A look at the claim that raising the MICRA cap would add $10 BILLION a year to California health care costs Friday, November 1, 2013
If we’re going to have an intelligent discussion about reforms to MICRA — the California law that limits compensation to some of the most seriously harmed victims of medical negligence — it will require the presentation of intelligent, credible evidence. But advocates of leaving MICRA unchanged, without even an adjustment for nearly four decades of inflation, show signs they may not be willing to participate in an intelligent discussion.
A letter to the editor defending MICRA in the San Francisco-based legal publication The Recorder last year was written by the executive director of a group with the misleading name Californians Allied for Patient Protection. The acronym CAPP emphasizes MICRA’s cap (unchanged since the law was enacted in 1975) on compensation for such damages as the death of a child, parent or spouse, the loss of the ability to walk, the loss of the ability to have children, severe disfigurement, loss of vision or hearing, or ongoing chronic pain. CAPP’s board members include executives of the largest medical malpractice insurance firms that do business in California and organizations that represent the state’s doctors and hospitals, all groups that benefit financially (or whose members benefit financially) from reducing payments to those harmed by medical errors.
In her letter, CAPP’s Lisa Maas repeated one of her group’s common arguments, that “doubling MICRA’s cap on non-economic damages would add more than $9 billion annually to the cost of health care in California.”
An op-ed in the San Francisco Chronicle on Nov. 1, 2013, goes a little farther. Planned Parenthood Affiliates of California president and CEO Kathy Kneer and California Medical Association president Richard Thorp wrote increasing the MICRA cap “could increase health care costs for consumers and taxpayers by nearly $10 billion annually.”
In documents filed with the state Department of Insurance, California’s medical malpractice insurers estimated they will pay about $195 million to those harmed by negligence in 2012 (see line 11 of the 2012 California Premium and Loss Summary). That figure is intended to account for all claims stemming from malpractice in 2012, even those that have not yet been filed; insurers have routinely gone back in later years to reduce their initial estimate of payouts. That $195 million includes payments that would not double if the MICRA cap doubled from $250,000 to $500,000, either because the payments are less than the cap or because they are compensation for lost income or medical expenses (such so-called “economic damages” are not capped under MICRA). On the other hand, doubling the MICRA cap would likely lead to some new claims that are not economically feasible under the current cap. So, though the $195 million figure would increase, it certainly would not double.
But let’s say the amount did double. Would insurance companies and medical providers really spend an additional $10 BILLION just to avoid paying out an extra $195 million? Does that sound like something an industry keeping an anxious eye on the bottom line would do?
That’s the first sign that the $10 billion figure may not be credible evidence. Where does that number come from?
In a document on its website, CAPP says doubling the MICRA cap would increase health care costs in California by “at least $9.5 billion” a year. That document does not cite a particular source for the figure but references “the State’s former non-partisan Legislative Analyst.” The source for the figure turns out to be a report that also appears on CAPP’s website that was prepared years after lead author William Hamm served as California’s Legislative Analyst (1977-86) and was most recently updated in 2010. The derivation of the claim that the increase in health care costs would “exceed $9.5 billion” annually begins on page 43 of the report (page 44 of the PDF).
Almost all of the increase, nearly $9 billion, is the result of a projected 3.04% increase in expenditures resulting from “defensive medicine.” A footnote in the report gives the source of that 3.04% figure as a paper published by Daniel Kessler and Mark McClellan in 2000. That paper dealt with elderly patients who had a heart attack or ischemic heart disease (some of the most serious medical conditions) between 1984 and 1994 (a lifetime ago in terms of the advances in medicine). CAPP would take that number and apply it to all health care spending, today, on patients of all ages and medical problems. Indeed, the Hamm report says the increase assumes the “estimates of defensive medicine costs in connection with the treatment of coronary disease can be extended to all types of healthcare.”
