MALPRACTICE; MEDICAL MALPRACTICE; MEDICAL MALPRACTICE INSURANCE; PATIENTS' RIGHTS;

INSURANCE - MALPRACTICE;

You asked whether other states have established patient compensation funds or reinsurance programs for medical malpractice insurance.

SUMMARY

Patient compensation funds and reinsurance are different approaches for dealing with the cost and availability of medical malpractice insurance. Patient compensation funds are created by state law. They collect money from doctors and other health care providers, usually in the form of annual assessments. Providers are required to maintain a specified amount of malpractice insurance as a condition of participating in the fund. The fund pays for settlements and damages above this required amount of insurance. In some states, the fund’s liability is unlimited; in others, it is limited by damage caps or by a limitation on the fund’s liability.

Reinsurance, on the other hand, involves an agreement between two or more insurance companies by which the risk of loss is apportioned. The primary insurance company pays a premium to purchase the

reinsurance from the other company or companies. Thus, the risk of loss is spread and a large loss under a single policy does not fall on one company. We found only two states-Oregon and New Jersey, which have state established funds to assist private insurance companies to obtain reinsurance.

Patient Compensation Funds

At least ten states, including Florida, Indiana, Kansas, Louisiana, Nebraska, New Mexico, Pennsylvania, South Carolina, Wisconsin, and Wyoming have a law that permits the establishment of a patient compensation fund. These funds are sometimes called excess coverage or excess liability funds. They provide coverage for judgments or settlements in a medical liability lawsuit above a defined amount. Funds in two of these states, Florida and Wyoming are inactive and the Pennsylvania fund is scheduled to be phased out by 2009.

State laws vary in terms of when the fund begins to make payments for awards against a covered health care provider. For example, in Louisiana, any award in excess of $ 100,000 is paid from the patient compensation fund, while in Indiana the fund makes payments for awards in excess of $ 250,000. To ensure financial solvency, most states limit total payments made in a given year. For example, in Indiana if full payments cannot be made for all claims accrued, they must be prorated and subsequent payments will be made during the following payment periods. Most states require the defendant or insurer to promptly notify the fund when the lawsuit is filed, and make settlements that affect the fund ineffective unless the fund approves them.

Two states with funds, Indiana and Nebraska, have a cap on the total amount of damages that someone can recover. Each caps total damages at $ 1,250,000. But Nebraska’s cap will rise to $ 1,750,000 on January 1, 2004. Also, patients may opt out of the Nebraska law prior to receiving treatment in which case there is no limit on damages.

Five states put a limit on the liability of doctors who participate in the fund. Louisiana sets the limit at $ 100,000; Indiana at $ 250,000; Nebraska and New Mexico at $ 200,000; and Wisconsin at $ 1,000,000.

In three states the fund pays a certain amount over a doctor’s basic insurance coverage (Kansas, Pennsylvania, and South Carolina). But after the fund pays, the doctor continues to be liable for the outstanding balance of the judgment or settlement.

In every state the fund is financed through assessments or surcharges on qualified health care providers. Assessments or surcharges are typically collected by medical liability insurers and transferred to the fund. To participate in the fund, most states require health care providers to pay the annual surcharge or assessment and file a proof of financial responsibility verifying they have a certain level of medical liability insurance coverage or meet the requirements for self-insurance. In most states the fund is administered by a specifically created board, which is usually composed of health care providers covered by the fund.

Most states hold the fund in an independent trust separate from the state’s general revenue.

Some state patient compensation funds have had trouble maintaining their financial viability. For example, according to the American Medical Association, Pennsylvania’s CAT Fund is more than $ 2 billion in deficit. In response, Pennsylvania’s legislature replaced the fund with the Medical Care Availability Reduction of Error (MCARE) fund and has scheduled it to phase out over time.

The legislatures in Florida and Virginia have established special funds that apply only to infants who have suffered a neurological injury. These funds are summarized in greater detail in OLR report 2003-R-0620, which is enclosed.

Reinsurance

Oregon just enacted a law (HB 3630) that requires the State Accident Insurance Fund (SAIF) to establish a reinsurance program for medical liability insurance companies for policies issued by authorized insurance companies between the years 2004 and 2007 to licensed doctors of medicine and osteopathy serving in rural areas who carry at least $ 1 million insurance policies. And New Jersey just reactivated the New Jersey Medical Malpractice Reinsurance Association, which was established in the 1970s to reinsure certain medical malpractice insurance policies. The Department of Banking and Insurance reactivated the fund after holding for hearings to determine whether reinsurance is available in New Jersey and whether the fund should be reactivated.

