NEWS RELEASE
Jul 13, 2004

Rand Study: California Patients Killed or Maimed by Malpractice Lose Most Under Damage Caps Despite Severe Limits on Victims' Rights, California Insurers Continue Push For Higher Doctors' Premiums

Santa Monica, CA -- A new survey by the Rand Corporation found that the most significant impact of California's 29 year old medical malpractice caps law falls on patients and families who are severely injured or killed as a result of medical negligence or mistakes. Rand reports that in verdicts involving death cases, victims' jury-awarded compensation was reduced by the California law 58% of the time, with a 49% median reduction in total compensation for those cases.

The Rand study does not analyze the impact of the liability caps on medical malpractice insurance rates. However, a new analysis by the California-based Foundation for Taxpayer and Consumer Rights shows, despite the caps law, medical malpractice insurers in California have pushed for major and repeated rate increases in recent years. See California Medical Malpractice Resources.

The liability law addressed in the Rand study, known as the Medical Injury Compensation Reform Act of 1975, or MICRA, limits non-economic payments to injured victims or their families to $250,000, among other rules. MICRA has been presented by the insurance and medical lobbies as a panacea to the high medical malpractice insurance premiums that have led the American Medical Association to declare an insurance crisis in many states and before Congress.

"The study sheds a light on how far from the mainstream the medical and insurance lobby finds itself as it pushes to place limits on the rights of infants disfigured by shoddy medicine and patients killed due to negligence," said Douglas Heller, executive director of the nonprofit Foundation for Taxpayer and Consumer Rights (FTCR). "The Rand study illustrates the obvious injustice of arbitrary caps by providing data showing that the law hurts most those who have lost the most."

According to the study, in more than half of the cases in which a California jury finds a medical provider to have killed a patient due to error or other avoidable malpractice, the amount ordered to be paid to the victims family by the jury is capped at $250,000 the compensation amount found by a jury to be appropriate for most families is cut at least by half.

The study also found:

- Most cases in which the verdict was reduced by more than $2.5 million involved critical injuries to infants and young children;
- Compensation to malpractice victims who sustained brain damage was limited in 65% of cases in which the jury determined that there was malpractice;
- 67% of verdicts in cases involving seniors were capped by MICRA;
- Verdicts to compensate female patients were reduced by approximately one third more than verdicts in favor of male victims

The combined impact of MICRA's caps and its provisions limiting attorneys' fees do not provide more money to the injured patients, as insurers often claim in support of caps legislation. The study shows that the overall effect of the California law is to lower compensation to injured patients by an average of 15%, and much more so to those who sustain the most severe injuries.

The study also notes that the amount juries award is meant to represent what the jurors "believed to be the proper amount of damages." In California, juries are not apprised of MICRA and do not know that the award will be reduced at all, let alone as significantly as the study's findings indicate.

"The California law ensures that most victims of malpractice who win in court get far less than a jury believes to be the proper amount. Jurors are not told that the decision they make about how to best compensate an innocent victim will be overturned by a judge the moment they leave the jury box," said Heller.

No Analysis of Impact of Caps on Medical Malpractice Rates

The Rand study does not consider the impact of reduced liability payouts on the medical malpractice premiums paid by physicians. Although the medical-insurance lobby has consistently argued that caps such as those contained in MICRA are needed in order to resolve the malpractice premium crisis faced by doctors throughout the country, the Rand study makes no such conclusion, and there is no evidence to support that claim.

The claim commonly made by advocates of caps, that caps and the resulting reduction in claims payments leads to lower insurance premiums, is not corroborated by either California's nearly 30 year experience with MICRA (see FTCR's study How Insurance Reform Lowered Doctor's Medical Malpractice Rates In California And How Malpractice Caps Failed at http://www.consumerwatchdog.org/healthcare/rp/rp003103.pdf) or by current data concerning rates in California.

In 2003, for example, there were 25 medical malpractice premium increase requests before the California Department of Insurance, requesting as much as 96.8% higher rates for physicians. Irrespective of California's harsh MICRA law and the Rand study data showing that under MICRA insurers have dramatically limited liability, medical malpractice providers have continued to request premium increases from the Department of Insurance. In fact, every major medical malpractice insurer in California proposed rate hikes in 2003.

Rate Increase Requests by Top Five Medical Malpractice Providers in California, 2003
Company in order of market share Proposed Increase
1. Norcal Mutual (physicians coverage) 9.9%
2. SCPIE Indemnity (healthcare facilities) 21.7%
(physicians coverage) 8.9%
3. The Doctors' Company (physicians coverage) 9.8%
4. Truck Insurance Exchange (hospital liability) 27.0%
5. Medical Ins. Exchange of California (physicians coverage) 14.4%
Source: California Department of Insurance

Proposition 103 Prevents Unjustified Medical Malpractice Rate Hikes in California

Unlike most other states, in which the rate hikes identified above would likely have been imposed without regulation or challenge, California insurers are subject to the regulatory system known as Proposition 103. That 1988 voter approved initiative requires insurance companies, including medical malpractice carriers, to open their books to public scrutiny prior to the approval of any rate hikes. Both the Insurance Commissioner and members of the public may challenge any rate increases as excessive. As a result, the Medical Insurance Exchange proposal was reduced by almost a third, the Norcal request was slashed by 71% and neither SCPIE increase was allowed to take effect.

Using Proposition 103's public right to challenge increases, FTCR has blocked nearly $50 million in physician premium hikes in recent years, while California Insurance Commissioner John Garamendi has stopped or reduced other increases without a public challenge.

