May 11, 2022

A policy paper published in May 2022 entitled The California Malpractice Cap on Noneconomic Losses: Unintended Consequences and Arguments for Reform stated, “the introduction of caps on noneconomic damages are associated with a 16% increase in adverse events. Given this, it is likely that 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.”

In 1975, California enacted the Medical Injury Compensation Reform Act (MICRA) that established a cap of $250,000 on noneconomic damages that could be awarded in California medical malpractice cases. However, MICRA did not provide for indexing the cap level for inflation or growth in household income.

If the California cap on noneconomic damages in medical malpractice claims had been adjusted based on the Consumer Price Index (CPI), it would presently be $1.257 million. If the cap had been adjusted based on household income, its current amount would be $1.5 million (in 1975, the $250,000 cap was 19.5 times the median California household income of $12,778).

The policy paper stated, “The estimated total paid amount for Fee-for-Service beneficiaries is nearly $791 million. If this is projected to managed care, the total estimated cost is $1.5 billion. A 16% reduction in these amounts would save Medi-Cal $245 million.”

The policy paper concluded: “The cap of $250,000 adopted by California in 1975 on noneconomic losses in malpractice cases was imposed in a time of perceived crisis, with rising malpractice premiums and risk of lawsuit believed to encourage physicians to retire from practice and raise overall medical costs through defensive medicine. There are two arguments to eliminate or adjust the cap. The first is that the lack of adjustment to reflect inflation or the growth of household incomes (and thus the value of noneconomic losses) since 1975 is inequitable, even if the appropriateness of the cap is accepted.”

“The second argument is that the estimate of the costs and gains of the cap have not been properly balanced because the value of the deterrence of malpractice was not fully considered in 1975 and research to assess the deterrence effect was not available. That deficit in research has been addressed in spite of the challenges of rare events and small samples. The best available research on deterrence associated specifically with caps on noneconomic losses is that of Zabrinski and Black. They estimate introducing a cap, as has been done by five states in their analysis between 2003 and 2005, led to increases in the adverse events they analyzed by 16%. That amount represents a significant offset to the potential costs of higher and more frequent claims were the cap to be eliminated or raised to reflect inflation.”

Source

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