Missouri Health Care Headed for Catastrophe Without Tort Reform

Sensible limits on non-economic damages in malpractice awards, enacted in 2005, have been overturned. The combined efforts of all Missouri physicians are needed to restore effective tort reform and prevent the devastation of state health care.

You know that old Santayana warning that those who cannot remember the past are condemned to repeat it. A simple lesson, really. Regrettably, however, sometimes even those who do remember the past are likewise condemned to repeat it.

If you practiced medicine in Missouri a decade ago, you remember all too well the malpractice insurance meltdown that gripped the physician community and the entire health care system here. An effective limit on non-economic damage awards in medical tort actions had been rendered barren by inflation and judicial tinkering, and calamity followed. It took three years and a new state governor, but when the crisis boiled over and seriously threatened access to health care, you and your MSMA forged a new statutory cap on non-economic damages, and the emergency stabilized. Do you remember that past? If you were here, you do.

Now, unfortunately, history repeats itself. On July 31 of this year, a sharply divided (and somewhat makeshift) Missouri Supreme Court ruled the new cap unconstitutional, touching off evidence-based forecasts of the very same conditions that crippled the health care system here ten years ago. And, as was the case then, MSMA is filled with resolve to repair the high court’s damage and set things aright before disaster sets in again.

If you weren’t practicing medicine in Missouri a decade ago, or if your memory doesn’t always serve you, the following is a brief look back at the events that began unfolding some ten years ago. Please roll up your sleeves and join us in battle, and ask your non-MSMA colleagues to enlist as well, lest we all be condemned to repeat this horrific past.

The Crisis

In the early to mid-2000s, Missouri was mired in a professional liability insurance crisis that threatened the very foundation of health care here. The health care tort system was so far out of balance that liability insurers could not reliably measure or contain their risk. As a result, lawsuit premiums skyrocketed, driving physicians out of their practices, compromising patient access to care, decreasing the quality of health care services, and generating higher health care costs for everyone. In 2005, the Missouri General Assembly responded by enacting a commonsense, bipartisan tort reform measure¹ that slowed runaway litigation and stabilized the health care environment. A reasonable $350,000 limit on non-economic damages was the linchpin of that measure. Almost immediately the number of lawsuits dropped, the lawsuit insurance market stabilized, new insurers entered the market, and premium rates fell. And physicians returned to Missouri. Now a deeply divided Supreme Court, decided on the vote cast by a substitute judge, eviscerated that successful tort reform law. In Watts v. Cox Medical Center, the Court ignored more than 25 years of precedent, striking down the state’s cap on non-economic damages in medical liability lawsuits, and threatening to turn back the clock to a decade ago when the medical lawsuit crisis pushed Missouri health care providers to the breaking point.

History

The crisis that gripped Missouri in the mid-2000s had its roots in a similar struggle that arose in the mid 1980s. In 1986 the General Assembly responded with a package of tort reforms, the centerpiece of which was a first-ever cap on non-economic damages. That limit was set at $350,000, but was statutorily indexed to inflation and so increased on an annual basis.² Initially the cap had the expected effect: Liability insurance premiums stabilized, and order was restored. But by the late 1990s, ever-increasing damage limits and the lure of jackpot awards (hawked incessantly by advertising from the trial bar) grew increasingly seductive, and the number of lawsuits began to climb.

In 2002, just as the crisis of rising caps began to boil over, the Eastern District Court of Appeals issued the infamous Scott v. SSM Health Care decision that essentially eliminated the statutory cap. The law at the time held that “In any action against a health care provider. . . no plaintiff shall recover more than three hundred fifty thousand dollars per occurrence for non-economic damages from any one defendant.”³ In the Scott decision, the court ruled that the term “occurrence” means any and all acts of negligence that contribute to an injury, and not merely the injury itself. This decision made all health care providers liable for a multitude of non-economic damage caps, not just one, as the legislature intended and common sense dictates. Bedlam ensued.