"Insurers continue to push for higher premiums regardless of the reduction in claims payments due to legal restrictions. Caps put all of the pain of reform on the victims of malpractice, but provide none of the promised relief to physicians. To address high premiums, politicians should focus on regulating the rates of insurance companies rather than restricting the rights of patients," concluded Heller.

Rand Findings in Line With Recent Harvard Study

The Rand study corroborates a Harvard School of Public Health study issued last week that found California's damage caps law unfairly limits compensation to people who are severely injured as a result of malpractice. According to the researchers:

"We found strong evidence that the cap's fiscal impact was distributed inequitably across different types of injuries. In absolute dollar terms, the reductions imposed on grave injury were seven times larger than those for minor injury…"

The Harvard study, " Are Damages Caps Regressive? A Study Of Malpractice Jury Verdicts In California," appears in the July/August issue of the journal Health Affairs.

The Foundation for Taxpayer and Consumer Rights noted that the Rand Institute for Civil Justice, which released this study, has historically received significant funding from the insurance industry and has long-supported limiting the liability of and reducing regulation over the insurance industry. Rand's relationship with the insurance industry muted the study's critique of the inequity of the MICRA system, according to FTCR.

e in total award size when the verdict was capped were larger among cases involving death than for injury cases (49 percent versus 28 percent).

In addition, researchers found that the combination of award caps and attorney’s fee limits reduced by 60 percent the amount collected by plaintiffs’ attorneys, which would have resulted in a significant shift in the types of malpractice claims an attorney might agree to represent.

“While MICRA’s impact on claims that do not reach trial is difficult to measure, the law has had a direct and observable role in about half the malpractice cases where there is a verdict for the plaintiffs,” said Nicholas M. Pace, the project’s lead researcher. “For defendants, for plaintiffs, and for attorneys, MICRA has clearly changed the playing field upon which malpractice claims are litigated in California.”

MICRA was passed by the California Legislature in 1975 when the state was in the midst of a medical malpractice insurance crisis, with premiums skyrocketing and some medical specialists unable to find coverage.

The law limits to $250,000 the amount a plaintiff can recover for non-economic damages such as pain, suffering, distress, or disfigurement. Damages for economic losses, such as medical expenses or lost wages, are not capped.

Juries in California make malpractice judgments without knowledge of the limits and judges then adjust the awards to comply with the state law. The law also limits the fees that may be collected by plaintiff’s attorneys, establishing a sliding scale that decreases the percentage paid to plaintiff’s attorneys as the size of a judgment grows.

Some lawmakers and groups have pointed to MICRA as a possible model for national reform of the medical malpractice system that might help resolve complaints about the cost and availability of medical malpractice insurance occurring in many states. Opponents of MICRA-like laws point to the significant impact the limits have on patients and their families and suggest that any problems with the malpractice insurance industry should be addressed in other ways.

Researchers found that caps on non-economic awards were imposed in 45 percent of the California medical malpractice cases won by plaintiffs, with a median change in judgment size of $366,000 when the cap takes effect, according to the report. Other key findings of the study include:

Death cases were subject to post-verdict caps on awards 58 percent of the time, compared with 41 percent for cases involving injuries.
Plaintiffs with the severest non-fatal injuries (such as brain damage or paralysis) had their non-economic damage awards capped far more often than injury claims generally and had median reductions exceeding $1 million.
Plaintiffs who lost the highest percentage of their total awards due to the cap were those with injuries that led to relatively modest economic damage awards (about $100,000 or less), but caused a great loss to the quality of life (as suggested by the jury’s million-dollar plus awards for pain, suffering, anguish, distress, and the like). These plaintiffs sometimes received final judgments that were cut by two-thirds or more from the jury’s original decision.
Plaintiffs younger than age 1 had awards capped 71 percent of the time. Injury cases with reductions of $2.5 million or more usually involved newborns and young children with very critical injuries.
The sliding scale on plaintiffs’ attorney fees imposed by MICRA also has had a dramatic effect on the participants in these cases, according to researchers. The law prohibits attorneys from charging more than 40 percent of the first $50,000 of any recovery, 33 percent of the next $50,000, 25 percent of the next $500,000, and 15 percent of any amount over $600,000.

Researchers estimated that attorney fees in these cases were reduced 60 percent overall, with the sliding fee scale having a greater effect on those fees than the damage cap does. The smaller fees paid by plaintiffs would have tempered some of the impact of the cap but the limits on contingency fee percentages would have effectively shifted some of the costs for compensating medical malpractice from defendants to plaintiff’s counsel.

“Attorneys have always needed to be very careful about selecting new malpractice cases because they are expensive to prepare and in California, plaintiffs lose nearly eight out of every 10 cases that are taken to trial,” Pace said. “Add in the dual effect of the cap on awards and the limits on fees, and the level of scrutiny given to potential clients would go up markedly.”

While the RAND study provides one of the most in-depth looks to date at MICRA’s impacts on the size of jury verdicts, there are many issues related to the law that are beyond the scope of the study. For example, the study does not examine MICRA’s direct influence on premium levels and the availability of medical malpractice insurance in California over the past three decades.

Other unanswered questions include whether injured patients have received payments sufficient to provide for their future needs, MICRA’s effects on pre-trial settlement size, whether MICRA has affected demographic groups differently, and whether the law has had an impact on the quality of medical care.

The RAND report is titled “Capping Non-Economic Awards in Medical Malpractice Trials: California Jury Verdicts Under MICRA.” Other authors of the RAND report are Daniela Golinelli and Laura Zakaras of RAND.

The RAND Institute for Civil Justice helps make the civil justice system more efficient and equitable by supplying government leaders, private decision makers and the public with the results of objective, empirically based, analytic research.
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About the RAND Corporation
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