AAOS Now

Published 3/24/2021
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Daniel R. Schlatterer, DO, MS, FAAOS; Lon Anderson; Craig Mahoney, MD, FAAOS; William Ritchie, MD, FAAOS

Legislative Updates in Tort Reform

Editor’s note: This article concludes a two-part series on tort reform. The first installment appeared in the February issue of AAOS Now. 

Many states are actively lobbying for tort reform. On May 5, 2017, the state of Iowa’s medical liability landscape changed when then-Governor Terry Branstad signed tort reform bill SF 465. As originally reported in an AAOS Now article (“History Lesson: Tort Reform in Iowa,” December 2018), the bill established a “soft cap” on damages, strengthened expert witness standards, enacted a certificate of merit for all medical liability suits, and expanded candor protections for physicians.

Original details concerning key provisions in the bill demonstrate the importance of this legislation to physicians and surgeons in Iowa. The bill outlined a $250,000 soft cap on noneconomic damages, except in the most egregious situations involving impairment of bodily function or substantial disfigurement.

The passage of SF 465 inspired hope of a decrease in both malpractice claim frequency and payout amounts, and many providers in the state experienced an initial drop in malpractice premiums in 2018. Some orthopaedic practices reported having malpractice premium reductions in the range of 30 percent to 40 percent, demonstrating both the immediate impact of this legislation and the potential for similar initiatives nationwide.

SF 465 also established a statewide standard governing the qualifications of individuals serving as experts, addressing the specter of outside “hired guns” whose expert opinions may or may not be consistent with the local standard of care. Specifically, any expert in a malpractice case must be licensed in the same or substantially similar specialty as the defendant, as well as be in active practice or in academia in the five years prior to the incident. Additionally, the state now requires filing an affidavit at or near the start of a liability suit to certify that the case itself has substantive merit. Together, these elements of the legislation are believed to have been instrumental in restoring some semblance of balance in the system and reducing the occurrence of marginal cases that may have been settled for nuisance value.

Unfortunately, despite passage of the bill, Iowa has experienced a significant increase in the size of malpractice awards in select cases. There have been five large settlements in the two years following the passage of SF 465. In just five cases since 2017, Iowa juries have awarded plaintiffs nearly $85 million in damages, of which nearly three-fourths were noneconomic. The financial pressure that followed those awards has placed Iowa hospitals—specifically smaller, rural hospitals—at risk. Cases that were litigated trended toward more verdicts in favor of the defense, creating a dramatic win-lose situation for the parties involved. In cases that were settled, there was also concern regarding settlement sizes. Outside experts’ views on the issues, which may play a larger role early in the process, can be skewed because they are brought on by plaintiffs and may present evidence that tacitly supports the claims.

It has only been three years since SF 465 was passed, and it is anticipated that Iowa will ultimately see a reduction in case numbers, as well as a more tightly grouped case mix accepted by plaintiff counsels. Furthermore, the hope is that case acceptance will increasingly center on prospective high-value economic matters, while reducing or entirely eliminating superfluous ones. Since the passage of SF 465, it is likely that plaintiff counsels are doing a simple cost-benefit analysis upfront, recognizing that there is little room to maneuver under the caps put in place in the absence of a catastrophic outcome. Cases with perceived merit move forward, but those that are deemed more speculative do not.

The next step for physicians and healthcare organizations is to pass legislation to move to hard caps. Save for Minnesota, all of Iowa’s neighboring states have a hard cap on noneconomic damages. It ranges from $500,000 in Nebraska, South Dakota, and Illinois (although Illinois has a separate $1 million cap for hospitals) to $700,000 in Missouri and $750,000 in Wisconsin.

In 2020, Iowa advocates were successful with the passage of SF 2338, which capped noneconomic damages at $750,000. The Iowa Senate approved the bill with a resounding 30–20 vote. (Only 26 votes are needed for passage in the Senate.) With a slim 53-vote margin in the House of Representatives, practicing attorneys in the House Republican caucus were able to prevent the necessary 51 votes for passage. The House Democrat caucus, despite having members open to consideration, closed ranks and organized each of its 47 members in opposition to the bill, forcing the Republicans to consolidate support or risk losing the necessary votes for passage. Unfortunately, they were unable to get the 51 votes needed in the Iowa House, and the issue was tabled.

The 2020 state elections saw House Republicans expand their majority from 53 to 59 members, renewing hope that advocates will be able to secure 51 votes for passage during the 2021 legislative session, which began Jan. 11.

Iowa’s recent changes are in contrast to New Mexico, where the Medical Malpractice Act has not been substantially changed since 1992. There is a $200,000 cap on damages covered by underlying insurance, with an additional $400,000 covered by the Patient Compensation Fund (PCF). The PCF also pays for all future medical costs. The Trial Lawyers Association has attempted to open the act virtually every year to raise or do away with caps. The PCF has become less solvent over time due to a few large awards, and there is a current bill to raise the caps to $250,000 and $500,000. Another bill from the trial lawyers would cut hospitals and their employed physicians out of the act, which would deprive the PCF of future payments needed to cover the liabilities it has incurred under the mandatory occurrence policies required to qualify under the act. The result would be higher PCF contributions by a dwindling number of private practice physicians, potentially driving many out of practice and ultimately bankrupting the PCF.

It is difficult to predict the long-term impact of tort reform, but it can be said conclusively that it has changed the medico-legal environment in Iowa and many states for the foreseeable future. In the future, all stakeholders would ideally approach medical malpractice as responsible stewards under a common-sense tort reform model. Furthermore, when allegations of medical malpractice arise in earnest, the hope is that, with reasonable plaintiffs and juries and responsible jurisprudence, productive outcomes for all will be achieved.

Daniel R. Schlatterer, DO, MS, FAAOS, is the vice chairman of orthopaedic surgery and the residency program as well as cochief of orthopaedic trauma at Atlanta Medical Center. He is a member of the AAOS Medical Liability Committee. He can be reached at danschlatter67@gmail.com.

Lon Anderson is a government affairs consultant at PolicyWorks in Des Moines, Iowa. He can be reached at lonanderson@policyworksllc.com.

Craig Mahoney, MD, FAAOS, is a practicing orthopaedic surgeon and partner at Iowa Ortho in Des Moines, Iowa. He is a member of the AAOS Medical Liability Committee and Board of Councilors. He can be reached at cmahoney@iowaortho.com.

William Ritchie, MD, FAAOS, is a practicing surgeon and partner at New Mexico Orthopaedic Associates in Albuquerque, N.M. He is chairman of the AAOS Medical Liability Committee and past president of the New Mexico Medical Society. He can be reached at RitchieWL@nmortho.net.