BILL ANALYSIS                                                                                                                                                                                                    






                 SENATE JUDICIARY COMMITTEE
                  Adam B. Schiff, Chairman
                 1999-2000 Regular Session


AB 1380                                                A
Assemblymember Villaraigosa                            B
As Amended May 24, 1999
Hearing Date:  July 13, 1999                           1
Civil Code                                             3
GWW:cjt                                                8
                                                       0

                           SUBJECT
                               
             MICRA:  Cap of Noneconomic Damages

                         DESCRIPTION  

This bill would require the Treasurer to adjust the current  
$250,000 cap on noneconomic damages in a medical  
malpractice action, each February 1, to reflect the  
cumulative percentage change in the Consumer Price Index  
for all items published by the United States Bureau of  
Labor Statistics for the preceding calendar year.  

The bill would also make legislative findings with respect  
to the need to revise the cap on noneconomic damages.
                               
                         BACKGROUND  

In 1975, the Legislature enacted AB 1(XX) - Keene, in  
response to a medical malpractice insurance crisis.  That  
measure enacted the Medical Injury Compensation Reform Act,  
commonly known as MICRA.  Among its provisions, Civil Code  
Section 3333.2 limits the recovery of noneconomic losses to  
a maximum of $250,000 in an action against a health care  
provider based on professional negligence.  

The cap went into effect on December 12, 1975, and has been  
unchanged since then, a period of more than 24 and  years.  

  
                   CHANGES TO EXISTING LAW
  
                                                       
(more)



AB 1380 (Villaraigosa) 
Page 2



  Existing law  , Civil Code Section 3333.2, limits the award  
of noneconomic damages against a health care provider for  
medical malpractice to a maximum of $250,000.   (For  
purposes of the joint and several liability law, economic  
damages as objectively verifiable monetary damages  
including medical expenses, loss of earnings, loss of  
employment or business opportunities.  Non-economic damages  
are subjective, non-monetary losses including, but not  
limited to, pain, suffering, inconvenience, mental  
suffering, emotional distress, loss of society and  
companionship, loss of consortium, injury to reputation and  
humiliation. (See, Civil Code Section 1431.2.)

  This bill  would allow an adjustment in that cap, consistent  
with changes in the Consumer Price Index (CPI).  The bill  
would require the Treasurer to adjust the  cap each  
February 1, to reflect the cumulative percentage change in  
the Consumer Price Index for all items published by the  
United States Bureau of Labor Statistics for the preceding  
calendar year.  
                               
                          COMMENT
  
1.  Stated need for adjustment in MICRA cap on noneconomic  
  damages  

  According to the Consumer Attorneys of California,  
  sponsors of AB 1380, U.S. Department of Labor statistics  
  indicate that inflation makes the current $250,000 MICRA  
  cap worth only about $83,000 in year 2000 dollars.  They  
  also assert that these government statistics indicate the  
  cap would need to be increased to $753,000 by the year  
  2000 just to maintain the current cap in 1976 dollars.   

  In contrast to the worth of an injured person's  
  noneconomic damages award being slowly depleted in the  
  intervening twenty-five years, CAOC reports that  
  malpractice insurers have generously prospered. According  
  to the Consumer Attorneys of California, a 1997 report by  
  the National Association of Insurance Commissioners  
  entitled "Report on Profitability  By-Line By-State"  
  determined that medical malpractice is the most  
  profitable insurance line in California, and medical  
  malpractice insurance profits are ten times greater than  
  the profits of other lines of insurance.  This same  
                                                             




AB 1380 (Villaraigosa) 
Page 3



  report found that, over the past decade, the average  
  profit for California medical malpractice insurers was  
  25.4% of the collected premium.  According to the report,  
  the average profit for all lines was 2.6%, 6.8% for  
  private automobile insurance, - 4.2% for multiple peril  
  homeowners' insurance, and 10.6% for fire insurance.

  The Consumer Attorneys of California also note that the  
  State Department of Insurance statistics indicate that,  
  in 1997,  California medical malpractice insurers earned  
  over $763 million  while paying out less than $300  
  million to claimants.  And the Consumer Federation of  
  America asserts that medical malpractice  insurance  
  profits over the last ten years were a whopping 65%  
  higher than the rest of the property/casualty insurance  
  business.
                                
