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F I S C A L I M P A C T R E P O R T

SPONSOR Picraux

ORIGINAL DATE

LAST UPDATED

2-6-2006

HB 851

SHORT TITLE Medical Malpractice Joint Underwriting Act

SB

ANALYST Dearing

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Health Policy Commission

Department of Health (DOH)

SUMMARY

Synopsis of Bill

House Bill 851 (HB 851) proposes a new section be added to the New Mexico Insurance Code

creating the “Medical Malpractice Joint Underwriting Association Act” and the Joint Underwrit-

ing Association (JUA) to provide medical malpractice insurance on a self-supporting basis.. The

JUA’s membership is to be composed of all insurers authorized to write within New Mexico, on

a direct basis, bodily injury liability insurance other than automobile, homeowners and farm ow-

ners liability insurance. Every insurer of this type shall remain a member of the Association as a

condition of its authority to continue to transact this kind of insurance in the state.

The JUA is to be governed by a Board of Directors comprised of one representative of each of

the following: the New Mexico Trial Lawyers Association, the New Mexico Medical Society,

allied health care providers, the insurance industry and a private insurance company that has is-

sued the greatest number of medical malpractice insurance policies for practitioners in New

Mexico.

The JUA would have the power to issue insurance liability policies, and to appoint a service

company to underwrite medial malpractice insurance, issue contracts of insurance and adjust and

pay losses. The JUA would also be able cede and assume reinsurance and assess members for

House Bill 851– Page

2

funds to pay operating expenses of the Association.

During the 2005 legislative session, Senate Memorial 7 stipulated a request that the New Mexico

Policy Commission and the Insurance Division of the Public Regulatory Commission convene a

task force on Health Care Practitioner Liability Insurance, which was delivered in November of

2005. The SM 7 report indicated that participants in the task force agreed on the need for a Joint

Underwriting Association (JUA), but were unable to reach consensus on how the JUA should

operate.

The Joint Underwriting Association (JUA) proposed in HB 851 would be able to offer malprac-

tice insurance to a wide range of eligible providers not currently covered by APCap.

HB 851 would be strengthened by clarifying the intended relationship between the JUA and AP-

Cap coverage.

The JUA could write policies for a very wide range of medical care providers and health care

organizations. When the final actuarial analysis for group is completed, there may be a very high

reserve requirement needed to keep the JUA financially viable. Capitalizing this reserve re-

quirement may not be feasible based entirely upon unsubsidized premium payments.

FISCAL IMPLICATIONS

No significant costs are associated with this enactment. Specifically page 12, line 19, section D.;

stipulates that the costs and operational expenses of the JUA, including any obligations or legal

encumbrances are solely the responsibility of the association, and do not revert to the State.

SIGNIFICANT ISSUES

HB851 creates a five person, staggered two year term Board for the JUA. The Board composi-

tion consists of one representative appointed by the New Mexico trial lawyers association, one

by the New Mexico Medical society, one appointed by the governor representing the allied

health care providers; one appointed by the governor representing the insurance industry, and

one appointed by the private insurance company that has issued the greatest number of medical

malpractice insurance policies for practitioners in New Mexico during the prior calendar year.

The superintendent of insurance is an ex-officio board member. The board makes the determina-

tion of whether insurance is unavailable or not obtainable at a reasonable cost for one of its pro-

vider classes.

In general, physicians, chiropractors, podiatrists, nurse anesthetists, physicians’ assistants, hospi-

tals and outpatient health care facilities are currently covered under the New Mexico Medical

Malpractice Act, under which damage caps, minimized statutes of limitations, pre-litigation re-

views, and a state’s “patient compensation fund” have helped to increase these groups’ access to

affordable coverage, and subsequently, the ability to practice within the state.

Unfortunately, the New Mexico Medical Malpractice Act, Section 41-5-1 NMSA 1978, while

protecting the previously mentioned groups, does not address the insurance affordability needs of

midwives, nurse practitioners, dentists, and nursing home care-givers.

