OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 _ (860) 240-0200

http: //www. cga. state. ct. us/ofa

sSB-394

AN ACT CONCERNING MEDICAL MALPRACTICE INSURANCE REFORM.

OFA Fiscal Note

State Impact:

Note: GF=General Fund; IF=Insurance Fund

Municipal Impact: None

Explanation

Sections 1 - 5 make use of the Insurance Department's pre-trial Medical Malpractice Screening Panel (MMSP) mandatory unless both parties agree to go directly to court. The Commissioner of Insurance would choose from the MMSP one attorney and two health care providers to serve on a hearing panel for each claim. In addition, the Chief Court Administrator must assign a judge trial referee to be a member and serve as chairperson of the hearing panel. Members of the MMSP are not compensated. However, judge trial referees are paid $200 per day.

Up to 375 claims could be heard annually by these panels. ¹ It is estimated that each of these additional cases could take up to four working days to dispose. The Judicial Department's annual cost to provide judge trial referees could therefore be as high as $300,000. Since the bill is effective upon passage, the FY 04 cost is estimated to be $50,000 (assuming May 1^st enactment. ) It is anticipated that hearing panel members will require transcripts of proceedings in order to make their findings of liability or dismiss claims. The associated, annual cost to the Department of Insurance (assuming 100 pp. ) is estimated to be $55,000. The FY 04 pro rated cost is $9,167. There is also a minimal cost to the Department related to sending notice by registered or certified mail to health care providers named as defendants.

The institution of pre-trial hearing panels could substantially reduce the number of medical malpractice cases brought before the court. Limited data from the state of Maine (which has a similar program) indicate that eighty per cent of panels yield a unanimous finding, which typically precludes a jury trial. If Connecticut were to experience a similar result, an estimated annual savings of $175,000 could be achieved.

Section 6 requires a plaintiff or plaintiff's attorney to file a written and signed opinion by a similar health care provider in order to initiate a medical malpractice action. This additional requirement could reduce the number of medical malpractice cases brought before the Superior Court, and thereby decrease the workload of the Civil Division. Any such change would be small relative to the overall caseload since medical malpractice cases comprise less than one per cent of total civil cases added each year. ² Consequently, there is no fiscal impact.

Section 7 Section 7: Under the bill, the person who pays the damages must notify the Department of Insurance. This has no fiscal impact on the Department of Insurance.

Implementation of Sections 7-9 and 14 will result in a significant cost to the Department of Public Health (DPH). The predominant reason for these costs is a requirement that the agency review and investigate when warranted all medical malpractice claims filed against a licensed physician, chiropractor, dentist or psychologist. Under current law, the agency reviews about 500 complaints and malpractice payment notices annually. Of these, about fifty percent (or 250) progress to an investigation. Under the bill, an additional 380 - 400 filed claims would require agency review each year, prompting an additional 190 - 200 investigations. The agency's Practitioner Investigations Unit currently has nine investigators.

The department's workload would also be increased to the extent that: (a) filed claims involve cases in which multiple medical practitioners are named, (b) the scope of reviews/investigations is broadened following adoption of regulations, and (c) medical review panels convened by the Connecticut Medical Examining Board (CMEB) ask for reconsideration of findings of no probable cause. (The agency dismisses about 240 cases each year concerning physicians following an investigation. )

Additional work would be associated with: (a) developing regulations, (b) notifying parties who have filed a petition questioning a physician's ability to practice, or the person's legal representative, when the CMEB has accepted a recommendation of a finding of no probable cause, and (c) developing systems for public access to information received about medical malpractice claims, awards and settlements and reporting on the same to the Public Health and Insurance Committees by July 1, 2004.

The DPH will incur FY 05 costs of $613,340 to comply with Sections 7-9 and 14. This reflects the full-year salaries of: one Physician (at $142,000 annually), one Supervising Nurse Consultant (at $77,400 annually), two Health Program Associates (at $55,280 annually), two Nurse Consultants (at $66,640 annually), one Administrative Hearings Officer (at an annual salary of $70,000), one Office Assistant (at an annual salary of $34,870), and one half-time Systems Developer (at $31,230 annually). Also included are one-time equipment costs of $8,000 and other expenses of $5,000. In FY 06 this cost will decrease to $604,340 as equipment costs will not recur. DPH costs will be supplemented by fringe benefit³ costs of $121,250 in FY 05 and $274,620 in FY 06. A potential minimal revenue gain would be expected should the enhanced investigation process lead to the collection of additional financial penalties from health care professionals. Since the bill is effective from passage, FY 04 costs of approximately $50,500 (DPH) and $10,100 (fringe benefits) would ensue given June 1^, 2004 implementation.

Section 9 requires the Connecticut Medical Examining Board (CMEB) to adopt regulations by December 31, 2004, to establish guidelines for use in its disciplinary process. It also establishes a requirement that the CMEB refer all findings of no probable cause to a medical hearing panel within 60 days of receipt from the DPH. The CMEB and medical hearing panels are comprised of volunteers who are not compensated for their time. Therefore, no direct state cost will result from an increased workload of their members.

Section 10 requires the DPH to include additional information related to medical malpractice investigations in its annual report to the General Assembly. The department will incur FY 05 costs of $92,940 to support the salary of one half-time Office Assistant (at an annual salary of $17,440) needed to enter data not presently collected and/or entered into the agency's database, one-time associated equipment costs of $3,000, and costs of one-time data processing services (approximately $72,500) needed to revise the agency's computer database and develop reporting tools. In FY 06 this cost will fall to $17,440, as the consultant services will no longer be required. DPH costs will be supplemented by fringe benefit costs of $3,530 in FY 05 and $7,990 in FY 06.

