November 23, 2009

Senate Majority Leader Harry Reid released his long-awaited healthcare reform (HCR) package on Wednesday, November 18, 2009.  The Patient Protection and Affordable Care Act, S. ___ would cost $849 billion over 10 years.   A vote to cut off debate on whether the bill can proceed, which will need 60 votes to succeed, is expected on Saturday.  Passage is highly uncertain.

Just three weeks ago Speaker of the House Nancy Pelosi unveiled the Affordable Health Care for America Act, H.R. 3962, for which the 10-year price tag was $1.1 trillion.  The dollar amounts are so large that they are best understood by comparison to other expenditures.  As an example, consider current estimates of the national cost of healthcare fraud and waste: these range from about $500 to $850 billion per year.  We will look at the impact of fraud and waste in a future e-Alert.  This week, we will review the savings and other benefits that could be realized through tort reform. 

The same agency that calculated the costs of the HCR bills, the nonpartisan Congressional Budget Office (CBO), recently estimated that tort reform could reduce total national healthcare spending by about 0.5%, or $11 billion in 2009 (Letter from CBO to Senator Orrin Hatch dated October 9, 2009 ). Of this total, 0.2% represents a direct reduction in professional liability costs, including insurance premiums, settlements, awards and administrative costs.  The other 0.3% is the indirect decrease in healthcare spending that CBO currently believes would come from slightly lowered utilization of healthcare services – a reduction in defensive medicine.  Until now, CBO had declined to estimate the effect of tort reform on the volume of defensive medical diagnostics and treatments, citing contradictory studies.  Some tort reform advocates put the annual cost of defensive medicine much higher than CBO.  In 2007, for example, the National Center for Policy Analysis calculated costs as high as $178 billion in 2005 alone. 

CBO’s calculations assume the adoption off national tort reform containing the following features:

• A cap of $250,000 on awards for noneconomic damages;
• A cap on awards for punitive damages of $500,000 or two times the award for economic damages, whichever is greater;
• Modification of the “collateral source” rule to allow evidence of income from such sources as health and life insurance, workers’ compensation, and automobile insurance to be introduced at trials or to require that such income be subtracted from awards decided by juries;
• A statute of limitations—one year for adults and three years for children—from the date of discovery of an injury; and
• Replacement of joint-and-several liability with a fair-share rule, under which a defendant in a lawsuit would be liable only for the percentage of the final award that was equal to his or her share of responsibility for the injury.

This package of tort reforms, according to CBO, would produce a $54 billion reduction in the federal deficit between 2010 and 2020.   

Coincidentally, 54% of 1,502 adults interviewed in a recent poll conducted by Stanford University under a Robert Wood Johnson Foundation grant favored limits on malpractice litigation. Another 32% were opposed, and 12% did not take a position. Of all the respondents, 59% said they thought at least half the tests that physicians order are unnecessary, performed only because of fear of lawsuits.

The proportion of anesthesiologists and other physicians who favor tort reform is probably close to 100 percent.  An article by Studdert et al. on medical malpractice in the January 15, 2004 issue of the New England Journal of Medicine (350(3):283-292) opened with the statement that:

• Few issues in health care spark as much ire and angst as medical-malpractice litigation. Physicians revile malpractice claims as random events that visit unwarranted expense and emotional pain on competent, hardworking practitioners. Commentators lament the "lawsuit lottery," which provides windfalls for some patients, but no compensation for the vast majority of patients injured by medical care. Within the health care industry, there is a nearly universal belief that malpractice litigation has long since surpassed sensible levels and that major tort reform is overdue.

Anesthesiologists, it is well known, pay about one-tenth of the malpractice insurance premiums paid by neurosurgeons.  The ASA Professional Liability Committee reported that the average annual premium in 2007 was $23,481 for a $1 million/$3 million policy, based on a survey of 35 insurance companies. If the set of tort reforms posited in the CBO analysis were enacted, premiums would be expected to drop by 10% -- an average annual savings of at least $2,300 for most anesthesiologists.   But any savings from tort reforms will remain hypothetical for now.  Neither the House nor the Senate bills provide for major change in the medical malpractice courthouse lottery. 

The Senate bill simply declares that is “the sense of the Senate that health reform presents an opportunity to address issues related to medical malpractice and medical liability insurance.”  It is also the sense of the Senate that the “states should be encouraged to develop and test alternative models to the existing civil litigation system,” and that “Congress should consider state demonstration projects to evaluate such alternatives.”  Without either a mandate or funding, the Senate bill is simply precatory. 

The House bill, H.R. 3962, establishes an incentive program for states to adopt and implement alternatives (certificate of merit or “early offer”) as alternatives to traditional medical malpractice litigation. Such alternatives may not include provisions that limit attorneys’ fees or impose caps on damages.  H.R. 3962 also “authorizes such sums as may be necessary to carry out this program.”

In his interview for CBS’ “60 Minutes” taped on September 11, 2009, President Barack Obama expressed willingness to let the states experiment, as provided in both the Senate and the House HCR bills.  He did not support capping malpractice awards, stating that he had not seen any evidence that caps would reduce costs or improve the quality of care.  It is nevertheless possible that stronger provisions on tort reform will appear in whatever healthcare legislation is finally enacted.  Much is still going to change if and after 60 Senators approve the Patient Protection and Affordable Care Act.

UPDATE ON MEDICARE PAYMENTS TO PHYSICIANS

On November 19, the House of Representatives voted 243 to 183 to repeal the Sustainable Growth Rate (SGR) as the basis for annual updates to the Medicare Physician Fee Schedule.  H.R. 3961, the “Medicare Physician Payment Act of 2009” substitutes a 1.2% increase for the anticipated 21.2% cut.  The legislation replaces the SGR with a two-part new update formula:  GDP + 2% for visit and preventive services, and GDP + 1% for specialty services including anesthesia and pain medicine.

The Senate HCR bill (the Patient Protection and Affordable Care Act) erases the 21.2% cut announced in the Final Rule on the 2010 Fee Schedule by CMS in October and substitutes a one-time 0.5% across-the-board increase.  The bill also provides that the fix is limited to 2010, i.e., that it shall have “no effect on the computation of the conversion factor for 2011 and subsequent years.”

It is now up to the Senate to pass legislation that will permanently repeal the SGR.   Please contact your Senators and let them know how important repeal of the SGR is to your practice. 

With best wishes,

Tony Mira
President and CEO