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)
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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
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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,
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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.
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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
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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
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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.
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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
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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'
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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
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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
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passage
Prior Vote: Assembly Floor: 46 - 32
Assembly Judiciary: 10 -5
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