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Medical Liability: Crisis or Ongoing Battle?

Beginning with the insolvency of a number of medical liability carriers that insured Arizona physicians, gaining momentum with the price increase of CNA and the sudden withdrawal of St. Paul, and brought to a head by the 91% rate increase of Medical Protective in 2004 there has been rising concern over what has been described as the third medical professional liability “crisis” in Arizona in thirty years. But the crisis, and the response, is ongoing. It began over thirty years ago when the Imperial Insurance Company went into bankruptcy, when the Travelers (the last company providing medical professional liability insurance in Arizona) withdrew from the market, and when MICA was formed. While there have been prolonged periods when the issues of medical liability have received little overt attention, the issues have never truly disappeared. Temporarily hidden by the many other concerns facing medicine, skirmishes and battles have continued in the legislature and in the courts with very little respite.

Thirty Years and Counting
Responding to the efforts of a few committed physicians, a governor who did not want to see physicians on strike as had occurred in California, and the efforts of many in the insurance industry, the Arizona Legislature adopted HB 2001 thirty years ago this February. Billed as the solution to the medical malpractice crisis, it contained enabling legislation that allowed the formation of medical professional liability carriers by reducing capital and surplus requirements for a three-year period and providing for an excess carrier, the Joint Underwriting Plan, or JUP, to assume responsibility for liabilities greater than $100,000. Carriers formed pursuant to the legislation could be stock, mutual, or reciprocal companies and could offer limits up to $100,000 per occurrence and $300,000 in the aggregate. In addition, they were required to offer coverage to all types of Arizona licensed health care providers, not just allopathic and osteopathic physicians, and to “every licensed health care provider currently holding a non-suspended permit or license issued by this state and providing health care services in this state.” However, the newly formed companies could price the coverage to reflect the risk and could assess and surcharge without limit “for negative underwriting experience.”

Two companies were formed under this legislation. One survived: MICA.

Under the leadership of Jack Brooks, MD with the support of William Crisp, MD, Walter Eicher, MD, James Hurley, MD, Patrick Moraca, MD, William Payne, MD, Bruce Robinson, Edward Sattenspiel, MD, Donald Schaller, MD, and Lawrence Shapiro, MD, MICA was incorporated as a mutual company owned by its policyholders. With the help of the Arizona Medical Association, the fledgling company obtained a loan of $1,000,000 (the minimum required by the enabling legislation) and began writing policies effective April 1, 1976. The loan was repaid the same year. Those physicians in 1976, and those who joined MICA thereafter, built MICA. The state of Arizona did not create MICA; it allowed MICA to be created. It is not and never was a state-run entity. It was and still is sponsored by ArMA but was never owned or operated by ArMA. It is and always has been an Arizona-domiciled mutual insurer subject to Arizona’s insurance regulations, but it is owned by and accountable solely to its policyholder members. It is and always has been a company run by insurance professionals under the oversight of a physician board (thirteen of fifteen members are physicians).

During those first few years, each insured member contributed capital in the form of surplus notes . . . all of which were repaid with interest by the middle 1980s. HB 2001’s reduced capital requirements, cap on limits that could be offered, and requirement to provide coverage to all types of Arizona licensed medical care providers and to all applicants sun-set in 1979. With the return of other insurers able and willing to assume the risk of other health care entities and those few physicians with a history of high claims frequency or severity MICA was able focus on insuring and providing services for physicians and select healthcare entities at the lowest actuarially appropriate cost.

The JUP, the state’s excess carrier, was severely undercapitalized throughout its existence. It continued to operate until March 1981 when its capital and liabilities were transferred to Skandia and it ceased all operations. Over the ensuing twenty years, Skandia paid out nearly three times the value of the capital it acquired in the transaction to pay liabilities.

HB 2001, the same bill that allowed the creation of carriers like MICA also contained elements of tort reform, many of which have been declared unconstitutional by Arizona’s Appeals Courts and Supreme Court or rescinded by its legislature. HB 2001 held that “no medical malpractice action brought against a licensed health care provider shall be based on assault and battery.” However, in 2002 the Arizona Supreme Court, declaring A.R.S. §12-562(B) unconstitutional under Article 18 Section 6 of the Arizona Constitution “as an abrogation of the right to bring an action in battery to recover damages for injuries,” held that a physician could be sued for assault and battery (Duncan vs. Scottsdale Medical Imaging).

