Ohio Medical Malpractice Commission and Patient Compensation Fund

You asked for background information on the Ohio Medical Malpractice Commission and Ohio Patient Compensation Fund.

On January 10, 2003, Ohio Governor Bob Taft signed Senate Bill 281 of the 124^th General Assembly, which became effective on April 10, 2003. Senate Bill 281 is a comprehensive medical liability reform law. A copy of S. B. 281 is enclosed and may also be obtained at http: //www. legislature. state. oh. us/bills. cfm?ID=124_SB_281.

Section 4 of S. B. 281 created the Ohio Medical Malpractice Commission consisting of nine members, to study the effects of the new law, investigate problems posed by and the issues surrounding medical malpractice, and submit a report of its findings to the Ohio legislature within two years after the law’s effective date.

Section 5 of S. B. 281 required the Ohio Director of Insurance to study the feasibility of a Patient Compensation Fund to cover medical malpractice claims. The law required the director to submit a final report by May 1, 2003, to the Governor, the House Speaker, the Senate President, and the General Assembly committees’ chairpersons with jurisdiction over issues relating to medical malpractice liability. The final

report was to include the director’s recommendations for implementing a Patient Compensation Fund, which the General Assembly is to implement not later than July 1, 2003 (Am. Sub. S. B. 281 § 5(A)(2)).

The Ohio Department of Insurance issued its “Final Report on the Feasibility of an Ohio Patient Compensation Fund” as required by the law. The department notes that the decision to implement a patient compensation fund (“PCF”) is a public policy decision left to the Ohio policy makers. The report, therefore, proceeds on an assumption that a PCF will be implemented without advocating for or against it. The report provides the department’s comments and recommendations on PCF eligibility and participation, coverage limits, PCF funding method, and PCF operation and administration. A copy of the report is enclosed and is available at http//www. ohioinsurance. gov/Documents/05-01-03FinalReport. pdf.

Ohio S. B. 281, effective April 10, 2003, created the Ohio Medical Malpractice Commission consisting of nine members. The House Speaker and Senate President must each appoint three members. Of these six members, one must represent the Ohio State Bar Association, one must represent the Ohio State Medical Association, one must represent Ohio insurance companies, and all must have expertise in medical malpractice insurance issues. The House minority leader and Senate minority leader must each appoint one member. The Director of Insurance or her designee is also a member.

1. Study the effects of S. B. 281;

2. Investigate the problems posed by, and the issues surrounding, medical malpractice; and

3. Submit a report of its findings to the members of the General Assembly not later than two years after the effective date of the law (i. e. , April 10, 2005).

Any vacancy in the membership of the commission must be filled in the same manner in which the original appointment was made. The members, by majority vote, must elect a chairperson. Currently, Ohio Director of Insurance Ann Womer Benjamin chairs the commission. Each member will be reimbursed by the Department of Insurance for

expenses that are incurred in the performance of the member’s duties. The department must provide any technical, professional, and clerical employees that are necessary for the commission to perform its duties.

Senate Bill 281 also required the Ohio Director of Insurance to study the feasibility of a Patient Compensation Fund (“PCF”) to cover medical malpractice claims. The legislation specifically required that the feasibility study examine:

1. The PCF contemplated in S. B. 281;

2. The financial responsibility limits for providers that are covered in the law;

3. Methods of funding, excluding any tax on consumers;

4. Operations and administration; and

5. Participation requirements.

The director was required to submit a copy of a preliminary report by March 3, 2003, with a final report by May 1, 2003, to the Governor, the House Speaker, the Senate President, and the chairpersons of the General Assembly committees with jurisdiction over issues relating to medical malpractice liability. The law required the final report to include the director’s recommendations for implementing PCF, which the General Assembly is to implement not later than July 1, 2003.

The Ohio Department of Insurance issued a preliminary PCF Feasibility Report on March 3, 2003. The preliminary report included descriptions of PCF statutes and plans in other states. It also introduced a definition of PCF as follows:

A patient compensation fund is a medical malpractice insurance mechanism, created by state law, designed to increase professional liability coverage availability and/or affordability primarily by providing coverage for a specific type of injury or an excess layer of coverage.

Additionally, the preliminary report contained summaries of a wide variety of PCF options presented by existing PCFs including organizational structure, eligibility and participation requirements, financial responsibility and coverage limits, funding approaches, and operational design. These summaries became the basis for the department’s recommendations in the final report, which was issued on May 1, 2003.

In arriving at their conclusions, the department placed significant weight on the experience and design features of the PCFs in four states: Indiana, Louisiana, New Mexico, and Wisconsin. According to the department, these four states also belong to a group of six states that the American Medical Association views as “currently OK. ” The other two states are California and Colorado. An essential feature of the “currently OK” states is that the broad reform packages implemented include damage caps, medical review boards, and in some cases, PCFs, limitations on attorney contingency fees, and repealing of the collateral source rule that limits the admissibility of recoveries from other sources due to a medical accident.