With legislative enactment, the JUA becomes operational immediately and “shall be utilized in

House Bill 851– Page

3

the event of the unavailability of medical malpractice liability insurance or of medical malprac-

tice liability insurance on a reasonable basis through normal channels.”

HB851 proposes that the JUA has the authority to issue policies including incidental coverage

and premises or operations liability coverage on the premises where services are rendered, all

subject to minimum limits of liability of one million dollars for each claim and three million dol-

lars in aggregate for all claimants under one policy in a policy year. The minimum limits in-

crease annually by the consumer price index for medical expenses.

Under HB851 all policies are to be issued on a claims-made basis. The JUA will appoint a ser-

vice company to be located in New Mexico and will underwrite medical malpractice insurance,

issue contracts of insurance, as well as adjust and pay losses. The company can also procure re-

insurance and assess members for funds to pay its operation and obligations.

HB851 requires the JUA to have a plan of operation including a preliminary assessment to all

members for initial commencement operating expenses, underwriting standards, and an assess-

ment of the members to defray losses and expenses. The plan of operation becomes effective

forty-five days after a public hearing.

HB851 spells out the application process and the requirements for the Insurance Superintendent

to obtain statistical data regarding medical malpractice losses costs. The superintendent will de-

velop a statistical plan required for the purpose of gathering actuarial data referring to loss and

loss adjustment expense experience. The bill also establishes the rate filing process, policy form,

(whether on a claims-made or occurrence basis), rate structure and the process for rate increases

to maintain an actuarially sound JUA.

HB851 notes the obligation of terminating members of the JUA and the non-responsibility of the

state for the JUA’s activities and obligations. It also has an April 1 reporting requirement to the

Insurance Division with information about its transactions, condition, operations and affairs dur-

ing the preceding year. The bill has a non-severability clause with respect to any part or applica-

tion of it being held invalid, the remainder or its application to other situations is not impacted.

The effective date of the act is July 1, 2006.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

HB 851 relates to the following:

•

HM 7 - which asks that the New Mexico Congressional Delegation be requested to sup-

port the President of the United States’ Medical Malpractice Reform.

•

SJM 23 – requesting that the NM Health Policy Commission appoint a task force to con-

tinue to study possible legislative solutions to the malpractice insurance crisis facing

healthcare practitioners and providers.

TECHNICAL ISSUES

HB 851 includes some contradictory language. On Page 5, line 16, HB 851 calls for the JUA to

issue policies on a claims-made basis. On Page 9, line 6, HB 851 permits either claims-made or

occurrence based policies.

House Bill 851– Page

4

OTHER SUBSTANTIVE ISSUES

Generally, HB 851 contains no statutory cap on medical malpractice claims. Physicians in New

Mexico are currently protected by a $600.000 per incident cap. Without a similar cap, premiums

for non-physician providers under the JUA could rise to prohibitively high levels. Furthermore,

the disparate treatment of physicians and non-physicians could possibly lead to legal challenges

of the statutory protection of physicians.

The American Medical Association has listed New Mexico as one of only six states that, from

the viewpoint of physicians, are not in crisis status regarding medical malpractice claims and

litigation. This is largely due to physicians’ access to the Medical Malpractice Act, which is

widely viewed as the main stabilizing influence on their malpractice premiums. However, for

non-physicians, the environment is different. Non-physician health care professionals play an

integral role in New Mexico’s health care delivery system. Compared to much of the nation,

New Mexico is large, rural, poor and thinly populated. All but three of the state’s 33 counties

have far fewer doctors per capita than the national average. Consequently the need for non-

physician providers is crucial. Access to health care via non-physicians is the source of care for

many New Mexicans.

