Affordable Care and the Continuing Debate on Malpractice Damages Caps

The Affordable Care Act contains only a passing reference to malpractice tort reform in a section providing the “sense of the Senate” as well as establishing funding for pilot programs at the state level.  Lobbying efforts to achieve any significant tort reform measures were unsuccessful.  Those efforts included the pursuit of a federal cap on medical malpractice awards.  Such efforts at both the federal and state levels can be traced to the 1975 innovation in California with its passage of the Medical Injury Compensation Reform Act (“MICRA”) limiting noneconomic damages to $250,000.  California’s MICRA has withstood court challenges to its constitutionality.  A number of other states followed similar paths to that taken in California, enacting various iterations of the MICRA model; no such legislation has been enacted in New Jersey although such bills have been introduced in the legislature.   While some state courts around the country have upheld such legislation against constitutional attacks, there are several states that have found the legislation to violate several different constitutional guarantees.

The intensity of the debate over damages caps waxes and wanes.  Renewed activity is likely to be sparked by a March 24, 2014 ballot initiative in California to raise the cap amount from $250,000 to $1.1 million and an opinion filed March 13, 2014 by the Florida Supreme Court.  In Estate of McCall v. United States, 2014 WL 959180 (Fl. 2014), the court ruled that that state’s statutory cap enacted in 2003 limiting the wrongful death noneconomic damages that could be recovered in a medical malpractice case was an unconstitutional violation of the equal protection clause of the Florida constitution.  Five of the seven justices agreed with that conclusion but fractured over the reasoning to get to it.  The opinion for the court was actually a plurality decision rather than a majority.  There were two justices who dissented as to the entirety of the decision and who would have deferred to the legislature’s policy choice of enacting a cap of $1 million on noneconomic damages in medical malpractice cases involving death as being rationally related to legitimate state interests of decreasing medical malpractice insurance rates and increasing the affordability and availability of health care in Florida.

The issue in the case arose out of the prenatal care given to a patient at a United States Air Force clinic who was suffering from preeclampsia.  There was an extended delay in performing an emergency cesarean section.  Although a healthy baby was born, the mother went into shock and cardiac arrest.   The woman never regained consciousness and died four days later.   A lawsuit was filed under the Federal Tort Claims Act which provides that damages are determined by the law of the state where the tortious act was committed.  Sitting without a jury in accordance with the Federal Tort Claims Act, the trial judge determined that the economic damages for financial losses were in the amount of $980,462.40 and that there were noneconomic damages of $2 million in favor of the surviving family members.   The trial judge then proceeded to reduce the noneconomic damages recovery to $1 million pursuant to the Florida statutory cap for medical malpractice matters.   The trial judge rejected challenges to the constitutionality of the damages cap.  On appeal, the Eleventh Circuit rejected several components of the plaintiff’s constitutional challenges.  Estate of McCall ex rel McCall v. United States, 642 F.3d 944 (11th Cir. 2011).  These included the alleged violations of the Fourteenth Amendment’s Equal Protection Clause.  (The United States Supreme Court had declined to review constitutional challenges to California’s MICRA in Fein v. Permanente Medical Group, 474 U.S. 892 (1985) dismissing the appeal “for want of a substantial federal question.”). With regard to state constitutional challenges, the Court of Appeals concluded that there was inadequate state precedent and it used an available procedure to certify questions directly to the Florida Supreme Court.   It identified four questions to be addressed but the Florida Supreme Court chose to answer only one, which it rephrased in terms of the wrongful death noneconomic damages and equal protection.  Since the court found the constitution was violated, it did not need to address the remaining alternative grounds of challenge.  It emphasized the wrongful death claim as being of statutory nature and unknown at common law.  It did not address the constitutional status of the damages cap in a non-wrongful death context.

The equal protection deficiencies with damages caps have been articulated in various ways.  These include an arbitrary distinction between injured victims of medical negligence and persons injured through other forms of negligence or tortuous conduct and distinguishing the recovery available for a slightly injured person from that available for a severely injured person.  Interference with the right to a jury trial to resolve the extent of any damages award has also been involved.  The assessment of governmental purposes of reducing costs and assuring access to care has been subject to differing levels of scrutiny, affecting the conclusion reached by various courts.

