caps on non-economic damages, and pain and suffering.
• Regardless of what type of cap exists, there may be exceptions to the type of cap. In general, these are for untoward events for which there is no dispute loss of life, loss of limb, quadriplegia, paraplegia, and so on.

At present, 24 states have set absolute limits on some aspect of professional liability (see Table 1). The cap imposed may be only for medical professional liability, while in other states the cap may include product liability. The most effective forms of caps fall into the following categories:

1. The absolute limit should be reasonably low. The most effective form of cap is an absolute cap on non-economic damages such as a pain and suffering cap of $250,000. In some states, a cap of $1 million has been imposed, but it has been more difficult to demonstrate benefits such as lower insurance rates, more companies writing insurance, lower physician fees, or decreasing frequency of suits when the cap is higher. It is likely that when a cap reaches $1 million, there is little benefit.
2. The cap must be absolute. It should not be at the discretion of the judge. Many judges come from the ranks of trial attorneys, and so their natural sympathy is with the plaintiff. In Massachusetts, for example, where there is a cap that can be set aside at the discretion of the judge, almost all cases have had their caps set aside by the trial judge.
3. There may be certain exemptions to caps. In general, these are most effective when they are defined specifically by indisputable physical evidence. In other words, if death is an exception to the cap, there is generally no dispute as to whether the plaintiff has died. If dismemberment is an exception, there should be no dispute as to whether the plaintiff is dismembered with loss of a limb, amputation, and so on. Some states have raised caps to a higher level under these circumstances, but not abrogated the caps. Caps should not be invalidated for situations subject to subjective interpretation such as loss of consortium, pain and suffering, and so on.
4. Payment of future medical costs ( such as is current in Louisiana) may take certain pressures off caps. Certain legislators wonder about the fairness of caps when what they perceive as egregious damage has occurred and when the patient's future medical care may be extraordinarily expensive. Thus, if future medical costs may be paid as incurred and that payment from insurance be deducted, this may prevent pressure to invalidate such caps.

Table 1. States with caps on awards* — December 1998

State	Non-economic	Total**	Exceptions
Alaska	Before 8/97, $500,000, after 8/97 the greater of $400,000 or life expectancy x $8,000/year. There is upper tier cap for severe disfigurement or physical impairment, which is the greater amount of $1,000,000 or $25,000 x life expectancy.	None	The cap of $500,000 before 1997 does not apply to cases of severe disfigurement or physical impairment.
California	$250,000	None	None
Colorado	$250,000	$1,000,000 total cap, which is frequently set aside.	If the court finds that future economic damages exceed the cap, it may award damages in excess of the cap, if to do so otherwise would be unfair.
Florida	$350,000 or $250,000 depending on circumstances. Frequently does not apply.	None	Cap only applies under certain circumstances in cases settled by voluntary arbitration. Defendants have an option to limit non-economic losses in return for admitting liability.
Hawaii	$375,000	None	None
Idaho	$400,000. This amount has been adjusted each year since 1990 by the rate of increase in average wages in Idaho.	None	The non-economic cap does not apply in cases arising out of willful or reckless conduct or out of acts constituting a felony.
Indiana	Refer to total cap.	The total amount recoverable from a single provider may not exceed $100,000. The total recoverable from all providers and the Patient Compensation fund is $750,000.	None
Louisiana	Refer to total cap.	The liability of each qualified provider is limited to $100,000 plus interest per incident. The claimant's total recovery is limited to $500,000 plus future medical expenses. The health care provider must carry $100,000 per claim liability insurance.	None
Maine	$150,000	None	Cap only applies to non-economic loss in cases of wrongful death.
Maryland	Before 1994, $350,000. Beginning 1994, $500,000. Increases by $15,000 each year.	None	None
Massachusetts	$500,000	None	Cap set aside "if imposition of such a limitation would deprive the plaintiff of a just compensation." The cap is seldom applied
Michigan	Beginning 1994, $280,000. Adjusted after 1994 annually for inflation. The limit increases to $500,000 in instances of paralysis, loss of cognitive capacity, or loss of reproductive ability.	None	None
Missouri	$500,000. Amount is adjusted annually for inflation. $500,000 represents 1997 value.	None	None
Montana	$250,000 beginning 1995.	None	None
New Mexico	Refer to total cap.	Before 1995, $500,000. After 1995, $600,000 plus medical expenses.	None
North Dakota	After 1995, $500,000.	None	None

Ohio	$250,000 or 3 x the economic damages up to a maximum of $500,000. If the claimant has suffered a permanent and substantial physical deformity, loss of use of a limb, loss of a bodily organ system, or permanent physical functional injury that prevents him from being able to independently care for himself, the ceiling increases to the greater of $1,000,000 or $35,000 x the claimant's remaining life expectancy.	None	None
Oregon	$500,000	None	None
South Dakota	$500,000	None	None
Texas	$500,000 in 1977. Adjusted annually for inflation and now approximately $1,300,000.	None	Applies only to wrongful death.
Utah	$250,000	None	None
Virginia		$1,000,000	None
West Virginia	$1,000,000	None	None
Wisconsin	After 1995, $350,000 which is adjusted annually for inflation. In cases of wrongful death, the limit is $150,000.	None	None

* Data obtained from the website of McCullough, Campbell, & Lane (http://www.mccandl.com/states)
** Total refers to the sum of economic and non-economic damages and does not include punitive damages.

