August 28, 2013
Pursuant to Elections Code Section 9005, we have reviewed the
proposed statutory initiative
(A.G. File No. 13‑0011) relating to medical malpractice damage awards,
physician substance abuse, and the prescribing and dispensing of drugs
by physicians and pharmacists.
Background
Medical Malpractice
Under current state law, patients injured while receiving health care
may sue health care providers for medical malpractice. A successful
malpractice claim typically requires that the injured party demonstrate
that the provider caused the injury due to an action or inaction and
that the provider was negligent. Damages awarded in medical malpractice
cases include:
- Economic Damages—funds to compensate a
plaintiff for the monetary costs of an injury, such as medical bills
or loss of income.
- Noneconomic Damages—funds to
compensate for items other than monetary losses, such as pain and
suffering.
Medical Malpractice Insurance. Health care
providers pay for the costs of medical malpractice claims in at least a
couple of different ways. Many providers purchase medical malpractice
insurance, whereby the provider makes monthly premium payments to a
malpractice insurer and the malpractice insurer pays for the costs
associated with any medical malpractice claims filed against the
provider. In other instances, providers may be employed by, or
affiliated with, an organization that “self-insures,” meaning the
organization directly pays for the costs associated with medical
malpractice claims against the health care providers.
Medical Injury Compensation Reform Act (MICRA).
In 1975, the Legislature enacted MICRA, which made several
significant changes to the medical malpractice system in California. One
MICRA provision established a $250,000 cap on noneconomic damages that
may be awarded to an injured plaintiff. This cap was not made subject to
annual inflationary adjustments. There is no cap on economic damages.
The MICRA also established a limit on attorney’s fees in medical
malpractice cases.
The Medical Board of California
The Medical Board of California (Board) is part of the California
Department of Consumer Affairs. The Board licenses and regulates
physicians, surgeons, and certain other health care professionals. The
Board is also responsible for investigating complaints and disciplining
physicians and certain other health professionals who violate the laws
that apply to the practice of medicine. For example, the Board may
suspend or revoke a license on the grounds that a licensee has been
convicted of a crime if the crime is substantially related to the
licensee’s medical profession.
The Controlled Substance Utilization Review and Evaluation System
(CURES)
The California State Department of Justice (DOJ) maintains CURES,
which contains electronic information about the prescribing and
dispensing of certain drugs. Using CURES, physicians, pharmacists, and
other registered users (such as law enforcement officials) can review a
patient’s prescription drug history to potentially prevent the abuse of
prescription drugs. For each prescription of certain types of drugs, the
dispenser is required to provide specified information on a weekly basis
to DOJ, including the name, address, and date of birth of the user of
the drug. Under current law, prescribers and pharmacists are not
required to consult the database prior to prescribing or dispensing
controlled substances. In February of 2013, DOJ estimated that about 6
percent of all prescribers and pharmacists in California are registered
to use the system.
State and Local Governments Pay for a Substantial Amount of Health
Care
The state and local governments pay for a substantial amount of
health care services in California. Governments typically pay for health
care services by either purchasing services from health care providers
and health plans or operating government health care facilities. In this
section, we describe some of the major state and local health programs
and facilities that pay for health care services.
Medi-Cal. In California, the federal-state
Medicaid Program is known as Medi-Cal. Medi-Cal purchases health care
services mainly for low-income individuals. With an estimated average
monthly enrollment of over eight million and annual General Fund budget
of over $15 billion, Medi-Cal is by far the state’s largest health
program. (Medi-Cal enrollment will increase with the implementation of
federal health care reform, effective January 1, 2014.) There are two
main systems for the delivery of medical care to Medi-Cal enrollees:
fee-for-service (FFS) and managed care. Under FFS, Medi-Cal enrollees
may receive services from any provider accepting Medi-Cal patients and
the state generally reimburses the health care provider a set rate for
each medical service delivered to a beneficiary. Under managed care, the
state pays health plans a predetermined amount per enrollee, per month.
In turn, the health plan is responsible for organizing the delivery of
the health care to plan enrollees and reimbursing health care providers
for services delivered to plan enrollees.