The department notes that the decision to implement a PCF is a public policy decision left to the Ohio policy makers. The department’s report, therefore, proceeds on an assumption that a PCF will be implemented without advocating for or against it. The report discusses a recommended PCF structure, a summary of which follows below.

The language of S. B. 281 suggests that an Ohio PCF should provide coverage only for damages in excess of the caps on non-economic damages contained in the law. According to the department, no PCFs currently in existence provide this type of coverage. The department believes that such a design would reduce the potential benefits of a PCF and the non-economic damage caps, increase system costs, and allow for cost shifting between economic and non-economic damages.

The department recommends that the eligible classes of health care providers for an Ohio PCF include all physicians and osteopaths, a broad group of other health care providers, and hospitals and other health care facilities.

In addition, the department recommends that participation should be voluntary. With a voluntary system, providers can opt out of coverage when market conditions make comparable reinsurance coverage available and affordable.

The department recommends that health care providers be required to secure insurance coverage of $ 250,000 per occurrence to be eligible for PCF coverage. Required yearly aggregate limits would vary between physicians and hospitals. Physicians would be required to carry an aggregate limit of $ 750,000. Hospitals with 100 beds or fewer would be required to carry an aggregate limit of $ 5 million. Hospitals with more than 100 beds would be required to carry an aggregate limit of $ 7. 5 million.

The department also recommends that coverage in an Ohio PCF begin at the $ 250,000 per occurrence limit, subject to the proposed yearly aggregate limits, provide unlimited medical benefits above this amount, and non-economic damages up to the caps imposed by S. B. 281.

Senate Bill 281 requires that there be no limitation on economic damages. It also requires that non-economic damages be limited to the greater of $ 250,000 or three times economic damages, subject to a maximum of $ 500,000. The non-economic damage maximum is increased to the greater of $ 1 million or $ 15,000 times the number of years left in the injured person’s expected life if the non-economic losses are for either of the following:

1. Permanent and substantial physical deformity, loss of use of a limb, or loss of a bodily organ system; or

2. Permanent physical functional injury that permanently prevents the injured person from independently caring for himself or herself and perform life-sustaining activities (ORC § 2323. 43).

The department recommends that an Ohio PCF be funded through a rate per physician and per hospital bed for hospitals. Further, the PCF premiums should reflect the relative risk for different practice specialties and be sufficient to cover all losses and expenses associated with the policy. The department also recommends that the premiums reflect investment income on PCF funds and a risk margin to protect against

worse than expected results. Finally, the premiums should include experience rating so that providers with good claim experience pay less for coverage.

The department recommends that an Ohio PCF be set up as a trust fund of the state with funds held in a segregated account. The trust account should be managed by a Board of Governors comprised of interested parties, such as the insurance industry, the state medical society, the state hospital association, the state bar association, the insurance department, and the public. The board should have broad authority over the administration of the trust fund. The board should also be authorized to purchase reinsurance to protect the solvency and integrity of the trust fund, subject to the department’s approval.

1. The Ohio Treasurer of State’s office should manage assets of the trust fund;

2. PCF premiums should be collected as a pass-through from the primary insurer;

3. Specialized services that do not initially require full-time staffing, such as actuarial, legal and information services, should be outsourced or provided by department staff;

4. Claims administration should be outsourced;

5. Other administrative functions, such as billing, provider coverage status tracking, and accounting, should be staffed internally or provided by department staff; and

6. Quarterly financial reporting and annual audits should be completed and provided to the department.

1. A sliding scale limitation on attorney contingency fees similar to California’s: 40% on the first $ 50,000, 33% on the next $ 50,000, 25% on the next $ 500,000, and 15% of any amount exceeding $ 600,000;

2. The creation of a medical review board that would make a non-binding determination on the merits of a claim before it goes to trial; and

3. Expanded medical malpractice claim data reporting requirements, similar to Florida’s, that would allow the department to develop a database for monitoring the effectiveness of S. B. 281 and an Ohio PCF. Enclosed is a copy of the Florida Department of Insurance specifications for their medical malpractice claim database, which includes such things as the institution where the injury occurred, the diagnosis for which treatment was sought, a description of the misdiagnosis made, the principal injury giving rise to the claim, the injured person’s current and estimated future losses (medical, wages, and other), and the amount paid for the injured person’s non-economic loss. The Ohio Insurance Department proposes to collect the same data elements on all medical malpractice claims, whether or not they become lawsuits.


January 2, 2004		2004-R-0019
OHIO MEDICAL MALPRACTICE COMMISSION AND PATIENT COMPENSATION FUND

By: Janet Brierton, Associate Legislative Attorney