Bot20a09

REPORT 20 OF THE BOARD OF TRUSTEES (A-09) Michigan Patient Compensation as Tort Reform Alternative (Reference Committee B)

EXECUTIVE SUMMARY The Michigan State Medical Society (MSMS) has drafted an innovative medical liability reform (MLR) alternative program. MSMS has asked our AMA to study the program to determine if it is a feasible MLR alternative. The program focuses on improving patient safety and creating a more reliable and consistent compensation system based on a workers’ compensation model. Our AMA commends MSMS’ efforts in this regard, but there are several issues that need further discussion, refinement, and research before our AMA is able to recommend this model act to Michigan or to other states. A major concern is the program’s shift from the negligence standard to the avoidability standard. This report discusses other issues and recommendations as well. This analysis is not meant to dissuade MSMS’ efforts; rather, it is intended to raise issues that the MSMS leadership should consider as they work to improve the proposal.

REPORT OF THE BOARD OF TRUSTEES B of T Report 20-A-09 Subject:

Michigan Patient Compensation as Tort Reform Alternative (Resolution 219, A-08)

Presented by:

Joseph M. Heyman, MD, Chair

Referred to:

Reference Committee B (Monica C. Wehby, MD, Chair)

1INTRODUCTION 2 3At the 2008 Annual Meeting, the Michigan Delegation introduced Resolution 219, “Michigan 4Patient Compensation as Tort Reform Alternative.” The resolution asks our AMA to study the 5Michigan State Medical Society (MSMS) Michigan Patient Compensation Act (model act) to 6determine if it could serve as model alternative legislation for those states where tort reform has 7proven inadequate, failed, or not been achieved. The resolution was referred, so that the Board of 8Trustees could study the model act and report back to the House of Delegates at the 2009 Annual 9Meeting. 10 11BACKGROUND 12 13Our AMA remains steadfast in its support of effective medical liability reform (MLR) laws based 14on California’s Medical Injury Compensation Reform Act (MICRA).i MICRA-based reforms have 15stabilized California’s medical liability climate and have proven effective in other states as well. 16The key provision in MICRA is a $250,000 cap on non-economic damages. To date, about half of 17the states have enacted a cap on non-economic damages, and six have enacted a cap on total 18damages.ii,iii The remaining states have either run into staunch political opposition to MICRA19based reforms, or they have constitutional prohibitions on such MLR statutes. 20 21Despite Michigan’s stable liability climate, MSMS formed a Task Force on No-Fault Liability to 22develop a no-fault proposal that would address several of the weaknesses with the current liability 23system, including the current system’s inability to efficiently delineate between meritorious and 24meritless cases; to compensate injured patients in a timely fashion; and to improve patient safety. 25MSMS drafted the model act to improve its own liability system and hopes that its model act could 26be utilized by other states as well. 27 28The MSMS model act is 90 pages in length,iv so this Board of Trustees Report includes a high level 29summary of the model act. The report also compares some of the model act’s main provisions to 30current AMA policy and offers analysis and suggestions for MSMS to consider.