But, as former Missouri state insurance commissioner Jay Angoff points out:
Both the Congressional Budget Office and the Government Accountability Office have unambiguously concluded that the Kessler and McClellan data can not be applied to the general population. Specifically, the GAO has found that because it “was focused on only one condition and on a hospital setting, it cannot be extrapolated to the larger practice of medicine.” [see page 5 of this PDF] Similarly, the CBO has emphasized that the Kessler and McClellan studies “were conducted on a restricted sample of patients, whose treatment and behavior cannot be generalized to the population as a whole.” [see page 14 of this PDF]
Angoff also says the data from CAPP fail to take into account the impact of managed care on California health care costs:
In 2000, Kessler and McClellan found that hospital spending between 1984 and 1994 on Medicare patients with heart conditions was lower in states that had enacted tort reforms [such as California] than in those that had not. In 2002, however, Kessler and McClellan published another study in which they concluded that the effect they had attributed to tort reform could also be caused by managed care. Between 1984 and 1994 Medicare was a virtually 100% fee-for-service program: Medicare paid doctors and hospitals for each procedure they undertook. The more procedures they did, therefore, the more they got paid. Managed care, in contrast, seeks to limit the number of procedures doctors do. In their 2002 study, Kessler and McClellan found that doctors did fewer procedures in areas with high managed care enrollment than in those with low managed care enrollment. Kessler and McClellan’s 2002 study thus backs away from their earlier conclusion that CAPP relies on. Yet CAPP continues to rely on their earlier conclusion, and pretends that their 2002 study revising their 2000 and 1996 articles does not exist.
The finding that decreases in unnecessary procedures could be caused by managed care rather than tort reform is particularly important for California, which has far greater HMO penetration than any state in the nation except Hawaii and almost twice the penetration as the national average. Healthcare spending attributed to tort reform in California is therefore particularly likely to be caused not by tort reform but rather by managed care.
And by applying its projected 3.04% increase to all health care spending, CAPP may be including items such as medical research and medical facilities construction that would not seem to have any relation to a cap on malpractice payouts. The Hamm report’s source, as seen in footnote 41, for the “healthcare expenditures” that would be increased by 3.04% is “U.S. Census Bureau, Statistical Abstract of the United States: 2010, p. 97.” (That page is on page 3 of this PDF.) The footnote in the Hamm report does not indicate which number in the Statistical Abstract table is being prorated to come up with a California figure of almost $296 billion, but the footnotes on the Statistical Abstract table show the “Total expenditures” figure “[i]ncludes medical research and medical facilities construction not shown separately.” And the introduction to the table says “national health expenditures” includes “home health care; retail sales of prescription drugs; other medical nondurables; vision products and other medical durables…plus other health expenditures such as public health activities… medical sector investment, the sum of noncommercial medical research and capital formation in medical sector structures and equipment…” It’s not at all clear whether CAPP is claiming all of these would be subject to increases resulting from a change to MICRA. It’s easy to wonder why any of them would increase.
An increase in “defensive medicine” does not account for all of the projected $9.5 billion increase in health care costs caused by doubling the MICRA cap. The Hamm report also indicates there would be a nearly $306 million increase in malpractice insurance premiums. That number assumes the state Insurance Commissioner, who has ultimate authority in the matter thanks to California’s Proposition 103, would approve a 31.75% rate increase. But more tellingly, to come up with the $306 million figure, that rate increase is applied to a “projected” 2005 premium total for California of more than $963 million. According to the state Department of Insurance, the actual premiums written in California in 2005 were $697 million (line 11 of the 2005 California Premium and Loss Summary, click “Mkt Shr 2005″ in the left-side column). And that number has gone down every year since.
And where did the projected 31.75% rate increase come from? That number was concocted from numbers presented earlier in the Hamm Report, on page 37 (page 38 of the PDF), as an estimate of what would happen if the MICRA cap were not just doubled but eliminated entirely. The prospect of a 31.75% rate increase flies in the face of data derived from the 2009 Medical Liability Monitor showing malpractice insurance premiums were actually lower in states without caps on damage awards than in states like California with caps.
The $10 billion claim serves as a warning that all speculations about the effect of changes in MICRA, along with the supporting evidence, must be examined carefully if intelligent decisions are to be made.
J.G. Preston is press secretary for Consumer Attorneys of California (CAOC), an organization whose members include some attorneys who represent victims of medical malpractice. CAOC supports the Troy and Alana Pack Patient Safety Act. Some members of CAOC are on the board of directors of the group that funds ProtectConsumerJustice.org.
This post contains portions of an earlier post on this website.