Most non-physician practitioners cannot find occurrence based liability coverage and can obtain

only claims-made policies. There are only two insurers writing a few non-physician practitioners

on occurrence forms. The vast majority of non-physician practitioners, even those on the Medi-

cal Malpractice Act’s qualifying list, have no access to the Act. Malpractice insurance remains

available for certified nurse midwives, but at premiums that have increased by approximately

30% per year for the past several years. Since malpractice insurance is not available for home

births, the vast majority of licensed midwives have no malpractice coverage.

The 2005 SM7 task force heard testimony that licensed midwives may curtail practice due to the

combined effect of the unavailability or affordability of malpractice insurance coupled with the

restrictions on Medicaid reimbursement. There was also testimony that some of the state’s nurs-

ing homes may face insolvency due to the high self-insured retentions now required under their

policies.

The entire task force was favorably inclined toward the creation of a state-sponsored insurance

vehicle called a Joint Underwriting Association (JUA) that would provide malpractice coverage

to classes of health care providers that cannot find coverage elsewhere. All agreed that such a

JUA should be self-supporting with rates that are actuarially sound, should exercise normal un-

derwriting authority, including the right to deny coverage to health care providers who have an

adverse claims history, and should adjust individual policyholders’ premiums to reflect their

claim experience.

Divisions arose regarding whether the JUA should have award caps and whether it should be

open to providers who are not “in crisis.” Opponents of the JUA wanted additional data before

they could fully endorse the concept. The majority supported a JUA that would be open to all

classes of providers, that would offer both occurrence and claims-made products, that would

qualify as a base coverage insurer under the Act, and that would have relatively high caps on

non-economic damages for providers not under the Act.

The provision for caps was opposed by the New Mexico Trial Lawyers Association. The Medi-

House Bill 851– Page

5

cal Society and the Trial Bar oppose the creation of a JUA that would insure providers who can

find coverage elsewhere and thereby to compete with the medical society’s insurance program.

Other states that are facing malpractice crisis have enacted new laws primarily centered around

establishing a cap on the awards made to plaintiffs. There are no recovery caps in HB851 as writ-

ten.

Twenty-seven states have laws that cap payments for non-economic damages in malpractice

cases. In a study in Health Affairs (May 2005), the authors examined whether these laws have

increased the supply of physicians, using county-level data from all fifty states from 1985 to

2000. The results showed that counties in states with a cap had 2.2 percent more physicians per

capita because of the cap, and rural counties in states with a cap had 3.2 percent more physicians

per capita. Rural counties in states with a $250,000 cap had 5.4 percent more obstetrician-

gynecologists and 5.5 percent more surgical specialists per capita than did rural counties in states

with a cap above $250,000.

Their conclusion was that “there is much evidence indicating that a state’s legal environment

influences the frequency and size of malpractice awards and consequently the supply of physi-

cians.”

Studies have also found a relationship between direct tort reforms that include non-economic

damage caps and lower rates of growth in premiums.

For example, in a recent analysis of malpractice premiums in states with and without certain

medical malpractice tort limitations, the Congressional Budget Office (CBO) “estimated that cer-

tain caps on damage awards in combination with other elements of proposed federal tort reform

legislation would effectively reduce malpractice premiums on average by 25 to 30 percent over

the 10-year period from 2004 through 2013. A 1997 study that assessed physician-reported mal-

practice premiums from 1984 through 1993 found that direct reforms, including caps on damage

awards, lowered the growth in malpractice premiums within 3 years of their enactment by ap-

proximately 8 percent. Average per capita payments for claims against all physicians tended to

be lower on average in states with non-economic damage caps than in states with limited re-

forms. From 1996 through 2002, the average per capita payments were $10 for states with these

damage caps compared with $17 for states with limited reforms. Within these averages, however,

were wide variations among states. For example, in 2002 the per capita claims payments among

states with these caps ranged from $4 to $16, compared with $3 to $33 among states with limited

reforms. In addition, two states among those with limited reforms had consistently higher aver-

age claims payments, raising the overall average among this group of states.”