Following is a comparison in table form of the active patient compensation funds, and a brief summary of each state’s law. Finally, we provide a summary newly created Oregon reinsurance program and the reestablished New Jersey reinsurance fund.

STATES WITH ACTIVE FUNDS

It appears that eight states have active patient or excess liability funds (Indiana, Kansas, Louisiana, Nebraska, New Mexico, Pennsylvania, South Carolina, and Wisconsin). Following in Table 1 is a comparison of these funds with respect to the minimum insurance they require doctors to carry, the amount the fund will pay, the cap on total or noneconomic damages if any, and the limits on a doctor’s liability, if any.

Table 1: Patient Fund or Excess Insurance Fund Laws

-Continued-

*Nebraska– A patient may choose not to be covered by the fund law before treatment. If so, there is no cap on damages.

**Pennsylvania– The fund is scheduled to be phased out by 2009 when doctors will be required to carry at least $ 1,000,000 in coverage.

***South Carolina– Reportedly, South Carolina recently began to give physicians the choice of which level of excess coverage to purchase. They may purchase unlimited protection or $ 1 million per claim / $ 3 million per year, 3 million/6 million, 5 million/7 million, or 10 million/12 million. (Source: Mary Ann West, Fund Coordinator. )

****Wisconsin–Cap on noneconomic damages is adjusted each May.

Following is a brief summary of the patient fund law in each state where a fund is operating.

INDIANA

Indiana’s Patient Compensation Fund functions as a system of excess insurance for health care providers. To qualify, a provider must file proof of financial responsibility and pay the surcharge the Insurance Commissioner assesses to support the fund (Ind. Code Ann. §§ 34-18-2-24. 5 and 34-18-3). A qualified provider establishes financial responsibility by purchasing malpractice liability insurance. The required limits for physicians are $ 250,000 per occurrence and $ 750,000 in the annual aggregate, while required limits for hospitals are $ 250,000 per occurrence and $ 5,000,000 in the annual aggregate, if the hospital has not more than one hundred beds, or $ 7,500,000 in the annual aggregate, if the hospital has more than one hundred beds. (Other aggregate limits are prescribed for other health care entities (§ 34-18-4-1)).

A qualified provider’s maximum liability for an occurrence is limited to the amount of required insurance. The fund is liable for the excess over what is owed by all the qualified providers, up to an overall damage cap of $ 1,250,000.

The amount of the surcharge is based on the median malpractice liability premium of the three largest malpractice insurers in the state for all physicians in the same specialty. Malpractice insurers are responsible for collecting the surcharge from each qualified health care provider and must forward these to the fund. The fund must distribute payments bi-annually on July 15 and January 15. If the fund does not have enough money to pay all the claims, the claims are prorated and the balance must be paid before claims that become final during the following six-month period.

KANSAS

Kansas has established a Health Care Stabilization Fund, which provides coverage to health care providers in excess of their required primary limits. Kansas requires all health care providers to carry liability insurance with limits of at least $ 200,000 per claim and $ 600,000 in the annual aggregate (Kan. Stat. Ann. § 40-3402). Larger health care providers who qualify may self-insure (§ 40-3414).

Health care providers may select form the following options: (a) $ 100,000 per claim and $ 300,000 in the annual aggregate, (b) $ 300,000 per claim and $ 900,000 in the annual aggregate, or (c) $ 800,000 per claim and $ 2,400,000 in the annual aggregate (§ 40-3403). The fund provides excess coverage over any additional insurance that would be applicable in the absence of the fund and the coverage it provides (§ 40-3408). It is not responsible for punitive damages or for failure to settle a case within its limits (§ 40-3412).

Kansas does not have a cap on the total amount of damages that may be awarded. Thus, health care providers are liable for damages in excess of the fund limit they select. But, Kansas caps noneconomic damages at $ 250,000.

The fund is financed by surcharges assessed against all health care providers based on the coverage the provider selects. It is held in trust in the state treasury and accounted for separately from other state funds. Malpractice insurers must collect the surcharge and forward it to the fund.

A Board of Governors, made up of health care providers the fund covers, administers the fund. It is liable to pay any amount due from a judgment or settlement, which is in excess of the basic insurance coverage of the liable health care providers. Any payments for which the fund is liable up to $ 300,000 must be paid promptly. Payments above $ 300,000 may be made in installments of $ 300,000 or 10% of the amount of the judgment, including interest, whichever is greater, per fiscal year.

