Lessons for Albany on Malpractice Limits

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ALBANY, NY — As New York lawmakers strive to complete the state budget by April 1, one of the most contentious battles involves whether to include a cap on medical malpractice payments that Gov. Andrew M. Cuomo has proposed with the support of the state’s hospital industry.

The measure would limit damages paid by doctors and hospitals for pain and suffering to $250,000, a ceiling that hospitals predict would reduce their insurance premiums by one-fourth and give them the savings necessary to blunt the pain of the sharp cuts in Medicaid spending that Mr. Cuomo has also proposed.

But other states that have similar caps in place offer cautionary evidence about the big savings for health care providers that such limits are believed to produce.

In 1975, California lawmakers approved a $250,000 cap on so-called noneconomic damages in cases of medical mistakes, which has since become a model for similar proposals. At least 35 states now have at least some limits on malpractice damages.

The California law has also been the focus of long-running debate over who benefits from caps — doctors or insurers — and whether the measures inflict unintended negative consequences upon victims of medical errors, including plaintiffs’ inability to find lawyers to take their cases.

In the early years after California enacted its cap, doctors did not see the cost of their insurance policies plummet. From 1976 to 1986, the total paid in premiums increased 176 percent, according to the National Association of Insurance Commissioners. (Nationally, premiums rose 221 percent.)

“I don’t think the doctors even believe that this saves them money,” said Jamie Court, the president of Consumer Watchdog, a California group that lobbies for insurance reform. “But what they know is this limits their legal accountability, and that’s more important for them.”

Supporters of tort changes say the years of legal challenges against California’s cap explain why insurers did not immediately reduce their rates. Over all, they say, states that have malpractice caps eventually see fewer claims, smaller average malpractice losses for doctors and, in turn, lower premiums.

California and three other states that had $250,000 caps in place in 1991 saw premiums increase 28 percent in the following decade, compared with a 48 percent increase in other states, according the Physician Insurers Association of America.

The trade association’s president, Lawrence E. Smarr, said that capping noneconomic damages “clearly does work” in reducing costs.

“Because it is a competitive marketplace, rates will go down,” Mr. Smarr said, “both because the insurers can afford to lower their rates and because you’ll have increased competition.”

Researchers have found that, generally speaking, limiting noneconomic damages in malpractice cases has the effect of slowing the rate of growth in premiums. But they have not found the huge savings that officials in New York are predicting.

A 2004 study by Kenneth E. Thorpe, a professor of health policy at Emory University found that caps had the effect of reducing premium rates on a per-physician basis by 13 percent, while a study published in 2005 found that limiting damages produced a 6 percent decrease in premium costs in the short term.

“Without question, it’s not a game-changer,” said an author of the 2005 study, W. Kip Viscusi, an economist at Vanderbilt University.

A committee appointed by Mr. Cuomo to find Medicaid cuts cited just one piece of cost-savings evidence: a 2004 report commissioned by a group of malpractice insurers that said a $250,000 cap would reduce malpractice costs for New York hospitals and doctors by 24 percent.

Kenneth E. Raske, the president of the Greater New York Hospital Association, said the savings would allow the state’s hospitals to live within the rate reductions and across-the-board spending cap that the Medicaid committee also proposed.

“If you have limited resources,” Mr. Raske said, “you have to go at those factors that are driving costs up, and divert those resources into patient care for everybody.”

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