A new study projects medical liability premiums increasing 12%-15% in Wisconsin following

the loss of the state’s cap on non-economic damages, while premiums paid to the state's supple-

mentary medical liability fund could double. The state Supreme Court ruled the cap unconstitu-

tional in July, 2005. Over the last six years, when Wisconsin had a cap of about $450,000 on

non-economic damages, the average annual increase in premiums was just 5%.

Without a cap, the reserve requirement needed to keep the JUA actuarially sound may very high

and require premiums that really do not solve this problem.

House Bill 851– Page

6

ALTERNATIVES

Amendments, as proposed by New Mexico Health Policy Commission:

Provide a definition for “Allied Health Providers” noted on page 4, line 11.Allied health Provid-

ers is a very broad classification of health care personnel from EMTs to acupuncturists. Should

this not include nursed midwives, CRNAs, and others that have this insurance issue now.

Provide a definition for “reasonable” on page 3, line 22 and page 7, line 21. The definition of

“crisis” and “reasonable” were major issues of disagreement in the SM7 Task Force.

Provide a definition for “licensed health care provider” on page 2, line 11-13 that excludes certi-

fied organizations unless they provide medical care through their employed personnel. It was not

the intention of SM7 to cover every licensed or certified provider. The definition as written

would allow state certified providers of developmental disability services to possibly be eligible.

Provide a definition for “malpractice claim.” Suggest language from the current Medical Mal-

practice Act which “includes any cause of action arising in this state against a health care pro-

vider for medical treatment, lack of medical treatment or other claimed departure from accepted

standards of health care which proximately results in injury to the patient, whether the patient's

claim or cause of action sounds in tort or contract, and includes but is not limited to actions

based on battery or wrongful death; "malpractice claim" does not include a cause of action aris-

ing out of the driving, flying or non medical acts involved in the operation, use or maintenance

of a vehicular or aircraft ambulance.”

Provide a definition for consumer price index for medical expenses on page 5, line15-16. Sug-

gest utilizing the Bureau of Labor statistics metric.

Provide language for recovery caps that mirrors the Medical Malpractice Act (MMA). Without

caps in this bill should it become law, the current MMA would be legally weakened with two

separate values placed upon recovery depending upon which law that an action was brought un-

der. A physician insured under the Medical Malpractice Act would have caps while a physician

insured under the JUA would not as HB851 is now written. The equity of the MMA versus

HB851 could be questioned with unlimited recovery in one instance and a capped recovery under

the MMA. Suggest “except for punitive damages and medical care and related benefits, the ag-

gregate dollar amount recoverable by all persons for or arising from any injury or death to a pa-

tient as a result of malpractice shall not exceed six hundred thousand dollars ($600,000) per oc-

currence. In jury cases, the jury shall not be given any instructions dealing with this limitation.

The value of accrued medical care and related benefits shall not be subject to the six hundred

thousand dollar ($600,000) limitation. Monetary damages shall not be awarded for future medi-

cal expenses in malpractice claims. A health care provider's personal liability is limited to two

hundred thousand dollars ($200,000) for monetary damages and medical care and related bene-

fits as provided in Section 41-5-7 NMSA 1978.” This language is from the current Medical Mal-

practice Act.

Provide for another representative other than the Medical Society on the JUA Board. In 1994,

the State Insurance Department determined that New Mexico Physicians Mutual Liability Com-

pany (the independent mutual insurer formed by the Medical Society in 1976) was nearly insol-

vent. Rather than close, it was decided to merge with Michigan Physicians Mutual Liability

House Bill 851– Page

7

Company. Michigan Physicians changed its name several times to the present American Physi-

cians Assurance Corporation (American Physicians) which is exclusively endorsed as the medi-

cal liability provider of choice for the Medical Society members. With the exclusive endorse-

ment of American Physicans, it would be difficult to have the Medical Society have a fiduciary

duty to the JUA.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

The consequences of not enacting this legislation will cause continuing negative trends in health

care practitioners’ liability

PD.yr