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1SUMMARY OF MSMS MODEL ACT 2 3Claim Determination Procedure 4 5Under the model act, patients must have notice that a facility or provider is participating in the 6program.v Patients who have suffered an injury initiate the process by filing a “notification of 7claim” form with the appropriate facility within one year of obtaining knowledge of the injury.vi 8Patients must show by a preponderance of the evidence that the injury resulted from an avoidable 9event.vii The facility shall then determine if the patient has met this burden. The facility bases its 10determination on five questions: 11 12  Did the injury result from treatment? 13  Was the treatment appropriate? 14  Was the injury avoidable? (With the information available when the medical decision was 15 made, without the wisdom of hindsight, would a “prudent provider” have made the same 16 decision?) 17  Was there a failure to render a treatment option when such treatment option was 18 appropriate? 19  Did the disability from the injury persist for 30 days or more?viii 20 21The facility has 21 days to make a determination or to ask for more information from the patient.ix 22The facility’s investigation shall be completed within 45 days.x The patient then has 60 days to 23appeal the facility’s determination.xi After these initial steps have been completed, the facility shall 24forward its decision to the Patient Compensation Commission (the “Commission”) for approval or 25denial of the decision. If the Commission determines that a claim for compensation is valid, then 26the patient shall be notified of the decision and the terms of compensation.xii The Commission may 27send the medical aspects of the review process to a medical panel of physicians to make an expert 28ruling.xiii If the patient or other party disagrees with the findings of the medical panel, then the 29Commission may schedule a hearing.xiv Parties may also call for the use of mediation or arbitration 30as a method of settling disputes at various points in the process.xv If the parties cannot reach an 31agreement, then the claim will proceed to a hearing in the Medical Injury Court (the “Court”).xvi 32 33The Court shall have broad authority to settle the dispute and is not bound by the common law or 34statutory rules of evidence.xvii The Court may call independent experts to offer their guidance.xviii 35The model act limits attorney involvement until the Court phase, and it prohibits them from 36collecting contingency fees.xix Within 15 days of the hearing, the Court shall issue a written ruling 37on the matter.xx Finally, if any of the parties still disagree with the determination, then they can 38proceed to the Michigan Court of Appeals for review and then to the Michigan Supreme Court if 39they are granted certiorari.xxi (A graphic of the process is included in Appendix B.) 40 41Threshold for Compensation 42 43Under the current liability system, plaintiffs must prove that negligence occurred in order to 44recover damages from a facility or physician. The model act uses the standard of “avoidability” 45rather than negligence. The model act states, 46 47 In order to establish a superior system for compensating patients injured by medical 48 treatment . . . this act will provide for compensation of patients that experience an 49 ‘avoidable medical injury,’ regardless of whether or not the care was negligent. The 50 underlying purpose of this act is to improve the quality of patient care and reduce both

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1 the number and the severity of patient injuries.xxii 2 3The model act defines a compensable “medical injury” as a physical injury which is: a) the 4avoidable result of medical care rendered; b) the result of inappropriate medical care; or c) the 5avoidable result of failure to render a treatment option when such treatment option was 6appropriate.xxiii The model act also defines lack of informed consent as a “medical injury” under 7certain circumstances. The model act does not provide a specific definition for “avoidable” or 8“avoidable result.”xxiv The model act excludes self-inflicted injuries and injuries that are a natural 9consequence of the patient’s physical condition at the time of treatment. It also excludes short-term 10injuries where the disability resolves within 30 days from the time of the treatment or failure to 11treat.xxv 12 13Compensation Determined 14 15If a patient’s claim is determined to be a medical injury, then the patient shall receive 16compensation. Compensation is governed by §501-§531 of the model act. The compensation 17structure is similar to a workers’ compensation model. It sets up general recovery provisions and 18then includes several caveats and exceptions to these provisions. The general rules state that: 19 20  Previously incurred out-of-pocket expenses are payable in a lump sum; 21  Future out-of-pocket expenses are payable within 30 days of being incurred; 22  The Commission shall calculate a lost wages total based on how long the patient could not 23 work and then subtract compensation that the patient received as long-term disability 24 income; and 25  The Commission shall determine any appropriate death benefit based on a medical 26 injury.xxvi 27 28The model act does not permit subrogation of the patient’s recovery by other entities, and it does 29not include a provision for the payment of non-economic damages.xxvii 30 31Patient Compensation Commission 32 33The Governor shall appoint the board of directors for the Commission, and the board shall include 34two citizen representatives, two allopathic or osteopathic physicians, two facilities’ representatives, 35one casualty insurer representative, one attorney, and the director. The physician nominees shall be 36nominated by the state medical association, and the governor shall receive the consent of the senate 37on the nominees. The model act assigns the Commission broad powers and numerous duties 38including overseeing payments to injured patients, maintaining lists of qualified experts and 39qualified judicial candidates, and overseeing the facility and physician assessment process.xxviii The 40Commission shall have broad access to materials relevant to cases before it and the ability to 41inspect facilities where relevant materials are kept.xxix 42 43Compensation Fund 44 45The model act establishes a compensation fund to distribute funds to patients who suffer a medical 46injury. The board of directors shall oversee the fund, and it will be financed with facility and 47physician assessments.xxx The model act states that when determining the aggregate and individual 48assessments, the board’s duty is “to fix and maintain assessments at the lowest possible rate of 49contribution consistent with the maintenance of a solvent medical injury compensation fund . . .”xxxi