Health Coverage for State and Local Government Employees
and Retirees. The state, California’s two public
university systems, and many local governments in California pay for a
large portion of health costs for their employees and related family
members and for some of their retired workers. Together, state and local
governments pay roughly $20 billion annually for employee and retiree
health benefits. Employee and retiree health benefits are typically
provided through private health plans.
State-Operated Facilities. The state
administers institutions that provide health care services directly to
the populations they serve. These institutions include:
- Mental Hospitals. The Department of
State Hospitals administers the state mental health hospital system
consisting of five hospitals that provide treatment to about 5,500
patients.
- Prisons. The California Department of
Corrections and Rehabilitation administers the state prison system,
which provides health care to about 124,000 inmates.
- Developmental Centers (DCs). The
Department of Developmental Services administers the state DCs
system consisting of four institutions that provide residential
services and health care to about 1,300 individuals with
developmental disabilities.
Generally, these state institutions employ physicians, pharmacists,
and other medical professionals to provide health care services. For
these state employees, the state generally self-insures against the
financial risk associated with the costs of medical malpractice claims
against its employees. In some cases, state institutions are not
equipped to provide the level of medical care needed by a patient. For
example, DCs are not equipped to perform major surgeries. In these
cases, the patient is usually taken to a nearby medical facility that is
equipped to provide the level of medical care required by the patient,
and the state reimburses the provider for the services. The costs for
operating state prisons and mental hospitals are paid for almost
entirely with state funds, and the costs for operating DCs are shared
roughly equally by the state and the federal government.
University of California (UC) Hospitals.
The UC operates several hospitals. The operational costs of the
hospitals are mainly funded by revenue generated from providing services
to patients with health insurance coverage.
Local Government Health Programs. Local
governments—primarily counties—provide a wide variety of health care
services, mainly to low-income individuals. For example, some counties
operate hospitals and clinics. Funding for county hospitals is complex,
but it includes revenue from providing health services to individuals
with health insurance coverage, such as Medi-Cal, as well as county
contributions to provide services to low-income populations without
health insurance. County-operated hospitals and clinics employ health
care providers and the county generally self-insures against the risk
associated with the costs of a medical malpractice claim against its
employees.
Proposal
This measure has several provisions that generally relate to health
care provider conduct.
Raises Cap on Noneconomic Damages for Medical
Malpractice. Beginning January 1, 2015, this measure
adjusts the current $250,000 cap on noneconomic damages to reflect the
increase in inflation (as measured by the Consumer Price Index) since
the cap was established—effectively raising the cap to approximately
$1.1 million. The cap on the amount of damages would be adjusted
annually thereafter to reflect any increase in inflation.
Requires Reporting of Suspected Physician Drug or Alcohol
Impairment or Failure to Follow Appropriate Standard of Care.
The measure requires health care providers to report to the
Board any information known to them that appears to show a physician was
impaired by drugs or alcohol while on duty, or that a physician who
treated a patient during an adverse event (as defined in state law)
failed to follow the appropriate standard of care. Persons who are not
health care providers may also report this information to the Board, but
are not required to do so.
Requires Hospitals to Conduct Alcohol and Drug Testing on
Physicians. This measure requires hospitals to conduct
testing for drugs and alcohol on physicians as follows:
- Random testing on physicians who are hospital employees,
contractors, or who have the authority to admit patients to the
hospital.
- Following an adverse event, tests on physicians who were
responsible for the care and treatment of a patient or prescribed
medication to a patient within 24 hours prior to the adverse event.
Physicians would be required to make themselves available for drug
testing as soon as possible after the adverse event occurs. Failure
to submit to drug testing within 12 hours after the physician learns
of the adverse event can be cause for suspension of the physician’s
license.
- At the direction of the Board, tests on physicians who are the
subject of a report of possible drug or alcohol use or failure to
follow the appropriate standard of care (discussed above).
The hospital would be required to bill the physician for the cost of
the test. The hospital would also be required to report any positive
test results, or the willful failure or refusal of a physician to submit
to the test, to the Board which must do the following:
- Refer the matter to the Attorney General’s Health Quality
Enforcement Section for investigation and enforcement.
- Temporarily suspend the physician’s license pending the Board’s
investigation and hearing on the matter.
