October 7, 2013
Pursuant to Elections Code Section 9005, we have reviewed the
proposed statutory initiative
(A.G. File No. 13‑0016) 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. Prescribers and pharmacists are not currently required to
register to use the system or 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. However, beginning January 1, 2016,
prescribers and pharmacists will be required to apply to obtain access
to CURES, but they will not be required to consult CURES prior to
prescribing or dispensing controlled substances.
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 physicians 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 physicians
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 higher medical
malpractice costs due to an increase in the amount of awards and
settlements in medical malpractice cases and could result in higher
medical malpractice costs due to a potential increase in the number of
medical malpractice claims filed. These higher costs would likely be
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 net, these factors would likely
increase the costs associated with resolving medical malpractice claims
relative to what they would be absent the measure. The higher medical
malpractice costs would, in turn, increase costs for health care
providers.
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. The degree to
which increased malpractice costs resulting from the measure would have
fiscal effects on state and local governments depends, in large part, on
the degree to which additional malpractice costs are passed on to state
and local governments as purchasers of health care services in the form
of higher prices for health coverage and health care services. Our
analysis assumes additional medical malpractice costs are generally
passed along to purchasers of health care coverage and health care
services. 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 a
package of several federal medical malpractice reforms that serve to
limit medical malpractice litigation—including caps on noneconomic
damages—would reduce national medical malpractice costs 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, on net, 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—including the degree to which
the assumptions in the federal analysis noted above can be applied to
changes associated with raising the cap on noneconomic damages in
California—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 Changes in
the Amount and Types of Health Care Services Provided
Changes in the Amount and Types of Health Care Services
Provided. 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 could increase
the number of medical malpractice lawsuits filed against health care
providers. In response, some health care providers, such as physicians,
may change their behavior in an effort to avoid having a lawsuit filed
against them. Such changes in behavior may increase or decrease health
care costs. For example, a physician may order a test or procedure for a
patient that he or she would not have otherwise ordered. In some
instances, the additional test or procedure may reduce future health
care costs by preventing further deterioration of a person’s health that
would have otherwise resulted in additional costs. 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 the amount and types of
health care services provided and the net effect such changes have on
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, on net,
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, would likely encourage the provision of
different amounts and types of services that, on net, 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 net effect of
malpractice reforms—including caps on noneconomic damages—on spending
associated with changes in the amount and types of health care services
provided generally range from minor to an increase of more than 3
percent. Several factors likely affect the degree to which such
estimates could be applied to state and local government health care
costs in California, including the degree to which services are provided
through managed care.
In California, the range of potential net effects on state and local
government costs would likely be toward the lower end of the range of
national estimates, in large part due to the high prevalence of managed
care—which is generally associated with fewer changes in the amount and
types of health care services provided in response to malpractice
reforms. However, even a small percentage change in health care costs
could have a significant effect on government 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, potential net
costs could range from 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 Effects.
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. On the other hand, physician testing
could prevent some medical errors and reduce the costs associated
with such errors.
- Potential Savings Associated With Reduced
Prescription Drug Use. To the extent the requirement
that health care providers and pharmacists consult CURES reduces the
number of unnecessary and/or illicit prescription drugs being
dispensed, this measure would likely reduce prescription drug costs
for state and local governments relative to what they would have
been absent the measure. In addition, this requirement could reduce
other state and local government costs associated with unnecessary
and/or illicit drug use, such as law enforcement, social services,
and other health care costs.
- 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
could 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 net
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 net state and local government costs associated with
changes in the amount and types of health care services that, while
highly uncertain, potentially range from minor to hundreds of
millions of dollars annually.
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