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1The state Commissioner of Insurance shall have an actuarial analysis of the fund completed in its 2first year, and then have biennial analyses done in the future.xxxii 3Patient Safety and Medical Error Reporting 4 5Improving patient safety is a major point of emphasis in the model act. It states, “The primary 6responsibility of physicians under this act is the reporting of medical errors.xxxiii Under this act, the 7greatest transgression a physician can commit is to not report an error.” However, the language of 8the model act appears to create a voluntary reporting system for individual physicians.xxxiv The 9model act requires facilities to report medical errors to the Commission and to file a report on how 10the facility will prevent similar errors in the future.xxxv The model act also includes a provision that 11allows physicians to appeal error determinations.xxxvi 12 13Under the model act, a health care facility must establish a department of patient safety to inform 14medical staff members of the procedural requirements that they must follow, to provide educational 15items, and to assist medical care personnel and patients in completion of the error reporting 16form.xxxvii 17The Commission is also required to establish a searchable electronic database to receive data from 18the Court. Information from this database shall be made available for patient safety analysis to 19hospital patient safety offices and to patient safety regulatory authorities, research organizations, 20and health care purchasing or quality entities in accord with federal and state privacy laws. Finally, 21the Commission is required to publish an annual report summarizing trends in claiming and patient 22safety data.xxxviii 23 24AMA ANALYSIS 25 26Our AMA applauds MSMS for tackling some of the major problems with the current liability 27system. The model act is a good first step in trying to develop options to fix key weaknesses with 28the system. It focuses on improving patient safety, and it attempts to bring reliability and 29consistency to patient compensation. Other positives include: 30 31  Injured patients would receive fair compensation for their economic damages; 32  Injured patients would recover in a more timely fashion; 33  Injured patients would not face subrogation of their compensation awards except in limited 34 situations; 35  It would appear to preclude unpredictable non-economic damage awards from driving the 36 system into crisis; 37  It would allow patients to recover more of a compensation award by limiting attorney 38 contingency fees and other litigation costs; 39  It would establish a medical court to resolve medical liability claims; 40  Medical court judges would be encouraged to call on independent experts to assist with 41 their deliberations; 42  Medical error reporting would be done on a voluntary basis; 43  It would encourage the use of alternative dispute resolution when parties disagree about 44 claim determinations; and 45  It would include a strong appeals process for both sides of the claim. 46 47MSMS intends for the model act to be implemented as a pilot program to judge its effectiveness. 48Our AMA is supportive of state efforts to find innovative solutions to the broken liability system, 49and therefore, we commend MSMS in these efforts. However, there are too many variables and

