The Big Picture

The Effect of Litigation on Florida Health Plans

By Randy M. Kammer, Vice President for Regulatory Affairs
and Public Policy, Blue Cross and Blue Shield of Florida, Inc.

With an increasing number of physicians foregoing malpractice insurance, there is a greater risk for all other segments of the health care system. When a physician practices without insurance, every health plan associated with paying, organizing or financing that health care he or she is providing potentially becomes an additional target for plaintiffs' lawyers. This is so regardless of whether that entity played a role—direct or indirect—in the alleged adverse event.
 

When a physician practices without insurance, every health plan financing that health care potentially becomes an additional target for plaintiffs' lawyers.

Consequently, health plans are increasingly being forced to defend themselves in lawsuits in which the plaintiff doesn't even contend that the health plan did anything wrong. Health plans often insure themselves against these lawsuits through reinsurance, which has become more difficult to acquire, and exorbitantly expensive, since September 11, 2001.

When the cost of reinsurance is combined with other factors already adding to our health care system costs, such as medical technology, prescription drugs and increased health care regulation, the result is higher costs for consumers. Indeed, a PricewaterhouseCoopers report found that 7% of U.S. health care cost increases were the direct result of litigation—an additional $5 billion in increased premium costs per year.

An additional consideration is the increase in "defensive medicine" physicians and providers are practicing in response to the threat of malpractice litigation. In Florida, one in six physicians is sued for malpractice, while one in twelve is sued for malpractice nationwide per year. Given those odds, it is no surprise a recent nationwide survey found that 79% of physicians ordered unnecessary tests and 74% made unnecessary referrals in response to fears of malpractice litigation. This defensive medicine is costing the health care system a significant amount of money.

Many believe Florida's tort and liability laws make it attractive to pursue malpractice lawsuits against health care providers and health plans. The lack of caps on non-economic damages may be a primary cause of unfounded and costly lawsuits that clog the court system, making it more difficult for legitimate liability claims to be heard. Although tort and liability reform efforts have occurred in Florida over the past twenty years, they appear to have had little impact. Florida has passed legislation to limit attorney's fees, provide limited physician immunity from liability, impose statutes of limitations, mandate collateral source rules, provide periodic payment of damages, encourage voluntary binding arbitration, and limit the extent of joint and several liability. The Florida Supreme Court, however, has ruled laws requiring pretrial screening panels and limits on damage awards unconstitutional. Paradoxically, the U.S. Office of Technology Assessment has noted that limits on non-economic damages are the most effective way to contain medical liability premiums.

California is often cited as a state that has had success with medical liability reform. In fact, current federal proposals are based upon California's 1975 law that limits non-economic damages to $250,000. California law also provides for periodic payment of damages in excess of $50,000; limits the amount paid to plaintiff's attorneys to 15% of awards more than $600,000; and calls for a 90-day "notice of intent" to file a malpractice claim to give the parties an opportunity, prior to the commencement of a lawsuit, to pursue a resolution through a private arbitration process. Florida also has a statutory provision allowing for voluntary binding arbitration at the conclusion of the 90-day pre-suit period. While the process places a cap on non-economic damages, the two primary problems in Florida are that:

1. to invoke the process, the prospective defendant has to effectively relinquish any defenses it has at a time when there has been only a very limited opportunity for discovery, and
2. there is no reasonable cap on economic damages.

California's medical liability premiums in 2001 were much lower than Florida's. For example, premiums for OB/GYNs in California ranged from $23,000 to $72,000, while in Florida they ranged between $143,000 and $203,000. Premiums for internists in California ranged from $4,000 to $15,000, while in Florida they ranged between $27,000 and $51,000. Dade and Broward Counties have some of the highest malpractice premiums in the nation. Other evidence shows that among states that have implemented limits of $250,000 to $350,000 on non-economic damages, their combined highest premium increases were 12% to 15% between 2000 and 2001, as compared to 44% in states without caps on non-economic damages.

Clearly, reform has had a positive impact on California's malpractice system. However, even if state or federal governments were to implement reform, particularly caps on damages, immediate premium relief would not occur—because those premiums are based on claims experience and other expenses. Nevertheless, immediate reform of the tort litigation system is critical. Without it, health plans will become increasingly vulnerable to disproportionate damage awards, which will ultimately result in increased health care system costs for everyone.

Jacksonville Medicine / November-December 2002
www . dcms online . org