Hospital group favors raising limit on medical malpractice damages

Dave Stafford for www.theindianalawyer.com

Proposals to increase the state-imposed $1.25 million cap on damages in medical malpractice cases have some unlikely supporters: Indiana hospitals.

“An ounce of prevention is worth a pound of cure,” said Timothy Kennedy, a Hall Render Killian Heath & Lyman P.C. attorney who represents the Indiana Hospital Association. He said in addition to fundamental fairness, hospitals are concerned about a constitutional challenge that could overturn caps in the 1975 Medical Malpractice Act.

Other health care providers oppose raising the caps, though. They’re worried any increase in costs passed on to doctors could erode access to care.

Kennedy told the Indiana General Assembly Interim Study Committee on Courts and the Judiciary that the hospital association board is concerned a case challenging the caps could persuade the Indiana Supreme Court that there is no longer a “rational basis” for the caps, particularly since 17 years have elapsed since the cap was last increased.

“Does that expose the caps to a successful constitutional challenge?” Kennedy asked. “We’re concerned Indiana caps might not be seen as reasonable.”

The rational basis language underpins the constitutionality of the act as the court determined in the landmark case Johnson v. St. Vincent Hospital, 404 N.E.2d 585 (1980). Numerous cases have since unsuccessfully challenged the cap and the rational basis the court found 35 years ago has held, even in cases where medical damages alone far exceed the $1.25 million statutory limit on total damages.

Under the malpractice act, health care providers’ private insurance liability is capped at $250,000, and any damages in excess of that amount are paid from the Patient Compensation Fund up to the limit. Health care providers pay premiums to sustain the fund administered by the state Department of Insurance.

A proposal to raise the cap to $1.65 million in the last legislative session failed, and committee chairman Sen. Brent Steele, R-Bedford, noted that proposal adjusted the cap to mirror the increase in the Consumer Price Index since the limit was last raised.

“Is $1.65 million your uncompromisable line in the sand?” Steele asked Kennedy. “It’s close,” he replied.

Some argue that increase isn’t adequate because based on the rate of health care inflation, adjusting the $1.25 million cap set in 1999 would result in a current limit of about $2.2 million.

Malpractice plaintiff’s attorney Dan Ladendorf of Ladendorf Law P.C. said the state will have much larger problems if a court case rules caps are unconstitutional. This would undermine the stability of the health care system, but he said caps should be much higher. The current system, he argued, provides stability at the expense of injured patients.

“These are real Hoosiers who suffered real harm because of real negligence,” said Ladendorf, who spoke at the hearing on behalf of the Indiana Trial Lawyers Association. “There have only been two increases in the cap in 40 years.”

Ladendorf said people injured by malpractice exceeding the cap often are left disabled with medical bills they’re unable to pay, costs that end up being borne by taxpayers.

Supreme Court decisions in several states in recent years have struck down caps on medical malpractice as unconstitutional. But Mike Rinebold, director of government relations for the Indiana State Medical Association, noted other states have upheld caps.

Rinebold told the committee the ISMA is opposed to increasing malpractice caps that would affect its 8,000 physician members. “Raising the caps will increase costs for physicians,” he said.

He told the committee the act does more than cap liability for health care providers. “It’s about protecting our health care system as a whole and access to health care services for our patients.”

“Not all physicians can automatically absorb the increase” that would come if the cap was raised, Rinebold said. “It has the potential of being a tipping point.”

In some cases, doctors may choose to go without malpractice coverage if the cap raised private-insurance liability, he said. And the surcharges that providers pay to participate in the Patient Compensation Fund also would increase if the caps rise.

Increasing caps would “jeopardize the Patient Compensation Fund and patients would recover less,” he said.

Department of Insurance general counsel Tina Korty told the committee the fund in 2014 collected $108.2 million in surcharges from health care providers and paid out more than $137 million in a total of 147 claims, the second-highest amount on record. The average payout from the fund was about $648,000.

But a significant number of those claims push the cap. Korty said 41 claims — 28 percent of the total number — were between $975,000 and $1 million, the most the fund can pay. Of those, she said about half involved wrongful death of an adult and 7 percent involved wrongful death of a child.

The fund entered 2015 carrying a balance of just over $108 million — the lowest level in a decade and considerably less than half the balance the fund held five years ago. Korty said the department has the authority to levy supplemental surcharges on providers, but “We hope to never invoke that.”

Dr. Rhonda Sharp, a LaGrange physician, also urged the committee to consider the costs for providers, especially those in private practices who are struggling to continue to meet requirements of the Affordable Care Act.

“Already, there are a lot of changes happening in medicine,” Sharp said. She said she was forced to sell her practice to a group because “I could no longer afford to have someone monitor the changes.”

The committee also briefly broached medical review panels and the statutory limit of $15,000 on claims that can bypass the panels. Steele said this will be the topic of the committee’s next hearing Sept. 24.

Ladendorf told the committee that because of the expense of medical review panels, most attorneys will not pursue malpractice claims unless cases are catastrophic. He said he agreed with a bill Steele introduced last year that would allow claims of up to $187,500 to bypass medical review panels and proceed directly to court.

But Carmel attorney Lara Engelking, whose firm Engelking Law Group LLC represents Indiana health care providers, cautioned against raising the threshold that allows claims to go straight to court without first being evaluated by a medical review panel.

Doing so, she warned, “will open the floodgates for frivolous claims.”•