  In support of AB 1380, the author states that "[r]evision  
  to MICRA is necessary to balance the interests of health  
  care professionals with the crucial need to ensure an  
  adequate remedy for medical malpractice victims and  
  guarantee consumer protection.  Victims do not have an  
  adequate remedy, and the bad physicians are under no  
  pressure to improve as the Medical Board has insufficient  
  funding to discipline the bad doctors.  Furthermore,  
  because children, seniors, women, and low-income  
  individuals have low quantifiable economic damages, the  
  MICRA cap has had an adverse affect on the ability of  
  these individuals to obtain representation and full  
  compensation?.  Oftentimes, neither the attorney nor the  
  victim have the necessary finances to pay for the costs  
  associated with preparing the case for trial."

  Opponents contend, however, that while the non-economic  
  damages cap may have lost value over the years, it has  
  more than been made up for with the increase in economic  
  damages awards during the same period.

2.  Strong opposition remains to bill limited to CPI  
  adjustments
  
  Opponents oppose any increase to the MICRA cap,  
  contending that it has worked as intended to control  
  malpractice insurance premiums.  Further, they argue that  
  noneconomic damages are inherently non-quantifiable and,  
                                                             




AB 1380 (Villaraigosa) 
Page 4



  so, adding a COLA serves no rational role.  Opponents  
  also argue that awards for economic damages have  
  continued to grow with, and even, exceed inflation, so  
  that there is no need to adjust on the noneconomic  
  damages cap.  Finally, they contend that lifting the  
  MICRA cap, even by a CPI adjustment,  would result in  
  several undesirable consequences.

  a)   Lifting the cap will raise health care costs   

     Opponents assert that MICRA's current "un-indexed" cap  
     has helped keep California health care costs down,  
     and, conversely, that allowing MICRA's cap to increase  
     would increase the cost of medical  malpractice  
     insurance, thereby increasing health care costs.

        They state that a recent survey comparing premium  
     costs by specialty in Florida, Michigan, New York, and  
     California, showed that annual savings in insurance  
     premiums to California physicians due to the current  
     cap in California range from $5,500 per year for  
     pathologists to almost $30,000 per year for orthopedic  
     surgeons and other, high risk surgery specialties. 

        Opponents also contend that the MICRA cap has saved  
     hundreds of millions of dollars in physician and  
     consumer costs, that MICRA saved carriers $516 million  
     in claims payments from 1986-96, and that most of the  
     savings should be attributed to the cap on  
     non-economic damages." 
     However, the Consumer Attorneys of California strongly  
     reject the claim increasing the MICRA cap will result  
     in rising health care costs.  They cite a report by  
     the National Association of Insurance Commissioners  
     entitled "Report on  Profitability By-Line, By-State  
     1993-1997" which concluded that medical malpractice is  
     not a substantial contributor to rising health care  
     costs.  They also cite a 1999 report prepared by  
     actuary J. Robert Hunter, the Consumer Federation of  
     America, Director of Insurance and former Texas  
     Insurance Commissioner, entitled "Medical Malpractice  
     Insurance," which found that  medical malpractice  
     insurance costs represented only 0.6% of health care  
     costs in California. 

                                                             




AB 1380 (Villaraigosa) 
Page 5



     The report also found that, while medical malpractice  
     premiums rose in absolute dollars over the decade, the  
     contribution medical malpractice insurance costs made  
     to overall national health care costs fell.  It also  
     determined that nationwide health care costs are  
     driven by hospitals (34%), physicians (19.9%), nursing  
     homes (7.6%), drugs (7.2%), and administration (4.6%).  
      At 0.6%, medical malpractice is the smallest factor.   


     Finally, the Consumer Federation of America report  
     compared 1993 state-by-state health care costs with  
     the states that have instituted a damage cap and  
     determined that there does not appear to be a pattern  
     that suggests that non-economic damages caps result in  
     measurable lower costs relative to health care  costs  
     overall.  In 1992, the non-partisan Congressional  
     Budget Office (CBO) also released a study entitled  
     "Economic Implications of Rising Health Care Costs,"  
     which posed the question "What has caused the rapid  
     increase in health expenditures?"  In answering this  
     question, the study looked at several issues including  
     the development and use of new medical technologies,  
     the growing use of third-party payers, and the  
     malpractice issue.  The study concluded that, with  
     respect to malpractice, higher medical malpractice  
     costs account for little of the increase in the  
     nation's health care costs.  In reaching this  
     conclusion, the CBO noted that malpractice premiums  
     amount to less than one percent of national health  
     expenditures and therefore "directly contribute little  
     to the nation's overall health costs."   

   b)    Indexing the cap would reduce access to quality  
     health care and result in doctor flight or the  
     defensive practice of medicine?  