The Consequences

Lawsuits Went Up

Claims count data from the Missouri Department of Insurance were incomplete and materially fl awed in the early 2000s, and no reliable conclusion can be drawn from them. But the National Practitioner Data Bank, to which every physician claim closed with payment must be reported, shows that the physician claim count between 2000 and 2004 increased 37%.⁴

Frivolous Lawsuits Went Up

In 2001, fully 70 percent of all closed physician claims resulted in no payment to plaintiffs.⁵ Either these lawsuits were frivolous, or the state was awash in incompetent trial lawyers. Either way, the average cost of defending these meritless cases was more than $11,000 each (some $5 million total).⁶ The percentage of claims settled without payment the following year increased to 71.5 %, and to nearly 73 % in 2003.⁷

Insurance Payouts Went Up

The average indemnity in Missouri jumped more than 50% in the three years between 2001 and 2004.⁸ Moreover, a special report issued by the U.S. Department of Justice found that in Missouri, “the median insurance payouts grew from $33,000 in 1990 to $150,000 in 2004, an increase of more than 350%.”⁹

Insurance Premiums Skyrocketed

Surveys of Missouri physicians conducted by the Missouri State Medical Association in 2002 and 2004 found an average increase of 61.2% for individual premiums from 2001 to 2002, 78% between 2002 and 2003, and 38% between 2003 and 2004.¹⁰ Moreover, in the spring of 2003 a survey of every known neurosurgeon in Missouri found that the mean premium for that specialty increased by 36% between 2001 and 2002, and by 67% between 2002 and 2003, for an overall mean increase of 116% between 2001 and 2003.¹¹

The Insurance Industry Lost Money

Despite high premiums, Missouri insurance companies were steadily losing money. In 2003 the industry suffered a combined ratio of 131.6%, meaning that for every premium dollar they earned, they paid almost $1.32 in claims and underwriting expenses.¹² In 2002 those expenses amounted to $1.55 for every premium dollar, and in 2001 it was more than $1.25.¹³ In 2003, the respected U.S. General Accounting Office reported that, “Increased losses on claims are the primary contributor to higher medical malpractice premium rates.”¹⁴ Without a predictable cap on non-economic damages, Missouri’s insurance industry faced unsustainable losses. The industry’s only options were to keep increasing premiums, or get out of the marketplace. They did both.

Insurance Companies Left Missouri

Even when a physician could afford insurance premiums, coverage was increasingly difficult to obtain. In December of 2002, the Missouri Department of Insurance reported to the U.S. Department of Health and Human Services that of the 32 carriers writing medical malpractice coverage in the state in 2001, only eight were still writing policies for doctors by the end of 2002. And “The companies that are still in business are charging more and offering fewer discounts.”¹⁵

Physicians Left Missouri

Without access to affordable liability insurance, many physicians left the state. Records from the Missouri Board of Healing Arts demonstrate that 13,305 physicians were practicing in Missouri in 2000, when the medical liability crisis first began to boil over. In 2001, the number dropped to 13,192, and in 2002, the number fell again, to 13,080. Data for 2003 and 2004 cannot be used because during those years physicians were on a first-ever two-year license cycle (and thus, no year-to-year comparison is available)¹⁶ However, during that cycle a 2004 survey found that 29% of Missouri physicians were considering relocating to another state, and 17% were considering leaving the practice of medicine altogether.¹⁷ And a 2003 survey of all eighty-nine neurosurgeons in the state found that 40% were considering early retirement, six already had retired, and 27% were considering relocating to another state.¹⁸ In 2005, tort reform was enacted, and physicians began migrating back to Missouri.¹⁹