LOUISIANA

Louisiana’s Patient Compensation Fund provides coverage for judgments, settlements, and arbitration awards against a health care provider in excess of $ 100,000 (La. Rev. Stat. Ann. § 40: 1299. 44). Private health care providers may join the fund if they file proof that they are covered by a policy of malpractice liability insurance in an amount of at least $ 100,000 per claim or they have deposited with the board $ 125,000 in cash, bonds, or other security the board approves and pay the surcharge the Louisiana Insurance Rating Commission assesses (§ 40: 1299. 42).

The Commission determines the surcharge assessed against providers based upon actuarial principles and in accordance with an application for rate or rate changes, or both, the board files.

The law limits the liability of each qualified health care provider to $ 100,000 plus interest per patient per incident (§ 40: 1299. 42). Judgments, settlements, or binding arbitration orders in excess of $ 100,000 per provider are paid out of the fund. The claimant’s total recovery is limited to $ 500,000 plus future medical costs. Future medical costs are paid as incurred from the fund (40: 1299. 44).

If the fund would be exhausted by payment in full of all final claims in a given year, then the amount paid to each claimant must be prorated and any amounts due and unpaid must be paid in the following semi-annual periods.

NEBRASKA

Nebraska provides an excess liability fund for qualified health care providers (Neb. Rev. Stat. § 44-2829 (1993)). To qualify a provider must obtain professional liability insurance in the amount of $ 200,000 per occurrence and $ 600,000 in the aggregate and pay a surcharge (§ 44-2824). Hospitals do so by obtaining insurance in the amount of $ 200,000 per occurrence and $ 1,000,000 in the aggregate.

Once a health care provider has qualified under the law, it becomes the exclusive method of recovery, unless the claimant elects in writing before the treatment not to come under the act (§§ 44-2821 and 44-2840).

The total amount recoverable under the act is $ 1,250,000 (§ 44-2825). This will increase to $ 1,750,000 on January 1,2004. The liability of a single qualified health care provider is limited to $ 200,000 per patient. The Fund is liable for judgments or settlements in excess of $ 200,000. But the amount paid from the fund plus payments by all health care providers may not exceed $ 1. 25 million.

To create and maintain the fund an annual surcharge is levied on all health care providers. It may not exceed 50 percent of the annual premium paid the health care provider pays for medical malpractice insurance or the amount necessary to maintain it at $ 4. 5 million. If the fund exceeds $ 4. 5 million after all expenses and claims are paid at the end of a given year, the director must reduce the surcharge to maintain the fund at approximately $ 5 million (§ 44-2830). If at any time the director determines the amount in the Fund is inadequate to pay in full all claims in a given year, he may levy a special surcharge on all qualified health care providers sufficient to permit full payment of all claims allowed against the fund during a calendar year (§ 44-2831). The fund’s director may purchase reinsurance for all or a portion of the fund’s liability on a fair and reasonable basis (§ 44-2831).

NEW MEXICO

New Mexico’s Patient Compensation Fund provides coverage for damages in excess of $ 200,000 against a health care provider (N. M. Stat. Ann. § 41-5-25).

To qualify, individual health care providers must have at least $ 200,000 in medical liability insurance or deposit $ 600,000 in cash with the superintendent of insurance and pay a surcharge (§ 41-5-5). The defendant or his insurer must notify the fund within 30 days after the lawsuit has been filed.

New Mexico caps malpractice damages at $ 600,000 per occurrence not counting medical care and related benefits or punitive damages (§ 41-5-6). It prohibits the award of monetary damages for future medical expenses.

In all malpractice claims where liability is established, the jury is given a special interrogatory asking if the patient is in need of future medical care and related benefits. No inquiry is made concerning the value of future medical care and related benefits, and evidence relating to the value of future medical care is not admissible. In actions upon malpractice claims tried to the court, where liability is found, the court’s findings must include a recitation that the patient is or is not in need of future medical care and related benefits. The court in a supplemental proceeding estimates the value of the future medical care and related benefits reasonably due the patient on the basis of evidence presented to it. That figure must not be included in any award or judgment but shall be included in the record as a separate court finding.

Once a judgment is entered in favor of a patient who is found to be in need of future medical care and related benefits, or a settlement is reached between a patient and health care provider in which the provision of medical care and related benefits is agreed upon, the patient must be provided all medical care and related benefits directly or indirectly made necessary by the health care provider's malpractice as long as medical or surgical attention is reasonably necessary (§ 41-5-7).

Awards of future medical care and related benefits are not subject to the $ 600,000 limitation. Payment for medical care and related benefits are made as expenses are incurred.  

The health care provider is liable for all medical care and related benefit payments until the total payments made by or on behalf of it for monetary damages and medical care and related benefits combined equals two hundred thousand dollars ($ 200,000), after which the payments are made by the patient's compensation fund.

