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Malpractice proposals clash with Indiana law: Federal reform efforts could create confusion

January 31, 2005

President Bush's proposal to lower health care costs by capping medical malpractice awards could create questions in Indiana, where state lawmakers passed similar legislation 30 years ago.

Bush made his case to reform health care earlier this month in Madison County, Ill., across the Mississippi River from St. Louis. The American Tort Reform Association has called the county the "judicial hellhole" of the nation because of a reputation for huge jury awards won by plaintiffs.

The president wants to place a limit of $250,000 on noneconomic damages, or the pain and suffering portions of malpractice awards, because he and others believe baseless lawsuits drive up the cost of health care. Various types of caps on damage awards already exist in Indiana and 26 other states.

Victims of malpractice in the Hoosier State can recover up to $1.25 million, an amount that includes both non-economic damages and recovery for medical expenses and wage loss, or what is considered economic damages.

If a federal law were to pass-Senate Democrats killed similar legislation approved by the House last year-confusion could arise over whether state or fed- eral law prevails. The House version indicated state law would apply if it is more restrictive than the federal measure.

Whether Indiana's statute is more rigid than Bush's proposal is up for debate among local lawyers practicing in the health care arena. Some say the federal version would be more restrictive because non-economic damages awarded in a medical malpractice case usually exceed the $250,000 cap fronted by the president.

Others think Indiana's law is harsher because a medical review panel consisting of three physicians must agree malpractice occurred before a case can proceed to court. Statute of limitations restrictions also exist.

Myra Selby a partner at Ice Miller who practices in health care, said a federal solution is needed.

"Even with our system, which many consider to be the most workable and one of the best, it is not perfect," Selby said.

The Bush administration has argued that large malpractice awards have driven up malpractice insurance premiums and the cost of business so much that some doctors have closed or scaled back practices.

That has not occurred in Indiana, mainly due to the existing cap on malpractice awards, said Dr. Barney Maynard, a physician in Evansville who is a past president of the Indiana State Medical Association and a member of the American Medical Association's council on legislation.

"There is no question the Indiana Malpractice Act has kept premiums, and has kept our system, under enough control that frankly we do not see physicians fleeing in Indiana," he said.

Doctors are instead moving to Indiana from other states hit hard by rising malpractice insurance rates. Maynard said he is aware of two obstetrician/gynecologists who arrived in Evansville from Kentucky and two general surgeons who moved to the city from Pennsylvania.

The Patient's Compensation Fund, created in 1975 as part of the Indiana Medical Malpractice Act, also has helped keep malpractice premiums manageable. It was designed to help insurance companies remain solvent and to keep premiums stable by paying some of the damages awarded in malpractice judgments.

Doctors and health care centers pay the surcharge to insurance companies, which then turn the money over to the fund's maintainer, the state Department of Insurance. The department compensates for economic damages incurred.

Insurance companies pay the first $250,000 of the award, and the fund covers the rest, with a maximum exposure of $1 million per case.

But, in September 2003, the Insurance Department raised the surcharge rates doctors pay 73 percent and hiked the hospital surcharge 60 percent. The increase became necessary after surcharges contributed $63.6 million to the fund in the 2001-2002 fiscal year, when the fund paid out $91.6 million for malpractice judgments.

Malpractice complaints, not actual judgments, have jumped from 969 in 2000 to 1,280 in 2004, an increase of 24 percent, according to the Insurance Department.

Nationally, annual malpractice lawsuits have risen from 78 per 100 physicians in 1990 to nearly 99 per 100 in 2003, according to the American Medical Association.

Maynard, along with Kent Smith, head of the litigation department at Hall Render Killian Heath & Lyman PSC, a local health care law practice, said rising malpractice claims do play a part in higher health care costs.

"I don't know that you can pin it on one thing," Smith said, "but I have to believe that has something to do with it."

Bruce Kehoe, a trial lawyer at Indianapolis-based Wilson Kehoe & Winingham, said costs related to malpractice suits have an insignificant impact on health care spending. In fact, a Congressional Budget Office analysis cited by opponents of Bush's proposal show malpractice payouts and insurance premiums made up less than 2 percent of overall health care spending in 2002.

"It is a politically driven position and not a solution-driven position," said Kehoe, who has tried medical malpractice cases for 24 years. "You're not going to lower the cost of health care for anyone by trying to limit the rights of innocent victims."

Kehoe called Bush's plan "unconscionable" because the lives of children or senior citizens, who don't have dependents who can collect economic damages, would be worth nothing more than the $250,000 cap on noneconomic damages.

He said caps in general harm the legal system by encouraging insurance companies to try cases in court rather than settle because they know their exposure to liability is limited.

Proponents of malpractice reform say the 2-percent figure cited by the Congressional Budget Office doesn't measure the entire impact of malpractice costs on medicine. It doesn't include, for example, the costs of "defensive medicine"-the practice of ordering unnecessary tests and treatments and making referrals to specialists to reduce exposure from lawsuits.

While the costs of defensive medicine are hard to quantify, malpractice reform proponents say they far exceed the costs of malpractice insurance and litigation.
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