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1departures from AMA policy in the model act for our AMA to recommend this proposal as an 2alternative MLR program either to Michigan or to other states at the present time. Once the 3program has been implemented as a pilot, and data are available to analyze, our AMA will be able 4to make a more informed decision on the proposal. 5Compensation Threshold 6 7One major concern with the model act is its shift away from negligence to the avoidability 8standard. While the model act would not create a pure no-fault system like many states’ 9automobile insurance systems, the model act’s avoidability standard comes close. In 2003, our 10AMA issued Board of Trustees Report 32 (A-03), which evaluated numerous MLR alternative 11reforms. The report considered a no-fault system as a possible federal option. The Board Report 12concluded: 13 14 All in all, based on numerous studies on applying a no-fault compensation system to 15 medical liability, the overall expected cost of such a system appears to be overwhelming. 16 Whereas automobile no-fault insurance systems spread the costs of funding such systems 17 over millions of drivers, with medical liability there is a very limited community of health 18 care providers. There is also an issue of setting premiums based on different specialties, 19 subspecialties, and experience, with the potential for physicians who practice lower risk 20 medicine and surgery to pay relatively higher insurance rates. In addition, under current 21 law any physician who has a claim paid on his or her behalf is subject to reporting to the 22 National Practitioner Data Bank (NPDB), regardless of fault. Without modifying or 23 eliminating this aspect of NPDB reporting, such consequences would be patently unfair to 24 physicians.xxxix 25 26Several MLR experts have endorsed the avoidability standard in recent years. For example, 27Common Good uses this standard in its health courts model. To date, there is an absence of 28empirical evidence available to allay concerns that an avoidability standard would cause a 29significant increase in the compensation awarded to plaintiffs in medical liability actions. 30Specifically, the concern is that this increase in compensation would drive up liability premiums 31which would lead to less access to care for patients. 32 33Supporters of the avoidability standard contend that although there will be more compensated 34claims under the proposed system, the claims will be for smaller amounts and there will be a 35greater level of consistency and reasonability with the more serious claims. Until there is evidence 36that this theory is effective in practice, our AMA remains committed to supporting the negligence 37standard. The AMA strongly encourages MSMS to obtain an actuarial analysis completed by a 38medical liability expert with access to Michigan closed claim data who could evaluate the possible 39cost effects of changing the standard from negligence to avoidability. Such analysis could offer 40Michigan physicians considering participation in a pilot project a better picture of how 41participation might affect them. 42 43Program Assessments 44 45Another concern with the model act is how the Commission would set assessments for physicians 46and facilities. Physician assessments could be more onerous than their current liability premiums if 47the no-fault system leads to an influx of claims or if the system does not work as intended. Prior to 48participation in the pilot, physicians should seek an initial projected assessment. Also, physicians 49practicing at both participating and non-participating facilities should determine whether they will 50have to pay for both the assessment for the pilot project and a standard liability policy for his or her

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1work at a non-participating facility. A significant education effort will be needed to explain these 2issues to physicians considering participating in a pilot.

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1Program Review 2 3Sections of the model act call for the completion of performance audits and annual reports.xl,xli 4While these reports are a good idea, they do not review the program as a whole. Instead, they 5focus on specific aspects of the program. Further, they do not grant any entity or person the 6authority or discretion to either sunset or recommend sunsetting the program for financial failure or 7other operational issues. MSMS should consider adding a financial backstop provision in case the 8pilot program experiences financial difficulties. The backstop could be a governmental entity or a 9foundation interested in these issues. It would be advisable to set up these provisions on the front 10end of any pilot project in order to limit the financial effect that the model might have if it does not 11operate as intended. 12 13Commission Authority 14 15A further concern is the breadth of authority that the model act provides to the Commission over 16participating physicians and facilities.xlii The inspection and seizure provisions are overbroad. 17Since the participating facilities and physicians are volunteering to take part in this system, MSMS 18may want to consider limiting the Commission’s authority. Preventing errors and improving 19patient safety are major goals of the model act, and the volunteers who sign up for it will have 20these goals in mind. Physicians and facilities may not sign up if they have to face a Commission 21that has too much authority to intervene in their practices. 22 23Judicial Training 24 25The model act fails to call for specific training for health court judges. In the AMA’s Health Court 26Principles, our AMA calls for health court judges to have specialized training before being 27appointed to the bench. Our AMA believes this to be a critical element of our principles and 28recommends that MSMS consider calling for this type of training in the model act as well. 29 30AMA Guides 31 32To mention one last minor suggestion, the model act references the 3d Edition of the AMA Guides 33to the Evaluation of Permanent Impairment rather than the 6th and current version of the Guides. 34The Michigan workers’ compensation system has not adopted the Guides, but MSMS may want to 35consider utilizing the most current version of the Guides in the model act. 36 37CONCLUSION 38 39MSMS has drafted an innovative and thought-provoking MLR alternative program. Our AMA 40commends their efforts in this regard. The model act is a significant departure from the current 41medical liability system, and there are several issues that need further discussion, refinement, and 42research before our AMA is able to recommend it to Michigan or other states. This analysis is not 43meant to dissuade MSMS’ efforts in this regard; rather, it is intended to raise issues that MSMS 44should consider as the MSMS leadership works to improve the proposal. 45 46RECOMMENDATION 47 48 1) The Board of Trustees recommends that Resolution 219 (A-08) not be adopted and the 49 remainder of the report be filed. 50 51Fiscal Note: Less than $500.