Any health care provider is entitled to have a physical examination of the patient by a physician of the health care provider's choice from time to time for the purpose of determining the patient's continued need of medical care and related benefits subject to certain requirement (§ 41-5-10).

Examinations may not be required more frequently than at six-month intervals; except that upon application to the court, after reasonable cause shown, may order an examination within a shorter interval. If a patient fails or refuses to submit to an examination the court may forfeit all medical care and related benefits which would accrue or become due to him except for such failure or refusal to submit to examination during the period that he willfully persists in such failure or refusal.

The health care provider or the custodian of the patient's compensation must pay all reasonable legal fees, cost of medical examinations and the cost of the fees of medical expert witnesses in any proceeding in which the patient succeeds in raising his medical care and related benefits or in any unsuccessful proceeding brought by the health care provider or the patient’s compensation fund custodian to reduce medical care and related benefits.

The superintendent determines the surcharge based on sound actuarial principle. Medical liability insurers must collect it from health care providers on the same basis as premiums.

Payments from the fund must be made in accordance with the court’s payment schedule. If the Fund would be exhausted by payment of all claims in a given year, the amount paid to each must be prorated for that year based on the percentage of each party’s payment to the total outstanding payments with subsequent payments made in the following calendar years.

PENNSYLVANIA

Pennsylvania has a state-sponsored excess liability insurance fund know as the MCARE Fund (Pa. Stat. Ann. 40, § 1303. 712). (Previously, this know as the CAT Fund. The MCARE laws are similar to those that governed the CAT Fund, and they continue the phasing out of the program that began in 1997. )

All physicians and hospitals must obtain a prescribed amount of “basic insurance coverage,” which may be self-insured in approved cases, and to obtain excess coverage from the MCARE Fund, paid for by an annual surcharge (§ 1303. 711). Currently health care providers must carry $ 500,00 in coverage.

Basic insurance coverage carriers must provide a defense, but they can settle with a plaintiff for their limits and obtain a release, in which case the MCARE Fund must continue the defense (§ 1303. 714).

The law does not cap liability at the MCARE Fund limits; thus, health care providers remain liable and may purchase additional excess coverage.

Currently, the fund’s excess coverage is $ 500,000. In a two-step process, the new MCARE fund will be completely phased-out by increasing the mandated coverage requirements for physicians and decreasing the fund’s excess coverage limits. The first step is tentatively scheduled for 2006 when the basic limits will be increased to $ 750,00 and the MCARE fund excess coverage will be reduced to $ 250,000. The second step will take place in approximately 2009 when the basic limits will be increased to $ 1,000,000 and the MCARE fund will cease to provide any excess coverage.

Physicians and other covered health care providers currently pay an annual surcharge to maintain the fund. According to the American Medical Association, the fund has incurred a substantial deficit in excess of $ 2 billion and while the fund will be phased out as early as 2009, physician surcharges may continue for at least 20 years.

SOUTH CAROLINA

South Carolina’s Patients’ Compensation Fund pays any portion of any medical malpractice or general liability judgment or settlement, which exceeds $ 200,000 per incident and $ 600,000 in the annual aggregate (S. C. Code Ann. § 38-79-420). Participation in the fund is voluntary (§ 38-79-440). As members, the health care provider must pay an annual fee (§ 38-79-450). Upon being served with a complaint, the health care provider must promptly notify the Fund's Board of Governors of the action (§ 38-79-480). If the board determines that the damage amounts may exceed $ 200,000, the Fund can be actively defended in the suit. The insurer providing liability insurance to the health care provider must provide an adequate defense to prevent the fund’s impairment. The board must approve settlements that exceed $ 200,000.

The State Treasurer must hold the fund in a segregated account, which may not become part of the general fund of the State. If the fund’s liability exceeds $ 200,000 to any person for a single occurrence, it may not pay more than $ 200,000 per year until the claim has been paid in full, unless its board wants to avoid the payment of interest. Claims must be paid as they are filed in a given year. If the fund does not have enough money to pay all claims, those claims received after the funds are exhausted are immediately payable the following year in the order in which they were received (§ 38-79-480).

WISCONSIN

Wisconsin’s Patient Compensation Fund makes payments for medical malpractice claims in excess of the amount of medical liability insurance coverage which providers must maintain, or the amount of the maximum liability limit for which the provider has coverage, whichever is greater (Wis. Stat. Ann. § 655. 27). Health care providers (principally physicians and hospitals) are required to pay a yearly assessment into the fund and provide proof of financial responsibility to the Insurance Commissioner in the form of insurance, an approved plan of self-insurance, or a surety bond (§ 655. 23). The prescribed limits for malpractice insurance are $ 1,000,000 for each occurrence and $ 3,000,000 in the annual aggregate (§ 655. 23). Health care providers are liable only to the extent of the limits of their insurance. But the fund is not liable if the health care provider is found not to have acted in good faith during those activities and the failure to act in good faith is found by the trier of fact, by clear and convincing evidence, to be both malicious and intentional.