Physicians and Hospitals Limited Their Services

As the crisis deepened, physicians and hospitals were forced to limit their liability as best they could. In a 2002 survey, 27% of Missouri physicians indicated they had limited the scope of their practice to avoid high-risk patients and procedures.²⁰ In a 2004 survey, 49% of the physician respondents admitted that the cost of lawsuit insurance had caused them to cut staff positions or to put off hiring new help, and 28% said they were compelled to forego updating or acquiring new technology.²¹ A 2003 survey of Missouri neurosurgeons found that two-thirds of them planned to reduce the type of service they provide in their communities, 53% reported they would decline accepting Medicaid patients, and 23% said they would stop accepting Medicare patients.²²

Women and Children Lost Access to Care

In 2004, the American College of Obstetricians and Gynecologists (ACOG) conducted a survey of Ob/Gyns and found that nearly one in ten had quit practicing obstetrics because of the cost and availability of liability insurance. More than 25% had decreased the amount of high-risk obstetric care they provided, and more than 12% had decreased the number of deliveries. More importantly, ACOG found that the professional liability insurance crisis was putting women’s health in jeopardy because an alarming number of new physicians were turning away from obstetrics-gynecology. ²³

The U.S. Congress’s Joint Economic Committee, in a 2003 report on the state of tort system in the United States, made this observation: “The negative aspects of the medical liability system have a particularly adverse effect on women, low-income individuals and rural residents.”²⁴ In 2004, another study found that, “States without proven reforms are losing physicians who provide obstetrical care in urban and rural areas. States without proven reforms are losing physicians willing to read mammograms – putting women at increased risk for delaying detection of preventable breast cancers. In California, MICRA [the law that imposed that state’s $250,000 cap on non-economic damages] has enabled the critical ‘safety net’ of community clinics to maintain services for California’s rapidly growing uninsured and underinsured population. Should the current cap be raised, serious public health consequences for women are inevitable.”²⁵

Since Tort Reform and the Cap

Almost immediately after the new tort reform law was signed into law in 2005, the environment here began to improve. The number of lawsuit claims dropped, insurance company payouts declined, insurance companies returned to Missouri, premium rates declined, and physicians returned to Missouri. Perhaps most tellingly, despite gaining nearly 1,000 physicians between 2005 and 2010, Missouri has seen a $27 million decrease in the liability insurance premiums that were written for physicians in that span. For all health care providers combined, that savings was $44.6 million. This is money that did not go to fight lawsuits, but rather remained in the Missouri health care system, creating jobs, providing better equipment, and improving access to care.

Here are some other noteworthy evidences of the impact of tort reform and the cap on non-economic damages. Since 2005, the year the cap went into effect:

• The number of claims filed has fallen 46.9% overall, and 57.9% in the physician sector

• The number of claims closed has fallen 25.4% overall, and 28.7% in the physician sector (and the number of claims closed with payment for physicians has fallen 29%).

• The number of claims open at year end fell 44.3%.

• The average indemnity on paid claims fell 20.9% overall, and 14.5% in the physician sector.

• The insurance industry’s loss ratios fell from 46% to 30.5% overall, and from 57.2% to 28.8% in the physician sector.

• The insurance industry’s incurred losses fell 53.8% overall, and 57.7% in the physician sector.

• And defense expenses fell from 34.9% of the premium dollar in 2005, to 14.9% currently.²⁶

Looking Forward

Do not condemn yourself, your patients, and Missouri to repeat this dreadful past! MSMA has identified legislative language that should restore the cap on non-economic damages in a manner that circumvents the Supreme Court’s ruling. And we have formed a large coalition of our natural tort reform allies dedicated to working together to enact a new law when the General Assembly convenes in January. But make no mistake; the trial attorneys are a powerful lot, and this will not be a minor undertaking. We will need a significant grassroots presence across the state to get this job done. You must be an active participant, and you must recruit your non-member colleagues to join MSMA and join the fray. Details and instructions will follow in our weekly Legislative Report once the legislature convenes. Consider this a desperate profession-saving call to arms and action! And consider this your best opportunity to not relive the past.

Biography

Tom Holloway is the Executive Vice President of the MSMA.

Contact: tholloway@msma.org