Update on State Medical Malpractice Wars – Part II of II

By Robert Bitterman, MD, JD, FACEP, Contributing Editor; President, Bitterman Health Law Consulting Group, Inc.

Last month's ED Legal Letter analyzed some recent tort reform court battles.1 This month, we review cases where physicians are suing state governments to stop them from pilfering the cash in patient malpractice compensation funds, and a few more cases litigating state and federal tort laws.

Court Orders Pennsylvania to Repay $800 Million to Physicians' Malpractice Insurance Fund

The Pennsylvania Medical Society and the Hospital Associations of the state won the first legal battles in their war with Gov. Ed Rendell (D) and his administration regarding the state-run medical liability coverage fund. A trial court ordered the commonwealth to repay over $800 million into its Medical Care Availability and Reduction of Error Fund (MCARE) fund,2 which provides excess malpractice liability coverage to physicians and other health care providers in the state.3 The court held that Pennsylvania did not have the right to siphon money from the physicians to balance its massive budget deficit. Gov. Rendell's administration formally appealed the decision a few days after the court's ruling.

Pennsylvania physicians must carry $1 million in malpractice insurance. The first $500,000 must be obtained from private insurers, and the MCARE fund provides the second $500,000 of coverage.2 Pennsylvania assesses physicians and other health care providers approximately 20% of the cost of their private insurance annually to finance the MCARE fund.2 However, unlike a traditional insurer, MCARE is a pay-as-you-go plan; it sets aside absolutely no reserves to pay future claims. It simply charges physicians, hospitals, and other health care providers the annual assessment to pay current claims and operating expenses.4

To help physicians fund MCARE during the malpractice crisis of the early 2000s, the legislature created a "Health Care Provider Retention Account" financed by cigarette taxes and motor vehicle violation surcharges.5,6 The purpose of this account was to provide abatements (subsidies) to physicians to reduce their annual MCARE assessments, in hopes of keeping physicians from abandoning Pennsylvania. The court found that the state administration inappropriately transferred $100 million from the MCARE fund to the state treasury, and that the state failed to transfer around $616 million from the Health Care Provider Retention Account to the MCARE fund to provide the liability premium abatements. The court held that the physicians had a vested right to the fund's assets that could not be overturned by a subsequent act of the legislature.3

The legislature has since terminated the Health Care Provider Retention Account, so all of MCARE's funding must now come solely from assessments on health care providers. Furthermore, since MCARE is a pay-as-you-go system, without the cushion of the money the state tried to siphon off from the fund there would have been essentially no reserves whatsoever to actually pay the unfunded liabilities of its outstanding claims that still need to be settled or litigated. The outstanding liability is estimated to be $1.7 billion.7 Thus, the annual assessments for MCARE will continue long after physicians no longer obtain coverage from the fund, and even physicians who never obtained coverage via the fund will be stuck paying the assessments ad infinitum.8

Pennsylvania Medical Malpractice Losses Continue to Decrease

There is some additional good news on the med-mal front in Pennsylvania. State Supreme Court Chief Justice Castille recently released the court's data on medical malpractice filing and verdicts for 2009. For the fifth year in a row, since the court instituted two significant procedural rule changes, the number of lawsuits and the amounts of damages awarded has decreased. In 2003, the court required attorneys to obtain a medical professional certificate of merit that the care provided fell below accepted standards, and it also required medical malpractice actions to be brought only in the county where the case took place, eliminating the contemptible practice of "forum shopping" that was so common in Pennsylvania.9,10 At the same time, the high court required all counties in the state to methodically track medical malpractice cases to obtain accurate data on the litigation occurring within the state.11

Wisconsin Physicians Seek to Follow Pennsylvania, Restore Money Taken from State Patient Compensation Fund

Wisconsin also has a catastrophic fund to provide medical malpractice insurance to health care providers in excess of their primary insurance coverage limits (the Injured Patients and Families Compensation Fund, or "IPFC Fund"). Current law requires physicians to carry minimum yearly coverage amounts of $1 million per claim and $3 million in the aggregate. Claims in excess of these amounts are paid out of money from the IPFC Fund, which is funded solely by the health care providers through annual assessments.12