     Opponents assert that higher malpractice premiums  
     brought about by any higher cap on non-economic  
     damages will encourage doctors to once again leave the  
     state for less litigious pastures.   Particularly in  
     certain "high  risk" specialty areas, higher  
     malpractice premiums would translate into lower  
     incomes for  physicians specializing in obstetrics and  
     other "high risk" specialties.  These high premiums  
                                                             




AB 1380 (Villaraigosa) 
Page 6



     and correspondingly lower incomes discourage medical  
     students from entering into obstetrics or high risk  
     specialties.  In addition, physicians approaching  
     retirement will have a greater incentive to retire  
     earlier instead of later.

     CAOC questions that claim, citing a 1997 Morgan Quitno  
     Press study, entitled "Health Care State Rankings,"  
     which found no relation between caps on non-economic  
     damages and access to health care.  In determining  
     that caps on non-economic damages are insignificant in  
     terms of health care costs, the study compared states  
     with damage caps and states  
     without damage caps and found that in states with caps  
     there were 31.5 general/family practice doctors per  
     100,000  population, and in states without caps there  
     were 28.80 such doctors.  Another study by the Morgan  
     Quitno Press in 1998,  entitled "Health Care State  
     Rankings," similarly found no correlation between  
     non-economic damage caps and the number of OB/GYNs.   
     The study found that in 1996, there were 27.8 OB/GYNs   
     per 100,000 women in states without damage caps and  
     25.3 OB/GYNs  per 100,000 women in states with damage  
     caps. 

     Alternatively, opponents argue that those doctors that  
     stay will suffer lower incomes due to higher premiums  
     and have to practice defensive medicine, thus forcing  
     up systemic health care costs and limiting the use of  
     health care dollars for other treatments. 

     Proponents of AB 1380 question that premise that  
     malpractice insurance rates will indeed rise, in light  
     of the high profits enjoyed by the industry.   
     Proponents note that under Proposition 103, increases  
     must be legally justified and approved by the  
     Insurance Commissioner.  Given profits of around 24%,  
     proponents contend that future increases could be  
     absorbed by the industry for some years while still  
     maintaining a healthy margin. 

     Proponents also dispute that AB 1380 would lead to a  
     new wave of defensive medicine.  According to  
     Consumers for Quality Care, a 1994 Congressional  
     Office of Technological Assessment report found  that  
                                                             




AB 1380 (Villaraigosa) 
Page 7



     less than eight percent of all diagnostic tests are  
     performed primarily because of doctors' fears of  
     medical malpractice lawsuits.  In addition, the  
     Consumer Federation of America report states that the  
     cost of defensive medicine has dropped most likely  
     because more people are enrolled in HMOs which use  
     capitation rather than traditional fee-for-service  
     medicine, which ironically rewarded defensive medicine  
     practices.  
     J. Robert Hunter, the author of the Consumer  
     Federation of America report, argues that defensive  
     medicine will be controlled by capitation which  
     provides a financial incentive not to order  
     unnecessary tests.    

   c)   Adjusting the cap would increase the incentive to  
     file malpractice actions  
      
        Opponents contend that increasing the MICRA cap  
     will increase the number of medical malpractice   
     lawsuits filed in California for several reasons.   
     First, a higher cap means higher potential awards,  
     which would increase the incentive of individuals with  
     dubious claims to file lawsuits and reduce their  
     incentive to accept out-of court settlements.   
     Opponents assert that caps on damages awards are an  
     especially effective deterrent to claims of dubious  
     merit because they create a greater incentive for  
     attorneys to settle before going to trial.  This is  
     because the cap effectively limits the maximum fee  
     that the attorney can expect to receive from going to  
     trial.  By effectively limiting attorney's fees, the  
     cap will also affect settlement negotiations, and  
     discourage the plaintiff from holding out for a better  
     settlement."

