Proponents of MICRA cap on compensation for medical malpractice use questionable numbers
Friday, November 30, 2012
If we’re going to have an intelligent discussion about reforms to MICRA—the California law that limits compensation to some of the most seriously harmed victims of medical negligence—it will require the presentation of intelligent, credible evidence. One major advocate of leaving MICRA unchanged, without even an adjustment for 38 years of inflation, shows signs it may not be willing to participate in an intelligent discussion.
A recent letter to the editor defending MICRA in the San Francisco-based legal publication The Recorder was written by the executive director of a group calling itself Californians Allied for Patient Protection. The acronym CAPP emphasizes MICRA’s cap (unchanged since the law was enacted in 1975) on compensation for such damages as the loss of the ability to walk, the loss of the ability to have children, severe disfigurement, loss of vision or hearing, ongoing chronic pain, and the loss of a child, parent or spouse. CAPP’s board members include executives of the largest medical malpractice insurance firms that do business in California and organizations that represent the state’s doctors and hospitals, all groups that benefit financially (or whose members benefit financially) from reducing payments to those harmed by medical errors.
In her letter, CAPP’s Lisa Maas repeated one of her group’s common arguments, that “doubling MICRA’s cap on non-economic damages would add more than $9 billion annually to the cost of health care in California.”
In documents filed with the state Department of Insurance, California’s medical malpractice insurers estimated they will pay just over $161 million to those harmed by negligence in 2011 (see line 11 of the 2011 California Premium and Loss Summary). That figure is intended to account for all claims stemming from malpractice in 2011, even those that have not yet been filed; insurers have routinely gone back in later years to reduce their initial estimate of payouts. That $161 million includes payments that would not double if the MICRA cap doubled from $250,000 to $500,000, either because the payments are less than the cap or because they are compensation for lost income or medical expenses (such so-called “economic damages” are not capped under MICRA). On the other hand, doubling the MICRA cap would likely lead to some new claims that are not economically feasible under the current cap. So, though the $161 million figure would increase, it certainly would not double.
But let’s say the amount did double. Would insurance companies and medical providers really spend an additional $9 billion just to avoid paying out an extra $161 million? Does that sound like something an industry keeping an anxious eye on the bottom line would do?
That’s the first sign that the $9 billion figure may not be credible evidence.
In a document on its website, CAPP actually says doubling the MICRA cap would increase health care costs in California by “at least $9.5 billion” a year. That document does not cite a particular source for the figure but references “the State’s former non-partisan Legislative Analyst.” The source for the figure is a report that also appears on CAPP’s website that was prepared years after author William Hamm served as California’s Legislative Analyst (1977-86) and was most recently updated in 2010. The derivation of the claim that the increase in health care costs would “exceed $9.5 billion” annually begins on page 43 of the report (page 44 of the PDF).
Almost all of the increase, nearly $9 billion, is the result of a projected 3.04% increase in expenditures resulting from “defensive medicine.” A footnote in the report gives the source of that 3.04% figure as a paper published in 2000.That paper dealt with elderly patients who had a heart attack or ischemic heart disease (some of the most serious medical conditions) between 1984 and 1994 (a lifetime ago in terms of the advances in medicine). CAPP would take that number and apply it to all health care spending, today, on patients of all ages and medical problems. Indeed, the Hamm report says the increase assumes the “estimates of defensive medicine costs in connection with the treatment of coronary disease can be extended to all types of healthcare.”
And by all health care spending, CAPP may be including items such as medical research and medical facilities construction that would not seem to have any relation to a cap on malpractice payouts. The Hamm report’s source, as seen in footnote 41, for the “healthcare expenditures” that would be increased by 3.04% is “U.S. Census Bureau, Statistical Abstract of the United States: 2010, p. 97.” (That page is on page 3 of this PDF.) The footnote in the Hamm report does not indicate which number in the Statistical Abstract table is being prorated to come up with a California figure of almost $296 billion, but the footnotes on the Statistical Abstract table show the “Total expenditures” figure “[i]ncludes medical research and medical facilities construction not shown separately.” And the introduction to the table says “national health expenditures” includes “home health care; retail sales of prescription drugs; other medical nondurables; vision products and other medical durables…plus other health expenditures such as public health activities… medical sector investment, the sum of noncommercial medical research and capital formation in medical sector structures and equipment…” It’s not at all clear whether CAPP is claiming all of these would be subject to increases resulting from a change to MICRA. It’s easy to wonder why any of them would increase.
But an increase in “defensive medicine” does not account for all of the projected $9.5 billion increase in health care costs caused by doubling the MICRA cap. The Hamm report also indicates there would be a nearly $306 million increase in malpractice insurance premiums. That number assumes the state Insurance Commissioner, who has ultimate authority in the matter, would approve a 31.75% rate increase. But more tellingly, to come up with the $306 million figure, that rate increase is applied to a “projected” 2005 premium total for California of more than $963 million. According to the state Department of Insurance, the actual premiums written in California in 2005 were $697 million (line 11 of the 2005 California Premium and Loss Summary, click “Mkt Shr 2005″ in the left-side column). And that number has gone down every year since.
And the 31.75% rate increase? That number was concocted from numbers presented earlier in the Hamm Report, on page 37 (page 38 of the PDF), as estimates of what would happen if the MICRA cap were not just doubled but eliminated entirely. The prospect of a 31.75% rate increase flies in the face of data derived from the 2009 Medical Liability Monitor showing malpractice insurance premiums were actually lower in states without caps on damage awards than in states like California with caps.
CAPP’s $9 billion claim serves as a warning that all speculations about the effect of changes in MICRA, along with the supporting evidence, must be examined carefully if intelligent decisions are to be made.