In 2007, Gov. Jim Doyle (D) approved a legislative act to transfer $200 million from the fund to finance deficits in various Medicaid-related health care programs, none of which had anything to do with excess malpractice claims.13

The Wisconsin Medical Society sued to prevent the state from pilfering the fund to plug its budget deficit, claiming the monies were protected dollars to be used exclusively to decrease malpractice premiums and compensate injured patients.14 The Medical Society lost the case at the trial court level, despite the fact that the statute which created the fund explicitly stated that "moneys in the fund may not be used for any other purpose of the state," and that "the fund is held in irrevocable trust for the sole benefit of the healthcare providers participating in the funds and proper claimants."15

The physicians appealed. Their case is currently before the Wisconsin Supreme Court which is expected to rule later this summer on whether to allow the transfer or require the state to pay the money back.16,17

Just before the state Supreme Court heard the case the Wisconsin Legislative Audit Bureau audited the finances of the fund. Not surprisingly, at least to the Medical Society, the fund has an estimated $109 million less in assets than its projected liabilities, thereby jeopardizing its ability to pay expected future malpractice claims.18 The Chair of chair of the Medical Society's board, Dr. George Lange, was quick to comment: "The fact that the fund no longer has enough money to pay projected claims ... erodes confidence in a system designed to protect the interests of injured patients and their families and undermines the integrity of Wisconsin's medical liability climate.''18,19

The state auditor, in a letter to lawmakers, stated that "The fund's financial position has declined significantly in the last two years,'' and predicted its finances would continue in the coming years unless the fund raises the annual assessment amount. The assessment was increased nearly 10% in 2009.18

The auditor cited a number of reasons for the precipitous drop in the fund's assets, including but not just the $200 million transferred out by the state. The fund lost millions of dollars from the collapses of Lehman Brothers and Washington Mutual Bank in 2008, and millions more from the stock market crash. Claims payments increased every year for the past four years, and several multimillion dollar hits resulted in the fund's liability to cover future medical expenses of plaintiffs to bounce from $5.5 million in 2006 to $31 million in 2009.18

The claims increases were in part attributed to the nullification of the state's non-economic damages cap by the Wisconsin Supreme Court in 2005. In the case of Ferdon v. Wisconsin Patients Compensation Fund, the Court determined that the states' $350,000 non-economic damages cap (which was indexed to inflation) violated the Wisconsin constitution.20 The legislature enacted a $750,000 cap in 2006, but the Ferdon ruling left no limits on such damages for injuries occurring between 1991 and 2006.21

Interestingly, when it struck down the non-economic damages cap, the Wisconsin Supreme Court concluded that, "The cap would not protect the solvency of the Wisconsin Patient Compensation Fund" and that "the non-economic damages cap does not decrease malpractice awards or decrease malpractice insurance premiums."20 At the time, not even the Wisconsin Insurance Commissioner bought into the Court's conclusions, stating in writing that the non-economic damage caps helped control medical malpractice awards and create a stable legal environment in Wisconsin. Furthermore, a non-partisan legislative actuary study and audit done before Ferdon had estimated that "if Wisconsin's cap on non-economic were to be declared unconstitutional, the potential fund liabilities may be increased by an estimated $150-200 million." That audit specifically cited the legislature's re-establishment of a limit on non-economic damages in 1995 as one of the reasons behind the stabilization of the fund's finances.20

Wisconsin's history has borne out the predictions of the auditors, actuaries, legislature, and health care providers, disproving the "conclusions" of the state's Supreme Court — just as the history of other many other states has proven the effectiveness of non-economic damages caps in lowering malpractice insurance costs and improving access to care.

