Now You See It, Now You Don't

Malpractice damage cap debate heats up in Louisiana after the Third Circuit Court of Appeal ruling.

Since the ceiling on medical malpractice damage awards was ripped away by the state's Third Circuit Court of Appeal in late 2006, Louisiana's doctors are surely screwed, say Louisiana's doctors. They, along with other health care providers, claim high premiums for malpractice insurance ' already the bane of the medical profession ' will only go higher since the state's $500,000 cap on non-economic damages in malpractice cases has been declared unconstitutional by the Third Circuit.

"It's going to totally affect doctors," says Baton Rouge orthopedist Dr. Jimmy Lalonde. "It's going to hurt them."

By a 3-2 margin, the appeals court agreed with the plaintiffs' argument that the original $500,000 cap set by the 1975 Legislature to control malpractice premiums had to go since it failed to meet the constitutional standard of "adequate remedy" for victims of medical malpractice. The reason it failed to meet the standard, according to the court's majority opinion, is because inflation has whittled the present value of the cap down to $160,000 and possibly even less. In Louisiana, non-economic damages refer to lost wages as well as pain and suffering. The state has no cap on future medical costs for malpractice victims.

Physicians and others appalled at the Third Circuit's ruling say that without the cap, trial attorneys smelling the potential for even bigger payoffs will be emboldened to file more lawsuits than ever before, and jury awards could go over the top. The resulting pressure on insurers to raise premiums should alarm ordinary Louisianans, they say, since doctors won't want to practice here. They also claim access to health care ' especially in "high risk" specialties like obstetrics and trauma medicine ' will suffer as a result.

Or not. Oliver Schrumpf, the Shreveport trial lawyer who convinced three of five Third Circuit judges that the cap was unconstitutional, disagrees that doing away with it automatically means soaring insurance premiums and a physician exodus. "That's an assumption," he says. "It's an argument used by the insurance industry. The system works. It'll work better if there aren't any caps."

Schrumpf believes juries have the power to lower damage awards if they think they're too high. Also, Louisiana's medical review panels ' which examine malpractice claims for validity before they're allowed to go to court ' favor doctors since the panels themselves are made up of physicians.

Joan Burmaster, legal counsel for the Louisiana Medical Malpractice Insurance Co., the largest malpractice insurer in the state, doesn't see it that way. Neither does the Louisiana State Medical Society, which represents doctors. "Of course we're disappointed by the decision," Burmaster says. "We're concerned the effect is going to reduce access to health care."

With so many physicians and nurses having left the state since Katrina and Rita, Louisiana doesn't need more excuses for those remaining to leave, Burmaster says. She hopes the Louisiana Supreme Court will reverse the Third Circuit ruling and re-establish the cap. As for the issue of the cap being adjusted upward to compensate for inflation, Burmaster points out that future medical expenses have no cap ' something nobody talks about.

"Medical expenses of a patient injured by medical malpractice are compensated as long as the patient needs them," she says. "That's a tremendous benefit that doesn't get mentioned."

Lalonde, while opposed to removing the cap, says the inflation issue has merit.

"There is a reasonable argument there," he says. "It's what some of the states have done. That is a compromise that should be worked out."

Shreveport physician Jeff White says a cap on damages is critical for access to health care in Louisiana. The state's doctors ' especially in high-risk specialties ' are already "paying all we can ask them to pay." But White believes the time has come to raise the cap to some degree.

The issue of whether caps really have any effect on malpractice premiums continues to be hotly debated around the country. Burmaster points to Texas as proof that caps work. That state, in response to rapidly rising malpractice premiums, in 2003 implemented a $250,000 cap on non-economic damages.

Since then, premiums in Texas have plunged dramatically ' by 30 percent, according to some accounts. This would seem to give plenty of ammunition to proponents of capping damages, though critics argue that coincidence doesn't necessarily indicate correlation, saying falling premiums in Texas have more to do with timing and market forces than with caps.

The Texas cap was in response to what the American Medical Association termed a malpractice "crisis" taking place there and in several other states. Between 1999 and 2002 in the Lone Star state, malpractice premiums rose 135 percent. However, a March 2005 study from the University of Texas at Austin School of Law found big spikes in premiums were not caused by rising payouts on malpractice claims or rising jury verdicts. Instead, in terms of the number of claims filed and damages paid out, the Texas tort system between 1988 and 2002 was remarkably stable.

An August 2003 report from the U.S. General Accounting Office concluded that, based on the limited data available, states with caps on damages for pain and suffering experienced slower growth on average than states with lesser reforms. At the same time, the GAO couldn't determine how much the variation in claim payments and premiums was attributable to damage caps versus other types of tort reform, or state laws regulating the premiums rate-setting process. The GAO identified another potential factor: market forces, including the "level of market competition among insurers and interest rates that affect insurers' investment returns."

Whoever's closer to being right, both sides in the debate have plenty of studies and statistics to back up their arguments, which tends to muddy the water tremendously. It breaks down roughly along these lines: plaintiffs' lawyers and consumer advocates on one side; physicians, hospitals and insurers on the other.

What is certain is that Louisiana's malpractice argument isn't over. Until the final decision is made, the $500,000 limit remains part of a law that requires a state board to review medical malpractice claims before lawsuits based on those claims can be brought to court. In that system, doctors participating in a Patient Compensation Fund are responsible for paying the first $100,000 of a malpractice judgment; the fund covers the remaining $400,000.

The case is likely headed for the state Supreme Court, which can uphold the Third Circuit ruling, reverse it or refuse to hear the case altogether. If the higher court upholds the Third Circuit's decision, it may be just a matter of time before the Legislature comes up with another cap on damages and the whole battle starts over again. The Illinois Supreme Court has twice ruled caps unconstitutional and is preparing to grapple with the question a third time.

"The [Louisiana] Legislature can adopt a new one," Schrumpf says.

This story originally appeared in Baton Rouge's Business Report.