A study looked at spending by Medi-Cal associated with malpractice cases from "never events."
California's cap on noneconomic losses in malpractice cases is lagging far behind current values and, perversely, could be linked to a rise in malpractice cases over the past 50 years, new research suggests.
"The lack of adjustment to reflect inflation or the growth of household incomes is inequitable, because it lowers the real value of the reward — which in current dollars, could be as much as $1.5 million – six times the 1975 value," says Prof. Jack Needleman, chair of the UCLA Fielding School of Public Health's Department of Health Policy and Management. "The second issue is that the cap, by lowering the risk of suit for malpractice, has also weakened the deterrent effect of risk of being sued on physician’s efforts to avoid malpractice."
The study — The California Malpractice Cap on Noneconomic Losses: Unintended Consequences and Arguments for Reform — suggests the cap is associated with a significant increase in reported malpractice cases in California.
"The best available research suggests imposing caps is associated with a 16% increase in adverse events," Needleman says. "Given this, it is likely that the repeal of a cap on noneconomic damages would increase attention to patient safety and lead to reduction of adverse patient events. These changes would be associated with cost savings to payers and patients and reduced economic and noneconomic damages that improve the life and health of patients."
Needleman's review looked at spending by Medi-Cal associated with malpractice cases from "never events," such as objects left in patients after surgery, mismatched blood transfusions, or hospital-acquired pressure ulcers. In 2018, more than 250,000 Medi-Cal patients experienced a never event and the state paid $1.5 billion on these cases.
Needleman says that many of these costs could be avoided if California’s malpractice cap was lifted or substantially raised. A 16% reduction in adverse events could mean savings to the state as much as $245 million annually.
The cap was adopted by California in the mid-1970s when state legislators believed rising malpractice premiums and risk of lawsuit would nudge some physicians into retirement or stop practicing medicine and increase care delivery costs through defensive medicine. No provision was made for indexing the cap level for inflation.
Federal statistics show that, between November 1975 and November 2021, the Consumer Price Index increased by a factor of 5.03. If the cap had been adjusted based on CPI to maintain its purchasing power, its current value would be $1.257 million.
Needleman suggests that a better measure of the value of the cap would be the ratio of the cap to household income. In 1975, the cap of $250,000 was 19.5 times the median California household income of $12,778. If the cap had been adjusted to maintain the ratio of value to household income, its current value would be $1.5 million.
"That is six times the difference," Needleman says. "In effect, someone who suffered in a malpractice case in the 1970s received much, much more in compensation, in a relative sense, than someone suffering the same injury today."
Proponents for caps on malpractice awards argue that the caps lower malpractice risk and premiums. The lower premiums and lower risk reduce practice costs, reduce the incentive for defensive medicine such as unneeded diagnostic testing — which increases overall health care costs — and reduce the incentive for physicians to leave practice.
"Imposing a cap on awards also reduces the incentive to avoid malpractice," Needleman says. "If the incentive to reduce malpractice is weakened, and malpractice rates increase, this raises the potential costs to patients and insurers, as well as increasing potential noneconomic losses for patients."
Needleman says research suggests that state adoption of caps on noneconomic damages in medical malpractice lawsuits is associated with higher rates of preventable adverse patient safety events in hospitals, estimated as a 16% increase in these adverse events.
"The economic and noneconomic losses for patients and their families from malpractice can be significant," he says. "Beyond these, there are substantial costs to the state in Medi-Cal and medical payment for state and local government employees that would be reduced by raising or eliminating the cap on non-economic losses in malpractice."
There was no external funding for this study.
“The lack of adjustment to reflect inflation or the growth of household incomes is inequitable, because it lowers the real value of the reward — which in current dollars, could be as much as $1.5 million – six times the 1975 value.”
Jack Needleman, PhD, chair, UCLA Fielding School of Public Health
John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.
In 2018, more than 250,000 Medi-Cal patients experienced a never event and the state paid $1.5 billion on these cases.
Needleman says that many of these costs could be avoided if California’s malpractice cap was lifted or substantially raised.
A 16% reduction in adverse events could mean savings to the state as much as $245 million annually.