- Notify the physician and each of the health facilities at which
the physician practices that the physician’s license has been
temporarily suspended.
If the Board finds that a physician was impaired by drugs or alcohol
while on duty or during an adverse event, or that a physician has
refused or failed to comply with drug and alcohol testing, the Board
must take specified disciplinary action against the physician, which may
include suspension of the physician’s license. The measure also
specifies that there will be a presumption of professional negligence in
any civil action taken against any physician who tested positive for
drugs or alcohol or failed to comply with the drug testing requirements
of this measure.
The measure requires the Board to assess an annual fee on physicians
sufficient to pay the costs of (1) the Board to administer this measure
and (2) the Attorney General to conduct investigations and take
enforcement actions as required by the measure.
Requires Health Care Practitioners and Pharmacists to
Consult CURES. This measure requires health care
practitioners and pharmacists to consult CURES prior to prescribing or
dispensing certain drugs, such as OxyContin or Vicodin, to a patient for
the first time. If the patient has an existing prescription for the
drug, the health care practitioner must determine there is a legitimate
need. Failure to consult a patient’s electronic history would be cause
for disciplinary action by the health care practitioner’s licensing
board.
Fiscal Effects
This measure would likely have a wide variety of fiscal effects on
state and local governments—many of which are subject to substantial
uncertainty. We describe the major potential fiscal effects below.
Increase in Government Costs Due to an Increase in Medical
Malpractice Costs
Raising the cap on noneconomic damages would result in the following
changes to medical malpractice costs in California: (1) higher costs due
to an increase in the amount of awards and settlements in medical
malpractice cases and (2) higher costs due to an increase in the
likelihood that an injured individual files a medical malpractice claim.
These higher costs could be potentially partially offset by a decrease
in medical malpractice costs stemming from a change in health care
providers’ behavior in an effort to avert medical malpractice lawsuits.
On balance, these factors would likely increase the costs associated
with resolving medical malpractice claims. The higher medical
malpractice costs would, in turn, increase costs for health care
providers in the following ways: (1) increase medical malpractice costs
for health care providers that self-insure and/or (2) increase medical
malpractice premiums for providers that purchase medical malpractice
insurance.
Increased Costs for State and Local Government Purchasers
and Providers of Health Care Services. As noted earlier,
state and local governments purchase and directly provide tens of
billions of dollars of health care services annually. According to one
federal analysis, medical malpractice costs are about 2 percent of total
health care spending (both governmental and nongovernmental) nationally.
This federal analysis also found that federal medical malpractice
reforms that serve to limit medical malpractice
litigation—including caps on noneconomic damages—would reduce national
medical malpractice premiums by about 10 percent, on average. Assuming
malpractice costs are about 2 percent of state and local government
health care spending in California and raising the cap on
noneconomic damages would increase medical malpractice costs for state
and local government health care purchasers and providers by an average
of 10 percent, state and local government health care spending would
increase by about 0.2 percent—or by the high tens of millions of dollars
annually. However, given the uncertainty surrounding these assumptions,
actual costs associated with raising the cap could range from the low
tens of millions of dollars to over one hundred million dollars
annually.
Potential Increased Government Health Care Costs Due to Practice of
“Defensive Medicine”
Defensive Medicine. In addition to its
effect on medical malpractice costs, raising the cap on noneconomic
damage awards may also affect the amount and types of health care
services provided in California. As discussed earlier, the higher cap on
noneconomic damages would increase the likelihood that an injured
individual files a medical malpractice lawsuit against a health care
provider. In response, some health care providers, such as physicians,
may change their behavior in an effort to avoid having a lawsuit filed
against them. For example, a physician may order a test or procedure for
a patient that he or she would not have otherwise ordered—this type of
behavior is often referred to as defensive medicine. In some instances,
the additional tests or procedures may prevent future health care costs
by preventing further deterioration of a person’s health. In other
instances, however, the additional test or procedure may simply increase
the total costs of health care services, with little or no future
offsetting reductions in costs. Numerous studies have attempted to
quantify the degree to which certain medical malpractice reforms affect
defensive medicine and health care costs. The results from these studies
vary, but, on balance, they suggest that certain medical malpractice
reforms that reduce the likelihood of a provider being sued for
medical malpractice, such as caps on noneconomic damages, are generally
associated with the provision of different amounts and types of health
care services that decrease health care costs. Accordingly, policies
that increase the likelihood of a provider being sued for
malpractice, such as raising the cap on noneconomic damages, may
encourage the provision of different amounts and types of services that
increase health care costs.
