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Impacts From Recent Legislation and Supreme Court Decision on Malpractice Claims and Insurance for Anesthesiologists

Two events occurred recently that relate to medical malpractice insurance premiums paid by physicians and their practice groups – a recent US Supreme Court decision concerning injury claims and Medicare/MediCal and the recent enactment of state legislation, AB 35, also known as the MICRA Modernization Act. CSA leadership asked our legal counsel, Phillip Goldberg, Esq. of Kessenick Gamma & Free, LLP, to provide our members with some analysis which we hope you find helpful. CSA leadership will continue to monitor the implementation of AB 35 and its impacts to medical malpractice premiums.

Todd Primack, DO, FASA, Chair, Legislative and Practice Affairs Division (LPAD).

From CSA’s Lega Counsel, Phillip Goldberg, Esq. of Kessenick Gamma & Free, LLP

The U.S. Supreme Court decision in Gallardo vs. Marstiller issued June 6 clarified and expanded on the Court’s 2006 Arkansas vs. Alhorn decision. Alhorn made clear that despite apparently conflicting language in the Medicaid Act, state Medicaid entities (such as the California Department for Health Care Services which administers the MediCal program) could secure a lien on recoveries a Medicaid patient received against a third party to the extent the recovery related to past medical services paid for by the Medicaid entity. Gallardo involved a school bus accident and not a medical malpractice claim, but it applies to any case in which (i) a Medicaid patient is injured by a third party, (ii) the patient receives medical care as a result of the injury, (iii) the patient recovers against that third party for the injury, and (iv) part of that recovery is for past medical services paid for by the Medicaid entity.  Gallardo authorized the extension of the lien to future medical services to the extent the Medicaid entity could show it was likely to pay for those future medical services. 

It is not clear how the expanded lien recovery applies in the MediCal managed care context. If the California Department of Health Care Services has contracted with a MediCal managed care entity and that entity has assumed full responsibility for that patient’s care, then the cost of future care to DHCS may be limited to the capitated payment DHCS pays to the health plan and not what that health plan actually pays for the patient’s care. Of course, the contract between DHCS and the MediCal managed care entity may include some risk sharing or stop loss provisions. In any event, the prevalence of MediCal managed care in California diminishes the significance of the decision. The decision is only relevant if there is a likelihood of future care resulting from the injury that DHCS will cover. In a wrongful death case, for instance, it has no impact at all. It will only be relevant in the context of settlements and not for claims that result in a jury verdict and/or court judgement. To be sure, many more malpractice claims are resolve by settlement than by a final judgement. 

From the plaintiff’s and plaintiff’s counsel perspective, the decision could impact the figure at which the plaintiff is willing to settle. If the plaintiff and counsel are concerned that DHCS will take part of the settlement allocated to future care, they may be unwilling to settle for the amount the anesthesiologist is willing to pay, or have his or her malpractice carrier pay.  The plaintiff’s reluctance to settle does not strengthen the plaintiff’s claim, but it may increase the costs to defend the claim.

I discussed the case with the Vice President of Claims of one of the California physician-owned malpractice carriers. She agreed that is could complicate settlements for the reasons stated but did not think it would significantly impact claims and was even more assured it would not impact premiums. In summary, the impact of this decision on anesthesiologists in California is not certain but is unlikely to be significant. 

By contrast, AB 35, also known as the MICRA Modernization Act, recently signed into law by the Governor to take effect January 1, 2023, will almost certainly negatively impact CSA members. This legislation was the result of a compromise between the California Medical Association and Nick Rowley who was the sponsor of an initiative that would have appeared on the November ballot known as Fairness for Injured Patients Act or “FIPA.” FIPA would have immediately increased the current $250,000 limit on non-economic damages (i.e., pain and suffering) recoverable in medical malpractice actions by a factor of five. CMA and other stake holders were concerned about FIPA because it had been 47 years since the $250,000 limit was established. This gave the supporters of FIPA a simple message that resonated with voters, especially as inflation has recently spiked. By contrast the counter argument that increasing the limit would negatively impact access to care, especially for the most vulnerable and underserved populations as community clinics and other organization were forced to allocate more resources to malpractice insurance premiums, is more complicated and more easily disputed. 

Among other things, the new law increases the amount recoverable for pain and suffering in medical malpractice actions but at a much lower and slower rate than FIPA. As with FIPA, AB 35 also increases the percentage contingency fee the plaintiff’s attorney may recover. These components of the new law are likely to increase the frequency of medical malpractice lawsuits in California against all physicians, including anesthesiologists. “Frequency” in insurance parlance is the number of claims that are made against insureds. The increase in the amount recoverable for pain and suffering is likely to increase severity, as well. “Severity” is the amount paid by the insurance company for each claim and includes costs of defense and amounts paid to plaintiffs.

Malpractice insurance premiums will not increase immediately as a result of AB 35. This is because the malpractice carriers need to apply to the California Department of Insurance to increase rates and the information that is submitted in support of the rate increase is backward rather than forward looking. Accordingly, it is likely to be sometime, perhaps years, before malpractice insurance carriers file for rate increases because it may take years to have the actuarial data to support the increases. California law allows interested parties to “intervene” in the rate review process and are encouraged to do so because of the opportunity to have their fees and costs paid by the insurer. The possibility of intervention makes the insurers reluctant to seek a rate increase on the basis of something other than overwhelming actuarial support.

Note the “insurance” impact for AB 35 is more significant for CSA members who directly bear these costs. Accordingly, members who are not in private practice, are less likely to be impacted. On the other hand, members in private practice that are covered by the Cooperative of American Physicians or “CAP” may be impacted sooner than those is traditional malpractice insurers. CAP is not regulated by the California Department of Insurance and is not subject to the rate filing restrictions described above.

There is some good news related to AB 35 in addition to avoiding the risk of the much more severe consequences from the passage of FIPA. The new law provides evidentiary protections for admissions of fault in addition to expressions of sympathy. For some years now California law protected a physician who expressed sympathy for an injured patient or a bad outcome. The purpose of this law was to facilitate early resolution in the mode of restorative justice. Prior law did not, however, protect expressions of fault. “I’m sorry” was protected, but “I’m sorry I hurt you” was not protected. It was difficult to advise physicians to say, “I’m sorry” out of concern the patient would remember the physician said, “I’m sorry I hurt you.” When the new law becomes effective January 1, even expressions of fault or responsibility are protected and cannot be introduced into evidence if the claim devolves into a lawsuit. It remains to be seen if this results in early resolution of claims, but it is clearly an improvement over current law.

The MICRA Modernization Act also has the benefit of highlighting significant progress in anesthesia since the Medical Injury Compensation Reform Act was adopted in an emergency session of the Legislation in 1975 following a crisis in which malpractice insurance premiums rose three-fold or more and was simply unavailable to many anesthesiologists since anesthetic accidents were seen as a major cause of the crises. At that time, anesthesiologists were placed in the highest risk category among medical specialties. Today they are closer to the lowest risk category. Anesthesia is held out as a major success story in efforts to make medical treatment safer.

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