Tort reform and caps as established in 23 states at present. Note that there are a variety of ways that states have of expressing caps.

Table 2 shows the effect of tort reform malpractice premiums. The substantial savings achieved in California are thought to be in large part due to the $250,000 absolute cap on noneconomic damages.

Table 2. MICRA vs. other major states

1998 annual malpractice premiums -- Selected specialties

Specialty	San Mateo Co. CA	Dade County FL	Long Island NY	Wayne County MI	FL,NY,MI Average	MICRA Savings
Allergy	$ 3,799	$ 13,165	$ 12,852	$ 11,294	$ 11,294	$ 7,495
Anesthesiology	10,827	30,377	23,390	26,598	26,788	15,961
Cardiology (invasive)	13,207	35,440	20,617	36,037	30,698	17,491
Cardiovascular surgery	29,899	104,736	63,792	110,884	93,137	63,238
Colon/rectal	23,394	45,467	36,034	34,933	38,811	15,417
Dermatology	6,333	35,440	20,617	12,425	22,827	16,494
Emergency medicine	16,248	45,467	21,889	50,875	39,410	23,162
Family practice (nonsurgical)	8,106	25,315	15,824	24,398	21,846	13,740
General surgery	23,394	86,069	56,901	58,214	67,061	43,667
Internal medicine (noninvasive)	7,526	25,315	20,617	24,443	23,458	15,932
Neurosurgery	49,396	193,763	148,368	138,187	160,106	110,710
OB/GYN	36,548	140,346	109,933	90,733	113,671	77,123
Ophthalmology	6,333	27,339	22,632	19,346	23,106	16,733
Orthopedic surgery	29,899	99,500	86,200	106,600	97,433	67,534
Otolaryngology	13,207	50,629	63,792	39,346	51,256	38,049
Pathology	5,566	30,377	11,148	15,010	18,845	13,279
Pediatrics (nonsurgical)	7,526	27,339	20,617	21,814	23,257	15,731
Plastic surgery	24,670	60,756	63,792	53,134	59,227	34,557
Psychiatry (nonshock)	5,566	15,188	7,865	14,071	12,375	6,809
Radiology (noninvasive)	7,526	40,504	28,576	28,031	32,370	24,844
Thoracic surgery	23,394	81,008	63,792	114,496	86,432	63,038
Urology	13,207	30,377	36,034	39,272	35,228	22,021

* Medical Injury Compensation Reform Act (MICRA) was enacted by the California Legislature in 1975 and is a model for tort reform.

Notes: Comparison reflects mature annual premium costs for $1 million maximum per case/$3 million maximum for all cases in a given year. Sources: NORCAL Mutual Insurance Co. (San Mateo County, CA); Florida Physicians Insurance Co. (Dade County, FL); Professional Liability Mutual Insurance Co. (Long Island, NY); Michigan Physicians Mutual Liability Co. (Wayne County, MI).

Comparison of MICRA on professional liability premiums for a variety of specialties in a number of counties. Note the MICRA savings of $43,667 for general surgery, $110,710 for neurosurgery, $67,534 for orthopaedic surgery, $63,038 for thoracic surgery, and $63,238 for cardiovascular surgery. These substantial savings are credited to the caps brought about by MICRA.

Summary

Tort reform for professional liability is in the best interests of not only all physicians, but for industry and the citizenry as a whole. The enormous sums of money donated by the Trial Lawyers Association, whose livelihood is at stake, makes initial passage of tort reform difficult and, once passed, brings it under constant attack. Even if a well-disposed legislature passes a professional liability law, state supreme courts are ever ready to invalidate such laws. Thus, once tort reform has been passed, the next battleground is the state supreme court. ACS chapters should be preparing their membership for educating the public as well as themselves as to the danger of a state supreme court comprised of members opposed to tort reform, and be prepared to help the election of those individuals who are more sympathetic to tort reform.

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See also Kridelbaugh WW, Palmisano DJ: Compensation caps for medical malpractice. Bull Am Coll Surg, 78(4):27-30, 1993.

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Dr. Allen is in the private practice of general surgery in San Mateo, CA. He is a member of the Regental Committee on Professional Liability.

Dr. Fischer is Christian R. Holmes Professor and chairman, department of surgery, University of Cincinnati (OH) Medical Center. He is also First Vice-President of the College.

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This article on professional liability was generated through the efforts of the Committee on Professional Liability of the ACS Board of Regents. Members of the committee believe that this and other articles published in the Bulletin should stimulate thought and possible action on a wider spectrum of issues related to professional liability.

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Bulletin of the American College of Surgeons
Vol.84, No.6, June 1999

Professional Liability

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