To participate in the fund, providers must pay an annual assessment based on a number of factors, such as the past and prospective loss and expense experience of the provider’s practice, the fund, and the individual provider.

A person filing a claim may recover against the fund only if the fund is named as a party in the action. No settlement that could affect the fund is valid unless the fund agrees to it (§ 655. 27(5) 3(b)).

Wisconsin imposes a total damage cap for wrongful death cases. For children it is $ 500,000; for adults it is $ 350,000 (§ 895. 04). In addition, Wisconsin imposes an adjustable cap for noneconomic damages for malpractice cases involving injuries but not death. The amount is adjusted each May by the director of state courts to reflect changes in the consumer price index. Currently, the cap is $ 422,632 (§ 893. 55).

In the 1980’s, Wisconsin had imposed a $ 1,000,000 cap on noneconomic damages. The law had a sunset provision that eliminated the cap in 1991. In 1995, Wisconsin reestablished a cap. It established the initial amount at $ 350,000 and made it adjustable annually.

The fund provides coverage for claims against qualified health care providers and their employees, and for reasonable and necessary expenses incurred in payment of claims and fund administrative expenses. Claims filed against the fund must be paid in the order received within 90 days after filing unless the fund appeals. If the amount in the fund is not sufficient to pay all the claims, claims received after the fund is exhausted must be paid in the following year based on the order in which they were received.

The fund is held in trust and may not be used for purposes other than those outlined in the statute.

REINSURANCE FUNDS

Oregon

House Bill 3630 passed by the Oregon House and Senate this year requires the State Accident Insurance Fund (SAIF) to establish a reinsurance program for medical liability insurance for policies issued by authorized insurance companies between the years 2004 and 2007 to licensed doctors of medicine and osteopathy serving in rural areas who carry at least $ 1 million insurance policies.

The act also:

1. requires SAIF to submit its plan, by September 30, 2003, for the program to the Director of the Department of Consumer and Business Services (DCBS) and the Office of Rural Health for approval and establishes maximum premium reductions for doctors covered by the program;

2. sets a limit of $ 10 million per year as the obligation SAIF may incur in providing this coverage;

3. establishes the Rural Medical Liability Insurance Fund to be funded by SAIF, and directs DCBS to offset the cost incurred by SAIF in providing the insurance against the annual assessment that DCBS charges SAIF;

4. requires SAIF to select a consulting firm, with the help of a panel of legislators and experts in the areas of medicine, insurance, insurance litigation, and statistics, to gather and analyze data on the availability, costs and transaction of medical liability insurance

5. requires SAIF to make all reasonable efforts to transfer any assumed reinsurance liability to the insurance carriers with which it negotiates for the reinsurance; and

6. requires DCBS to report to the legislature and Governor on the performance of the program, and requires the Office for Oregon Health Policy and Research and the Office of Rural Health to report to the Governor on how to attract and retain doctors in rural areas.

The act sunsets the entire program January 2, 2014.

New Jersey

The Medical Malpractice Reinsurance Association was created in 1976 under to assure that medical malpractice liability insurance was readily available to licensed medical practices and health care facilities (NJSA 17: 30D-2). The association consists of all personal injury and property insurers active in the state, other than those that only write workers’ compensation policies. The legislation requires the association to reinsure medical malpractice liability insurance policies issued by members. The legislation (1) permits the association to write such policies on a direct basis and to determine when it had sustained a deficit and (2) provides for recoupment of losses resulting from the operation of the association through surcharges on insureds. The legislation established the Medical Malpractice Reinsurance Recovery Fund. The purpose of the fund is to provide a financial backup for the association and to reimburse it for any deficit sustained in the operation of the association. The legislation gives the Commissioner of Bankruptcy and Insurance temporary emergency powers to set up and operate the reinsurance association if such insurance is unavailable for any class of licensed medical practitioners or health care facilities. The commissioner reestablished the association in September of this year.

The earlier legislation also imposed notification requirements on insurers and practitioners with regard to malpractice settlements, judgments, and awards. It established civil penalties for violating these requirements and immunized insurers from liability in connection with

these requirements. It specifies that in any malpractice action against a practitioner, a settlement prohibiting a complaint against the practitioner or the providing of information to the state concerning the underlying facts or circumstances of the action is void and unenforceable.

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