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1 2Appendix A 3 4RELEVANT AMA POLICY 5 6H-435.967 Report of the Special Task Force and the Advisory Panel on Professional Liability 7(1) It is the policy of the AMA that effective medical liability reform, based on the California 8Medical Injury Compensation Reform Act (MICRA) model, is integral to health system reform. 9The AMA's MICRA-based federal tort reform provisions include: (a) a $250,000 ceiling on non10economic damages, (b) the offset of collateral sources of plaintiff compensation, (c) decreasing 11incremental or sliding scale attorney contingency fees, (d) periodic payment of future awards of 12damages, and (e) a limitation on the period for suspending the application of state statutes of 13limitations for minors to no more than six years after birth. (2) Our AMA also supports federal 14reform to achieve: (a) a certificate of merit requirement as a prerequisite to filing medical liability 15cases; (b) statutory criteria that outline expert witness qualifications; and (c) demonstration projects 16to implement potentially effective alternative dispute resolution (ADR) mechanisms. (3) Our AMA 17supports medical product liability reform, applicable to the producers of pharmaceuticals and 18medical devices, as an important state and federal legislative reform objective. (4) Any health 19system reform proposal that fails to include MICRA type reform, or an alternative model proven to 20be as effective in a state, will not be successful in containing costs, providing access to health care 21services, and promoting the quality and safety of health care services. Under no circumstances 22would support for federal legislation be extended or maintained if it would undermine effective tort 23reform provisions already in place in the states. Federal preemptive legislation that endangers 24effective state-based reform will be actively opposed. (BOT Rep. 53, I-93; Reaffirmation A-00; 25Reaffirmation I-03; Reaffirmed: Sub. Res. 910, I-03; Reaffirmation A-04) 26 27H-435.969 Report of the Special Task Force on Professional Liability and the Advisory Panel on 28Professional Liability 29Our AMA: (1) reaffirms its support for investigating promising Alternative Dispute Resolution 30(ADR) mechanisms, in the context of demonstration projects designed to evaluate whether they 31resolve medical liability claims fairly and in a more timely and cost-effective manner. (2) The 32AMA strongly recommends that if cost containment goals are to be achieved, ADR proposals 33designed to provide greater access to legal process must incorporate effective mechanisms to: (a) 34identify non-meritorious claims and dispose of them; (b) decrease the proportion of cases being 35litigated; (c) increase the portion of any settlement payment received by the patient; and (d) 36identify appropriate guidelines for the payment of damages; and (3) continues to monitor and 37disseminate information to state and component medical societies about state and federal initiatives 38that address the issue of protections from liability risks for physicians who provide volunteer 39activities and care of the indigent, as well as the effectiveness of those initiatives. Effective 40medical liability reform, based on the California Medical Injury Compensation Reform Act 41(MICRA) model, is integral to health system reform. (BOT Rep. M, I-92; BOT Rep. I-93-53; 42Modified: Sub. Res. 205 and Reaffirmation A-00; Reaffirmation A-04; Reaffirmation A-06) 43 44H-335.965 Patient Safety 45Our AMA: (1) continues its advocacy efforts in the area of patient safety and work to promote a 46meaningful long-term approach to ensure greater patient safety in the delivery of health care in our 47nation; (2) will work in collaboration with the National Patient Safety Foundation, national 48medical specialty societies, state and local medical societies, other provider groups and a broad 49range of public and private organizations to continually advance efforts to improve patient safety 50through educational activities and all other available means to discover and promote "best 51practices" in the delivery of health care services; (3) continues to advance non-punitive,