Washington Supreme Court Voids Statute Requiring 90 Days Notice Before Filing Malpractice Suits

Last month we discussed a Washington case, Putman v. Wenatchee Valley Medical Center, where the state Supreme Court struck down the legislature's certificate of merit requirement for medical malpractice cases.22 Another Washington tort reform statute just went down in flames in the case of Waples v. Yi.23 The 90-day notice requirement was one of the other changes the state legislature made to the medical malpractice system in 2006 in an effort to encourage potential malpractice plaintiffs to settle cases before resorting to court. The court said the waiting period "conflicts with the judiciary's power to set court procedures," and thus violates the separation of powers between the legislative and judicial branches of government.23

U.S. Supreme Court Declines to Review 6th Circuit Decision on EMTALA and Inpatients

In late June, the high court declined to accept the Moses v. Providence Hospital case, in which the 6th Circuit held that admitting a patient for stabilization did not end the hospital's obligations under the Emergency Medical Treatment and Labor Act (EMTALA).24 The 6th Circuit Court of Appeals had invalidated the Center for Medicare and Medicaid Services (CMS) regulation that had effectively ended a hospital's obligations under EMTALA after a patient is admitted,25 because the regulation "appears contrary to EMTALA's plain language."26,27

This means hospitals located in Michigan, Ohio, Tennessee, and Kentucky (the 6th Circuit) now have more civil liability under EMTALA than the states in the rest of the country. Families upset that the hospital "discharged grandma too soon" can now sue the hospital under EMTALA for "failure to stabilize the patient before transfer" (since all discharges from the hospital, whether from the ED or the inpatient setting are legally defined as "transfers" under EMTALA). This would include any inpatient who developed an emergency condition while in the hospital, not just those admitted through the ED.

Fortunately, however, EMTALA's duty to stabilize applies only at the time of transfer/discharge. Whether the emergency medical care provided in the ICU or the hospital complied with the standard of care is irrelevant for compliance with EMTALA; what matters is whether the patient's condition is stable when the patient is ultimately sent out of the hospital. As the Sixth Circuit explained: "EMTALA requires a hospital to treat a patient with an emergency condition in such a way that, upon the patient's release, no further deterioration of the condition is likely."26

Unfortunately, the Sixth Circuit's interpretation also voids (at least for purposes of civil litigation against hospitals) CMS's 2008 regulation holding that hospitals are not required to accept inpatients in transfer from other hospitals.28 Now academic and tertiary hospitals in these four states must accept inpatients with emergency conditions in transfer from nearby hospitals which are unable to stabilize the patient's condition.29 Under the rather cross-purposes CMS regulation, a higher-level hospital could have refused to accept an inpatient with an emergency condition in transfer solely on account of insurance status, which is exactly the type of economic discrimination that EMTALA was originally enacted to prevent.

The U.S. Solicitor General wrote a brief on the case recommending that the Supreme Court not accept the case.30 The Solicitor General believed that interpreting EMTALA to extend beyond the emergency department, as the court of appeals did, raised other questions not answered by Congress which are best suited for "expert agency (CMS) consideration" on how best to effectuate Congress's intent.30 Apparently, CMS intends to initiate a rulemaking process in 2010 and 2011 that will reconsider its prior regulations articulating the "admission defense" for hospitals.30 Thus, CMS will reexamine the application of EMTALA to inpatients, addressing such questions as "Does the law apply to ALL inpatients, or only those admitted via the ED?" "If EMTALA's reach extends beyond the point of admission in some circumstances, does that liability extend until the time of discharge or should there be some temporal limitation apart from the point of admission?" "Do other hospitals have to accept inpatients in transfer, and if so, under what circumstances?"

Conclusions

Tort reform remains an active battlefield in both the state and federal arenas. Emergency physicians and hospital ED providers need to remain ever vigilant and actively involved to defend against assaults on existing beneficial tort protections or enact new reforms necessary to ensure continued access to quality care for all.

References

1. Bitterman RA. Update on state medical malpractice wars: Part I. ED Legal Letter 2010;21:73-77.

2. Pennsylvania Medical Care Availability and Reduction of Error (MCARE) Act of March 20, 2002, P.L. 154, as amended, 40 P.S. §§ 1303.101-1303.1115.