HB 2001 provided that a medical malpractice action must be brought within three years of the date of injury. For minors, the period did not commence running until age seven. Exceptions were provided for cases where the defendant intentionally prevented discovery of an injury by concealing or misrepresenting facts about the injury and for actions based upon the leaving of a foreign object inside the patient. Kenyon v Hammer changed that in 1984 when the Supreme Court held that the three-year statute unconstitutionally abrogated the fundamental right to sue for an injury. The Court applied a discovery rule that meant the statute of limitations did not begin to run until the injury was discovered. In a subsequent 1998 case (Doe v Roe) the Supreme Court held that a plaintiff must be able to identify an injury and a particular individual or individuals before the statute began to run. That was expanded further in 2002 in Walk v Ring when the court held that not only must the plaintiff be able to identify an injury and the individual(s) responsible but must also be put on notice that the injury may have been attributable to negligence. The result: in Arizona today, physicians can take little comfort that the statute of limitations will limit their liability years, even decades into the future.

HB 2001 established the standard under which medical malpractice actions would be judged: “The health care provider failed to exercise that degree of care, skill and learning expected of a reasonable, prudent health care provider in the profession or class to which he belongs within the state acting in the same or similar circumstances [and] such failure was a proximate cause of the injury.” Known as the “locality rule,” it has been skirted repeatedly by extracting an often unwarranted concession from the defendant physician and defendant experts that the standard of care in Arizona is the same as it is anywhere else. Family practitioners providing obstetrical services in rural Arizona have been held to the same performance standards as obstetricians at university teaching facilities in California.

HB 2001 provided for court review of the reasonableness of each party’s attorney’s fees upon the request of any party in the action whether the case was settled before trial or was carried through to a court judgment. No evidence has surfaced that attorney fees have been reduced pursuant to this provision in Arizona. Illustrating how difficult it is to rein in fees, Florida recently enacted an even more stringent constitutional provision to limit attorney fees . . . but the judiciary effectively negated even that effort by referring the issue to the state bar association to develop the rules of implementation.

In an effort to reduce frivolous lawsuits, HB 2001 created medical review panels to determine whether the evidence presented to the panel would support a judgment for one party or the other. The decision of the panel was not binding and either party could then proceed with court action. Within a year of its adoption, it was challenged by the plaintiff bar and found to be constitutional. However, thereafter many plaintiff attorneys appeared before the panel but refused to present evidence supporting their allegation of medical negligence. They subsequently argued to the jury in trial that they had opted to “reduce litigation costs” by presenting the case to a jury rather than the review panel. The Arizona Supreme Court in Phoenix General Hospital vs. Superior Court supported their tactic in 1984. By 1986 it was apparent that the panels had been rendered ineffective and the first steps were taken to repeal the legislation. Repeal was accomplished without opposition in 1989 with the simple sentence: “Section 12-567, Arizona Revised Statutes, is repealed.”

In addition to negating many reforms contained in HB 2001, Arizona’s courts have expanded physicians’ liability during the past thirty years. One of the greatest expansions was the introduction of the concept of “loss of chance” through the 1984 Supreme Court ruling in Thompson v Sun City Community Hospital. Prior to this ruling a plaintiff had to demonstrate that an “act of malpractice must be shown to have been the probable and not merely the possible cause” of injury, and that the “mere loss of an unspecified increment of the chance for survival is, of itself, insufficient to meet the standard of probability.” Following the Supreme Court’s decision, a defendant physician may be found liable “upon proof an increase in the risk of harm.” This ruling has expanded the opportunity for recovery for the most common allegation facing physicians today, the allegation of failure to diagnose and delay in diagnosis.

In 2000, the Appeals Court expanded a physician’s duty of care in Diggs v Arizona Cardiologists. No longer is a physician-patient relationship necessary to establish a duty of care on the part of the physician. This duty was further expanded in 2003 when, despite the strong dissent of the Chief Justice, the Arizona Supreme Court in Stanley v McCarver included the requirement that a physician ensure communication of laboratory and radiographic information directly rather than rely on other members of the health care team to do so.

The past thirty years have seen other expansions of physician liability including exposure to claims of elder abuse and recovery for “hedonic damages” (the loss of enjoyment). In 2000 the Supreme Court did more than continue the expansion of the statute of limitations in Logerquist v McVey: the decision broadened the use of non-peer reviewed opinion-based "junk science" in jury trials. As a result, courts no longer conduct Frye or Daubert hearings to evaluate the validity of testimony based upon pure "opinion" rather than science. Juries are now left to sort out pure opinion from science in evaluating an expert’s testimony.

