Insurers, defense attorneys and plaintiffs’ attorneys generally welcomed an incremental increase in California’s cap on medical malpractice awards that took effect last month, and some said it could be a basis for tort reform in other states.
While the modernized Medical Injury Compensation Act will increase health care providers’ loss costs and lead to higher medical liability insurance rates in the state, the compromise legislation replaced a ballot measure that could have led to significantly higher awards, insurance industry experts say.
However, some experts say the law could have unintended financial consequences and encourage a more aggressive plaintiffs̵7; bar.
The law, often referred to as Assembly Bill 35, amended the Medical Injury Compensation Reform Act of 1975. The previous measure, which was groundbreaking when it was passed, needed to be updated in light of its $250,000 cap on non-economic damages.
The new law raised the cap on non-economic damages to $350,000 in non-death cases and $500,000 in wrongful deaths. The caps will increase incrementally over 10 years to $750,000 and $1 million, respectively, and will thereafter be subject to a 2% annual inflation increase.
The law also establishes separate categories for contingent attorney fees: 25% for settlements effected before a civil complaint or claim is filed; and 33% for recovery under settlements, arbitrations or judgments following a civil complaint or demand for arbitration.
The passage of the law was supported by insurance companies, medical associations and consumer groups.
“It was actually a relatively reasonable compromise,” said Gisele Norris, San Francisco-based managing director, US national healthcare practice, for Marsh LLC.
“They did a decent job” of crafting legislation that doesn’t have a huge immediate impact, said defense attorney Paul W. Pitts, a partner with Reed Smith LLP in San Francisco.
Deepika Srivastava, East Lansing, Michigan-based vice president at med mal insurer The Doctors Co., said that because financial damages will increase in only modest increments, it will be easier for insurers to handle the expected increase in frequency and claims.
The changes are “sensible and quantifiable and predictable,” said Mia Lathrop Winter, of counsel at Wilson Elser Moskowitz Edelman & Dicker LLP in San Francisco.
The Sacramento-based Consumer Attorneys of California said in a statement last year after agreeing to the legislation that it “updates California’s Medical Injury Compensation Act of 1975 to prioritize patients’ access to justice and quality health care.”
But some say the law is still harmful to health care.
“It was a compromise” but “still negative for the medical community,” said Rob Francis, Birmingham, Ala.-based vice president, health care professional liability, at health insurer ProAssurance Corp., pointing to the expected increase in claims. frequency and severity.
Chad Follmer, Head of Healthcare at Woodruff Sawyer & Co. in San Francisco, noted that plaintiffs’ attorneys who persevere in their cases rather than settle before they sue will see their compensation increase, which could lead to “some crazy numbers if this really gets out of hand.”
In light of the potentially higher contingency fees, “it may now be more financially feasible for plaintiffs’ attorneys to take on malpractice cases,” said Paul R. Baleria, a partner with Lewis Brisbois Bisgaard & Smith LLP in Sacramento.
Insurers may respond to the law by either limiting their exposure in the state or by focusing on large health systems, said Joshua B. Rosenberg, a partner with Barnes & Thornburg LLP in Los Angeles.
Many believe that the law will have influence elsewhere. The 1975 law has “always been held up as a model,” and if states are considering tort coverage, they can look to the new law, Norris said.
Dan Ryan, senior director at Oldwick, New Jersey-based AM Best Co. Inc., however, said: “We believe that states themselves will continue to unilaterally decide what is best for their state to keep their health care systems operating effectively.”
James Irvin, Sacramento-based senior vice president and healthcare director, Pacific Series, for Lockton Cos. LLC, said there is already a push in several states to increase caps.
The law could lead to broader rate hikes as insurance companies operating in California that have exposures in other states try to ensure they have enough capital and surplus, said Peter Reilly, Springfield, Pennsylvania-based practice leader and head of sales for Hub International Ltd. s North American healthcare practice.
“We don’t know how far these ripples will go,” he said.