Section 11 requires each hospital and outpatient surgical facility to establish protocols for screening patients prior to any surgery. The development and implementation of these protocols will lead to additional costs for the John Dempsey Hospital at the University of Connecticut Health Center. However, given the required assistance of DPH in the development of these protocols as well as potential coordination with other hospitals in the state, these additional costs are expected to be minimal. To the extent that the measures in this bill lower medical malpractice and malpractice insurance costs, the John Dempsey Hospital at the University of Connecticut Health Center may realize future savings. The extent of these savings cannot be determined at this time.

Section 12 changes the rate of interest applied to offers of judgment made by plaintiffs after the effective date of the bill. Specifically, it pegs the interest rate applicable to offers of judgment at four percentage points above the weekly average five-year constant maturity yield of United States Treasury Securities. This would effectively reduce the rate of interest on offers of judgment from 12 per cent under current law to 7 per cent, although that difference would diminish as US Treasury Securities yields and interest rates rise.

Section 13 requires insurance companies that offer property and casualty insurance in Connecticut and medical malpractice insurance in any state to offer medical malpractice insurance in Connecticut for specific health care providers and entities, as regulated by the Insurance Commissioner. This has no fiscal impact on the Department of Insurance.

Section 15 requires each physician, podiatrist, chiropractor and naturopathic physician to report the name of the insurance company providing his or her professional liability insurance, the policy number, his or her area of specialization and whether he or she is actively involved in patient care. It also allows DPH to compare this information to that contained in the National Practitioner Data Base. Section 16 requires the DPH to report, by January 1, 2005, and annually thereafter, on the number of physicians by specialty who are actively providing patient care.

The DPH will incur FY 05 costs of $70,600 to support the salaries of one Office Assistant (at an annual salary of $34,870), and one half-time Systems Developer (at an annual salary of $31,230) needed to revise the agency's existing licensure database, enter information, follow-up with physicians who fail to supply the required data, and compile the annual report. Also included in this sum are one-time costs for equipment ($3,000) and reprinting the physician renewal card ($1,500). In FY 06 this cost will fall to $66,100 as one-time equipment and printing costs will not recur. DPH costs will be supplemented by fringe benefit costs of $6,320 in FY 05 and $14,310 in FY 06. It is anticipated that DPH will conduct few National Practitioner Data Bank checks, since each query costs $4. 25 and no funding has been appropriated to the department for this purpose.

Section 17 requires medical malpractice insurance companies to offer a discount to any insured that will use an electronic health record system to maintain patient records and verify patient treatment. This has no fiscal impact on the Department of Insurance.

Section 18 requires the quasi-public, Connecticut Health and Educational Facilities Authority (CHEFA) to establish a program to finance low interest loans to hospitals to install or upgrade electronic health record systems for the establishment and maintenance of patient records and verification of patient treatment. It is anticipated that CHEFA will have sufficient reserves to finance the loan program.

Section 19 requires medical malpractice insurance companies to file a request for rate approval with the Insurance Commissioner 60 days prior to the effective date. This has no fiscal impact on the Department of Insurance.

Section 20 & 21 require that captive insurers submit an application and a nonrefundable fee of $175 to the Insurance Commissioner in order to obtain a certificate of authority. Furthermore, the captive insurer must pay all expenses incurred as a result of filing the application. Currently, it is unknown how many captive insurers are in the state, as it is not a regulated industry. The bill also authorizes the commissioner, upon determination, to impose a civil penalty, with a maximum fine of $10,000. This will result in minimal revenue gain.

Section 22 permits any party to a medical malpractice civil action to request that the Chief Court Administrator designate the case as a complex litigation case. This conforms statute to current practice and, thus, there is no fiscal impact. ⁴

Section 23 requires the court to grant any waiver of attorneys' contingency fees in medical malpractice cases. There is no related fiscal impact.

Section 24 requires the Insurance Commissioner to create and maintain an information database. The department already collects much of the information that the bill requires. This does not result in a fiscal impact.

Sections 25- 27 establish the Healthy Connecticut Fund and require it to reimburse any portion of a medical malpractice claim, settlement, or judgment, which represents the deductible applicable to a provider's coverage. Any provider licensed in the state may participate in the fund only if their primary practice is in the state and the provider meets conditions established by the commissioner. The bill sets the maximum amount of reimbursement at $50,000 for a medical professional and $100,000 for a medical entity (such as a hospital).

The cost of these reimbursements is estimated at $29. 3 million annually but would likely be higher⁵. In addition, the bill requires that any expenses associated with operating the fund by the Department of Insurance be borne by the Healthy Connecticut Fund. The expenses for fund management, claims review and disbursement is estimated at $500,000 including fringe benefits for three staff.

The bill requires that these reimbursements be funded by assessments on various medical providers and other entities. A summary listing of the parties subject to assessment including the estimated number of each appears below.

The bill also requires a percentage of medical malpractice settlements and awards to be deposited in the Healthy Connecticut Fund (but does not specify the amount). Known medical malpractice settlements and awards (including projected future settlements/awards associated with pending cases) totaled $209. 3 million in 2002. Since the bill requires a percentage of actual settlements and awards to be deposited in the Healthy CT Fund, pending projected losses must be deducted. In 2002, projected losses made up 37% of total losses. Therefore, the amount that would have been subject to assessment in 2002 would have been $132. 4 million.

It is anticipated that the Auditors of Public Accounts will be able to complete an annual audit (by December 31^st) of the above fund and submit an audited financial report to the Department of Insurance (DOI), the State Treasurer and the General Assembly within its anticipated budgetary resources.