Potential Increased Costs for Government Providers and
Purchasers of Health Care Services. The degree to which
raising the cap on noneconomic damages from $250,000 to about $1.1
million would increase the use of certain health care services and,
thereby, increase health care costs for state and local governments in
California is highly uncertain. National estimates of the effect of
malpractice reforms—including caps on noneconomic damages—on spending
associated with changes in the amount and types of health care spending
generally range from relatively minor to more than 3 percent. Several
factors may contribute to the magnitude of this effect, including the
degree to which services are provided through managed care, the types of
health services provided, and the degree to which the additional costs
to health plans would be passed on to government purchasers.
In California, the effect on state and local government costs would
likely be toward the lower end of this range, in large part due to the
high prevalence of managed care—which is generally associated with lower
levels of defensive medicine. However, even a small percentage change in
health care costs could have a significant effect on health care
spending. For example, a 0.3 percent increase in state and local
government health care costs in California would increase costs by over
one hundred million dollars annually. Given the substantial uncertainty
surrounding the potential changes in the amount and types of health care
services purchased and provided by state and local governments, actual
costs could range from relatively minor to the hundreds of millions of
dollars annually.
Effect on State and Local Government Revenues
Change in State and Local Revenues Likely Not
Significant. Health care is a significant segment of the
California economy. As such, this measure could affect the economy and
state and local government revenues. For example, to the extent that
employer-provided health insurance premiums (a category of employee
compensation that generally is not taxable) increase, taxable employee
salaries may decrease as a result. Lower “take home” pay to workers
could contribute to lower taxable retail sales, thereby reducing state
and local sales tax revenues. Higher health insurance costs may reduce
profits of businesses somewhat, thereby reducing state income tax
revenues. Offsetting these revenue reductions to some degree would be
increases in state taxes levied on certain insurance premiums, as well
as increased taxable purchases by consumers that benefit from the higher
awards allowed under this measure. A net reduction in state and local
revenues is possible as a result of this measure, but it is not likely
to be significant.
Other Fiscal Effects
This measure would likely have a wide variety of additional fiscal
effects.
- State Costs to Administer New Alcohol and Drug
Testing Requirements. The measure’s alcohol and drug
test requirements would create administrative costs for the Board
and the Attorney General. These administrative costs would likely be
less than a million dollars annually, to be paid for by a fee
assessed on licensed physicians.
- Physician Alcohol and Drug Testing Costs.
The measure requires hospitals to bill physicians for the
cost of alcohol or drug testing. This would increase costs for
physicians and some of these costs would eventually be borne by
state and local governments.
- Savings Associated With Reduced Prescription Drug
Use. To the extent the requirement that health care
providers and pharmacists consult CURES reduces the number of
prescription drugs being dispensed, this measure would likely reduce
prescription drug costs for state and local governments.
- Medi-Cal Recovery of Malpractice Awards.
Under current law, when Medi-Cal has paid for health
benefits provided to a beneficiary injured by medical malpractice,
it may recover a portion of medical malpractice damages awarded to
the beneficiary to cover the state costs of these benefits.
Increasing the number of medical malpractice awards would
potentially increase the amount that could be recovered by the
state.
- State Trial Court Costs. This measure
would increase the number of medical malpractice cases and, thereby,
potentially increase costs for state trial courts.
Summary of Fiscal Effects
This measure would have the following significant fiscal effects:
- State and local government costs associated with higher medical
malpractice costs, likely at least in the low tens of millions of
dollars annually, potentially ranging to over one hundred million
dollars annually.
- Potential state and local government costs associated with
changes in the amount and types of health care services that, while
highly uncertain, potentially range from relatively minor to
hundreds of millions of dollars annually.
Return to Initiatives
Return to Legislative Analyst's Office Home Page