        CAOC rejects the assertion that raising the cap  
     will lead to an explosion of medical malpractice  
     claims.  They cite a 1990 report by the Harvard  
     Medical Practice Study entitled "Patients, Doctors,  
     and Lawyers: Medical Injury, Malpractice Litigation,  
     and Patient Compensation in New York," which found  
     that only one out of eight victims of medical  
     malpractice filed a malpractice claim in a state  
     without a damages cap.   
                                                             




AB 1380 (Villaraigosa) 
Page 8




        CAOC also argues that it is a hugh fallacy that  
     plaintiffs lawyers file frivolous  med-mal cases in  
     the hopes of a quick and easy settlement.  They point  
     out that the costs of a med-mal action is so  
     prohibitive, as much as $50,000 to $100,000 in  
     preparation costs, that the law not only deter the  
     filing of frivolous claims, that it also deters the  
     filing of legitimate claims. 

3.  Dollar caps are routinely lifted to reflect inflation

   In recent years, this Legislature has approved numerous  
  increases to current "caps" in the law to reflect  
  inflation.  For example, pending hearing today is AB 416  
  (Dutra), which would increase the trustee's statutory fee  
  by $25, from $100 to $125, to reflect inflation since  
  1990.

  Earlier this year, this Committee approved SB 383  
  (Haynes) which increased the cap on a statutory  
  attorneys' fees award in a collection action on an open  
  book account, from $660 to $800, to reflect inflation  
  since 1992.  The collectors also received a  
  cost-of-living adjustment in 1992, from $500 to $660, to  
  reflect inflation between 1986 and 1992.           
  Other examples include increasing the statutory  
  transcription fees for court reporters by 17.3%, to  
  reflect inflation since 1990  - SB 449 (Burton).

4.  Survey of medical malpractice damages caps in other  
  states

   Approximately 30 states appear to have no damage caps at  
  all, either because caps were never enacted or because  
  they were found to be unconstitutional:  Alabama;  
  Arizona; Arkansas; Connecticut; Delaware; District of  
  Columbia; Florida; Georgia; Illinois; Iowa; Kansas;  
  Kentucky;  Louisiana; Maine; Minnesota; Mississippi;  
  Nebraska; Nevada; New Hampshire; New Jersey; New York;  
  North Carolina; Oklahoma; Pennsylvania; Rhode Island;  
  South Carolina; Tennessee; Vermont; Washington; and  
  Wyoming.

  About 20 states appear to have caps on non-economic  
                                                             




AB 1380 (Villaraigosa) 
Page 9



  damages as noted, several of which also have some form of  
  a  cost-of-living index:  
  Alaska  ($500,000), Colorado ($250,000), Hawaii  
  ($375,000), Idaho  ($468,000 adjusted for inflation),  
  Indiana ($750,000 total damages), Maryland ($545,000  
  adjusted for inflation),  Massachusetts ($500,000),  
  Michigan ($500,000), Missouri  ($516,000), Montana  
  ($250,000), New Mexico ($600,000 total damages), North  
  Dakota ($500,000), Ohio ($500,000 total damages), Oregon  
  ($500,000), South Dakota ($500,000), Texas ($1.321  
  million adjusted for inflation), Utah ($250,000),  
  Virginia ($1,000,000), West Virginia ($1,000,000), and  
  Wisconsin ($383,000 adjusted for inflation).  

  Thus, of the minority of states which have some form of  
  cap on non-economic damages, the average cap in the  
  United States appears to be in the range of $500,000.  
  
4.  Background:  Other provisions of MICRA
  
  The cap on noneconomic damages is but one provision of  
  MICRA.  Other provisions have also served to decrease the  
  cost of judgments and medical malpractice insurance.   
  They are:

  Business and Professions Code Section 6646 limits the  
  contingency fee counsel may receive in medical  
  malpractice cases. 

  Civil Code Section 3333.1 abrogates the "collateral  
  source" rule in medical malpractice cases to permit a  
  health care provider to introduce evidence of a patient's  
  receipt of compensation from "collateral sources," such  
  as insurance  policies.

  Code of Civil Procedure Section 340.5 limits the time in  
  which a medical malpractice action can be commenced,  
  including by minors.