3. Pennsylvania Medical Society, The Hospital & Healthsystem Association of Pennsylvania, et al. v. Department of Public Welfare of the Commonwealth of Pennsylvania, Case Nos. 584 M.D. 2008 & 585 M.D. 2008 (Pa. Commw. Ct. April 15, 2010).

4. Pennsylvania Medical Society. What Is MCARE and Why Should You Care? http://www.pamedsoc.org/AudienceNavigation/Students/Mcare.aspx.

5. 72 P.S. § 8211.

6. 75 Pa.C.S. § 6506.

7. Twedt S. Medical malpractice funds headed for Pennsylvania budget. Pittsburgh Post-Gazette, October 08, 2009. Available at http://www.post-gazette.com/pg/09281/1003828-28.stm.

8. Bitterman RA, Fish MB. Recent rulings may slow plundering of state malpractice fund surpluses. ED Legal Letter 2010:21:1-5.

9. Pa.R.C.P. 1018. Available at http://www.pacode.com/secure/data/231/chapter1000/chap1000toc.html#1018.

10. Pa.R.C.P. 1042.16. Available at http://www.pacode.com/secure/data/231/chapter1000/chap1000toc.html#1042.16.

11. Pa. R.J.A. 1904. Available at http://www.pacode.com/secure/data/201/chapter19/s1904.html.

12. Wisc. Statutes § 665.27(6).

13. 2007 Wisconsin Act 20, Section 9225(2). The Act transferred $200M from the Patient Compensation Fund to the Medical Assistance (Medicaid) trust fund.

14. Wisconsin Medical Society, Inc. v. Morgan, Circuit Court of Dane County, No. 07-CV-4035, (Dec. 19, 2008).

15. Wisc. Statutes § 665.27(6).

16. Wisconsin Medical Society v. Morgan, 2009AP728 (Dec. 10, 2009) (Certification by Wisconsin Court of Appeals).

17. To listen to the oral arguments given to the Wisconsin Supreme Court, go to: http://www.wicourts.gov/supreme/scoa.jsp?docket_number=2009AP000728.

18. Foley R. Audit: Wisconsin Medical Malpractice Fund in Poor Shape. Insurance Journal April 1, 2010. http://www.insurancejournal.com/news/midwest/2010/04/01/108663.htm.

19. For more details on the Wisconsin Medical Society's lawsuit against the state over the Malpractice Fund see http://www.wisconsinmedicalsociety.org/initiatives/lawsuit.

20. Ferdon v. Wisconsin Patients Compensation Fund, 701 N.W.2d 440 (WI 2005).

21. Wis. Stat. Ann. § 893.55. The total non-economic damages recoverable in health care liability actions for each occurrence on or after April 6, 2006 is $750,000.

22. Putman v. Wenatchee Valley Med. Ctr., No. 80888-1 (Wash. Sept. 17, 2009).

23. Waples v. Yi, Nos. 82142-9, 82973-0 (Wash. July 1, 2010).

24. Providence Hospital, et al v. Moses, U.S. 09-438, petition for a writ of certiorari is denied. June 28, 2010. http://www.supremecourt.gov/orders/courtorders/062810zor.pdf.

25. 42 CFR § 489.24(d)(2)(i).

26. Moses v. Providence Hosp. and Med. Ctrs., Inc., 561 F.3d 573 (6th Cir. April 2009).

27. Bitterman RA. EMTALA Headed to the Supreme Court? ED Legal Letter 2010;21:25-30; and Bitterman RA, Fish MB. Sixth Circuit: Admission to the hospital does not end EMTALA liability. ED Legal Letter 2009;20:73-76.

28. 73 Federal Register 48,654 – 48,668 (August 19, 2008).

29. 42 USC § 1395dd(g) (2006).

30. Providence Hospital, et al v. Moses, 09-438, US Solicitor General brief. Available at http://www.scotuswiki.com/index.php?title=Providence_Hospital_v._Moses.