While New Jersey does not have a statute generally applying to recoverable damages in medical malpractice cases, it has long had a statute limiting recoverable damages in malpractice claims against nonprofit hospitals.  N.J.S.A. 2A:53A-8.  As originally enacted this limit was $10,000.  The statute was amended in 1991 to increase the recoverable amount to $250,000.  This limitation only applies to the institution and not to employees or agents who can be identified as culpable actors.   The constitutional validity of N.J.S.A. 2A:53A-8 was challenged but upheld in Edwards v. Our Lady of Lourdes Hosp., 217 N.J. Super. 448 (App. Div. 1987).  The court noted that the limitation on the hospital liability was an exception to the complete immunity afforded to charitable institutions in a preceding statutory provision.  The constitutionality of the statute was again challenged in Johnson v. Mountainside Hosp., 239 N.J. Super. 312 (App. Div.), certif. denied, 122 N.J. 188 (1990).   Plaintiff argued that the statute was “special legislation” and violated the due process and equal protection clauses of the federal constitution and the comparable protections of the New Jersey constitution.  The intermediate appellate court upheld the statute’s constitutionality and further review was denied by the New Jersey Supreme Court.

There currently are bills pending in the New Jersey legislature that would cap recoverable noneconomic damages in a professional negligence action against a “health care provider” at $250,000.  Similar bills have been introduced in prior sessions but not been released from committee.  There is substantial literature looking at the impact of tort reform with damages caps on lowering direct and indirect costs of medical care and the access to health care.

Engaging in an analysis of malpractice tort reform – whether in the form of damages caps or otherwise – is likely to be critical to the full implementation of the Affordable Care Act.

Limitation On Medical Malpractice Insurers’ Ability to Cancel Coverage

In a precedential opinion filed on January 22, 2014 in DeMarco v. Stoddard, the intermediate appellate court of the New Jersey Superior Court ruled that a malpractice insurer could not deny coverage for an insured who had made material misrepresentations in obtaining his insurance policy.  This is the first published opinion in New Jersey addressing broadly the implications of the mandatory nature of medical malpractice insurance in the state.

While physicians have long obtained professional liability insurance coverage as a matter of prudent financial planning, such coverage was not required in New Jersey until 1998 when the Legislature enacted a statutory requirement that a physician with an office in the state and having patient care responsibilities was to be covered by malpractice insurance or a posted letter of credit.  See N.J.S.A. 45:9-19-17.  In 2004 N.J.S.A 45:9-19-17 was amended to require a specific amount of malpractice insurance as a minimum – $1 million – to be maintained by a physician with patient responsibilities.

In DeMarco the court dealt with a malpractice claim that was brought by a patient against a podiatrist.  The defendant podiatrist had obtained insurance coverage through the Medical Malpractice Joint Underwriting Association of Rhode Island encompassing the period of 2007 through 2011.   Dr. Stoddard was licensed in both Rhode Island and New Jersey.  He had a Rhode Island office address that was included in his application.  He also indicated that “at least 51%” of his practice was generated in Rhode Island.  That statement was false.  The false statement was repeated in renewal applications.

In September 2010 Dr. Stoddard performed surgery on the patient DeMarco in New Jersey.  The patient had difficulties and his condition worsened.  He came under the treatment of another provider and eventually filed suit in October 2011.  Dr. Stoddard forwarded notice of the suit to the Rhode Island JUA for defense.  It responded that it would not provide a defense if more than half his practice were in New Jersey and considered the policy void because of the misrepresentations.  The patient’s attorney sought a declaratory judgment as to the JUA’s obligation to defend and indemnify Dr. Stoddard.  This was granted in the patient’s favor by the trial judge.

The Appellate Division affirmed. The court viewed the statutory requirement for medical malpractice insurance as the equivalent to the financial responsibility provisions of mandatory automobile insurance in New Jersey. The court noted that New Jersey requires that doctors carry malpractice insurance of at least $1 million coverage per occurrence, or if insurance coverage is not available, doctors must demonstrate their financial responsibility with a letter of credit of at least $500,000.   There is a similar requirement for podiatrists found in N.J.S.A. 45:5-5.3(a).  It quoted the legislative history that these laws were enacted to “ensure the citizens of the State that they will have some recourse for adequate compensation in the event that a physician or podiatrist is found responsible for acts of malpractice.”