  Code of Civil Procedure 667.7 requires the periodic  
  payment of any award of future damages over $50,000, at  
  the request of the defendant, rather than a lump sum  
  award.  

  Other provisions require a patient to provide 90 days'  
                                                             




AB 1380 (Villaraigosa) 
Page 10



  notice of his or her   intent to sue so as to encourage  
  settlement, permit a contract for medical services to  
  include a binding arbitration requirement, and vests the  
  Medical Board with responsibility to protect the public  
  from incompetent physicians.

  The Center for Public Interest Law (CPIL), University of  
  San Diego, writes part of the AB 1(XX) package that  
  promised a strong and independent Medical Board to police  
  incompetent doctors, in exchange for damage caps and  
  other protections, has not borne fruit.  CPIL monitors  
  all Medical Board meetings and reports that the Board's  
  inadequate funding level severely compromises its ability  
  to protect the public from bad doctors, and that its  
  attempts to obtain more funding has been thwarted for  
  four straight years by the California Medical  
  Association.  CPIL reports that frustrations were so high  
  at the Medical Board that some of its members voiced  
  concerns that the Board should consider supporting  
  legislation to raise the MICRA cap to allow injured  
  health care consumers to better fend for themselves in  
  civil court if the Board is unable to perform its  
  functions. 

5.  Proposed legislative findings
  
  AB 1380 would state legislative findings that MICRA  
  "needs revision in order to balance the interests of  
  health care professionals with the critical need to  
  ensure adequate compensation for medical malpractice  
  victims, particularly women, children, the elderly and  
  lower income Californians.  It would further state that  
  the MICRA cap on noneconomic damages have not changed  
  since its enactment in 1975 and that:
  a) "Since the law was enacted 24 years ago, the cost of  
  living has increased so that the two-hundred, fifty  
  thousand dollar ($250,000) cap on damages is estimated to  
  be worth eighty-four thousand dollars ($84,000) today"; 
  b) "MICRA  disproportionately affects women, children,  
  the elderly, and lower income Californians because they  
  are less likely than other citizens to have incurred  
  substantial economic loss and must rely on non-economic  
  damages as the main source of compensation for the  
  injuries suffered because of medical negligence," and 
  c)  "the people of the State of California hereby  
                                                             




AB 1380 (Villaraigosa) 
Page 11



  recognize that the interests of justice and fairness  
  demand immediate change to the MICRA law in order to  
  better protect its citizens." 

6.  Prior Related Legislation  

  AB 250 (Kuehl) of 1997 sought to raise the MICRA cap on  
  noneconomic damages to $700,000, and to create five  
  exceptions to the cap in cases involving egregious  
  conduct by the health care provider, death, or  
  "catastrophic physical injury" to a child under the age  
  of 14 years.  The measure failed passage on the Assembly  
  Floor.
       
Support:  Center for Public Interest Law, University of San  
          Diego; California Nurses Ass'n.; Congress of  
          California Seniors; Consumer Federation of  
          California; Consumers for Quality Care; CALPIRG;  
          Consumer Action

Opposition: Californians Allied for Patient Protection;  
          California Academy of Family Physicians;  
          California Dermatology Society; California  
          Chapter, American College of Emergency  
          Physicians; California Chapter, American College  
          of Cardiology; California Family Health Council;  
          California Physician Groups Council; California  
          Society of Plastic Surgeons; California  
          HealthCare Association; California Ass'n of  
          Obstetricians and Gynecologists, Inc.; Southern  
          California Permanente Medical Group; Central  
          Coast Pathology Consultants, Inc.; Glendale  
          Internal Medicine & Cardiology Medical Group,  
          Inc.; Kaiser Permanente Medical Care Program;  
          Union of American Physicians and Dentists;  
          Providence Health System of LA; Civil Justice  
          Association of California; 

                           HISTORY
  
Source:  Consumer Attorneys of California

Related Pending Legislation:  None Known

Prior Legislation: AB 250 (Kuehl) of 1997 - Failed Assembly  
                                                             




AB 1380 (Villaraigosa) 
Page 12



passage 

Prior Vote:              Assembly Floor:  46 - 32
          Assembly Judiciary:  10 -5 

                       **************