The Battles
Tort reform is not a single event. There is no single solution no matter how broad and encompassing that will solve the difficult issues underlying medical professional liability. Medical care is complex. It involves not only the science and the art of medicine but appropriate individual, geographic and practice type variations; sometimes unavoidably imperfect communication; and frequently, unrealistic patient expectations. Occasionally, its practitioners are fatigued, distracted, or under stress. Sometimes injuries are an inevitable consequence of the underlying disease process or an accepted risk of a procedure. And patients may be responsible for their own injuries through non-compliance. As long as physicians (and hospitals, pharmaceutical companies, laboratories, medical facilities, etc.) are the primary source of compensation for alleged iatrogenic injuries, some mechanism must be available to determine if the injury was due to inappropriate care. In our country, that is through the court system. Even if physicians and others who provide medical care were shielded from financial responsibility, there would still need to be a mechanism to ensure accountability, to define and determine acceptable standards of practice as well as defend against its allegation.

The most enduring legacy of HB 2001 is the mutual company brought into existence by physicians in 1976: MICA. MICA is the entity in Arizona that has continuously sought to defend physicians alleged to have committed malpractice, to compensate patients who have indeed been injured by inappropriate care, to introduce and support legislation that brings balance to the system, and to bring and support court appeals when judicial decisions take the system out of balance. Like its physicians in the practice of medicine, it is not always perfect and not always as effective as desired, but it is always seeking to protect its members.

In recent years MICA supported the bill requiring an affidavit of merit from a licensed physician stating that the accused physician fell below the standard of care. MICA introduced and supported legislation to remove physicians from the liability of the Adult Protective Services Act, to require an expert witness testifying on the standard of care have qualifications to do so, and to allow a physician to say “I’m sorry” to a patient and a patient family following an adverse outcome without worry that such an expression of empathy could be used in a subsequent liability action. For its thirty years, MICA has quietly responded to inroads of the plaintiff bar and sought to maintain security for its members.

Today, the company formed by a few Arizona physicians is considered one of the strongest medical professional liability carriers in the country. Its employees work with similar companies and through organizations across the country to better protect its members. It has the financial resources, personnel, and systems to keep its promise of protection long into the future.

But MICA and similar physician-owned companies in other states are a threat judging by the all-out effort by the plaintiff bar and its often captive “public interest” groups to destroy the relationship of trust between physicians and their own owned insurers. First, they have attacked the model for tort reform, California’s MICRA, by inaccurately claiming that Prop 103 in 1988 is responsible for keeping premiums down in that state. They have invited representatives of the AMA to side with them against the insurers . . . the very insurers owned by the physicians themselves. Their captive “public interest group,” the Foundation for Taxpayer and Consumer Rights (FTCR), published a now thoroughly discredited piece in mid-2005 claiming to show medical professional liability insurers are reaping obscene profits. The FTCR published another article in the waning days of 2005 titled “False Accounting: How Medical Malpractice Insurance Companies Inflate Losses to Justify Sudden Surges in Rates and Tort Reform.” In their latest piece, the FTCR again claims that insurers are using improper accounting methods and that insurance reform modeled after Prop 103 in California is the answer to rising premiums. They then proceed to target a California-domiciled mutual insurance company subject to the requirements of Prop 103 as an example of a company using “improper accounting” to inflate premiums.

MICA’s Commitment
MICA’s commitment, today and in the future, is to its insured members, its owners. First and foremost, we will continue to operate as a responsible insurance company capable of fulfilling the promises we make to each insured. That means having the personnel, the team of defense attorneys, the systems, and the resources to meet our obligations. It means setting premiums at a level to ensure adequate rates and the reserves needed to defend and indemnify our members far into the future, and the discipline to return dividends to our owners when conditions warrant, just as we have done for many years. It means continuing to operate as efficiently and as effectively as possible. It means we will continue providing our members with educational programs and techniques to help reduce the risk of an allegation of medical negligence and employing diligent underwriting of applicants to ensure that those with a significantly greater risk of claim or suit are directed toward insurers with premium pricing that considers their higher costs.

MICA will continue to seek legislative change and judicial rulings that will improve the balance between the defense of our members accused of malpractice and the needs of patients injured by true medical malpractice; to work with other organizations to improve medical care and reduce medical error; and to strive to provide stability in rates and availability of coverage for all specialties in all areas of the state. In short, MICA will continue the mission established thirty years ago by its founders and first board of trustees.