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1evidenced-based health systems error data collection as well as strong legal protections for 2participants in safety programs. At a minimum, these protections must ensure that all information 3reported or otherwise gathered in the process of patient safety and error reporting programs 4(including any data, report, memorandum, analysis, statement, or other communication) intended 5either for internal use, or to be shared with others solely for the same purposes, remain confidential 6and not be subject to discovery in legal proceedings. Such protections must extend from the time 7of reporting to post-incident review activities and with regard to the repositories of identifiable data 8from such reporting programs; (4) continues to call for a central role for the Agency for Healthcare 9Research and Quality (AHRQ) in coordinating the multifaceted, multi-industry national patient 10safety initiative envisioned by the AMA. The AHRQ must have sufficient funding to carry out 11research and development activities to support and advance public and private patient safety 12initiatives across the nation; and (5) continues to help us inform our patients and the public in 13general concerning on-going efforts to improve quality and reduce errors in medical care. (Sub. 14Res. 202, A-00; Reaffirmed: BOT Rep. 13, I-00; Reaffirmation A-01; Reaffirmation I-03; 15Reaffirmation A-05) 16 17H-435.951 Health Court Principles 18AMA PRINCIPLES FOR HEALTH COURTS These principles are intended to serve as legislative 19guidelines for state medical associations and can be amended on an as needed basis. Health courts 20should be structured to create a fair and expeditious system for the resolution of medical liability 21claims with a goal of resolving all claims within one year from the filing date. Health court judges 22should have specialized training in the delivery of medical care that qualifies them for serving on a 23health court. Negligence should be the minimum threshold for compensation to award damages. 24Health court judgments should not limit the recovery of economic damages, but non-economic 25damages should be based on a schedule. Qualified experts should be utilized to assist a health 26court in reaching a judgment. Health court pilot projects should have a sunset mechanism in place 27to ensure that participating physicians, hospitals, and insurers do not experience a drastic financial 28impact based on the new judicial format. (Excerpt – full list of principles available upon request.) 29 30REPORT 32 OF THE BOARD OF TRUSTEES (A-03) Medical Liability Reform: Report on 31MICRA Enhancements 32It is important to reiterate that the discussion below on alternative liability system reforms is not to 33be construed as any reduction or diversion of support for MICRA reforms in H.R. 5, but rather is an 34exploration of additional liability reforms that might serve to further our goals. Alternative liability 35system reforms, such as a no-fault system, or fault-based administrative system, realistically could 36best be implemented as targeted demonstration projects in selected jurisdictions, with Federal grant 37money and studies to collect empirical evidence as to their efficacy. Indeed, some of these 38alternative reforms demonstrate the limits of the ability of federal legislation to dictate to states 39how liability cases should be heard and tried. They are more appropriate as state initiatives. 40(Excerpt – full report available upon request.)

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Patient

Doctor

Nurse, etc.

Local Hospital Patient Safety Committee Decision Appeal 2 Citizens 2 Doctors 2 Facility/Hospital 1 Insurance 1 Lawyer

- Ombudsman

+ Dr/Patient

Michigan Patient Compensation Commission

Referral to 3 Doctors, at least one of whom is in the same specialty

Ombudsman Statewide Patient Safety Database

List of qualified Judges For medical injury court

Appeal List of Expert Witnesses

Attorney Medical Injury Court

21i Cal Civ Code §3333.2 (2008) 22ii Several state non-economic damages caps are in various stages of litigation, so this number may fluctuate. 23iii Colorado has enacted both a non-economic and an economic damages cap. 24iv Full model act available upon request. 25v Michigan Patient Compensation Act §204 26vi Id. at §607 and §601(1) 27vii Id. at §207(1) 28viii Id. at §608(1) 29ix Id. at §608(2) 30x Id. at §608(3) 31xi Id. at §608(6) 32xii Id. at §609 33xiii Id. at §610 34xiv Id. at §611 35xv Id. at §613 and §614 36xvi Id. at §617 37xvii Id. at §618 and §619 38xviii Id. at §619(3) 39xix Id. at §620 40xx Id. at §623(3) 41xxi Id. at §628 and §634 42xxii Id. at §102(3) 43xxiii Id. at §103 44xxiv Id. at §103 45xxv Id. at §103 46xxvi Id. at §501 47xxvii Id. at §502 48xxviii Id. at §302 49xxix Id. at §307 and §308 50xxx Id. at §401 51xxxi Id. at §408 52xxxii Id. at §413 53xxxiii Id. at §203 54xxxiv Id at §608.75 55xxxv Id. at §608.5(1) 56xxxvi Id. at §608.5(2) 57xxxvii Id. at §609(7) 58xxxviii Id. at §302(3)(u) 59xxxix Board of Trustees Report 32 (A-03) 60xl Michigan Patient Compensation Act §302(3)(b) 61xli Id. at §626 62xlii Id. at §307