(b) Basis for
conclusion.
(1) The basis for the
superintendent's conclusion that a 15-percent reduction in medical malpractice
insurance rates is appropriate for policies issued from July 1, 1984 through
June 30, 1985, is that chapter 294 contains a number of important cost-saving
provisions that should have a retrospective effect, in that they apply to all
actions for medical malpractice commenced on and after July 1, 1985, regardless
of the date of occurrence of the alleged malpractice. The superintendent is
also aware that the overwhelming number of medical malpractice actions covered
under 1984-1985 policies have probably not yet been commenced.
(2) The superintendent has drawn upon
casualty actuarial studies of similar legislative proposals, consulted with
attorneys and other persons expert in medical malpractice litigation, and
conferred on the implications of chapter 294 with the professional staffs of
the Insurance Department, the Legislature and the Governor.
(3) While rate determination for medical
malpractice is a particularly difficult task that is fraught with uncertainty,
predicting the future effect of legislation that changes the system in
fundamental and uncharted ways is even more problematic and less subject to
measurement. Although section
2343 of the Insurance Law requires the
superintendent to determine the retrospective value of the new law, it would
not be appropriate to assign a percentage value to each item of the legislation
and then total all of the values. Nevertheless, the superintendent has
concluded that a series of changes of the type enacted in chapter 294 creates a
climate which should result in substantial overall savings in medical
malpractice insurance costs.
(4)
The substantive provisions of chapter 294 that can be expected to have a
salutary effect (by operation of section 25 of the new law), and that require
the superintendent to conclude that a 15 percent retroactive rate reduction for
policy year 1984-1985 is appropriate and necessary, include:
(i) Periodic payment of judgments (sections
6, 7 and 9 of chapter 294). The statute amended the Civil Practice Law and
Rules (rule 4111[d], section 4213[b], and article 50-A) to require that court
judgments provide for periodic payment of future damages in excess of $250,000
and for termination of most payments upon the death of the claimant. Savings
are achieved through:
(a) limiting periodic
payments to the lifetime of the claimant (except that wage-loss will continue
to be paid to a claimant's dependents, and a claimant's pain and suffering
damages will be subject to a maximum 10-year structuring); and
(b) the ability of the insurer to obtain an
annuity that earns a significantly greater rate of interest than the
four-percent annual index factor mandated over the period payment term.
Although periodic payments are required only for judgments, this requirement
should set a new standard which will have an important reductive effect on
comparable cases that are resolved through settlement by the parties. In
addition, attorneys' fees on claims with periodic payment of future damages
will first be reduced in accordance with the revised contingent fee schedule
discussed below and then further reduced to their present value. This
compounding should have a synergistic effect in reducing overall costs of
judgments and settlements.
(ii) Contingent fee reduction. Section
474-a(2), (3) and (4) of
the Judiciary Law (chapter 294, section 15), requires a significant reduction
in contingent fees to attorneys. An important element in the determination of
both settlements and jury verdicts has been the amount that claimants must pay
in attorneys' fees. Thus, reduction in the contingent fee schedule should have
a favorable cost-reducing effect upon the actions of juries, insurers,
claimants and their attorneys. Comparisons of the former contingent fees to the
new contingent fees show significant reductions. A former judgment of $500,000
yielded a $166,667 contingent fee which will now be $137,500, an 18-percent
reduction; a $1,000,000 judgment formerly yielded a $333,333 fee, and now
yields a $237,500 fee, a 29-percent reduction; a $2,000,000 judgment formerly
yielded a $666,667 fee, and now yields a $350,000 fee, a 48-percent reduction.
The $2,000,000 illustration is germane, even though primary coverage of
physicians during the 1984-1985 policy period was generally limited to
$1,000,000 per claimant, because in many instances multiple defendants increase
the amount of insurance available; and the award or settlement in the more
severe cases sets the relative standard of value for the lesser injuries. In
addition, as noted in this subparagraph, for awards subject to periodic
payments, which would include most of the more severe cases, the attorney's fee
under the new law is subject to a further reduction to present value.
(iii) Elimination of duplicate recoveries. A
significant portion of recoveries is comprised of future medical or wage loss,
much of which is already covered by some collateral source. The Civil Practice
Law and Rules, section 4545(a) (chapter 294, section 8) is amended to require a
reduction of the verdict by an amount equal to the future cost of special
damages that will, with reasonable certainty, be replaced by some collateral
source, less the premium cost to the claimant of maintaining the benefits from
such source. The statute also permits the purchase by the defendant of
additional coverage to provide for the claimant's medical and other expenses,
which should prove to be less costly than under the prior system and should
have a significant impact both on settlements and on jury awards. The purchase
of coverage to provide for such economic loss also reduces the possibility that
a claimant will misuse or exhaust funds awarded to provide necessary
benefits.
(iv) Other provisions. A
number of other provisions of chapter 294, which are less amenable to direct
evaluation, should also have the effect of reducing medical malpractice
insurance costs:
(a) Civil Practice Law and
Rules, section 8303-a (section 10 of chapter 294), provides that plaintiffs or
defendants and their attorneys shall be liable to pay up to $10,000 to the
successful party if it is determined by the court that their actions, claims,
cross claims, defenses or counterclaims were frivolous. This provision should
discourage unreasonable litigation which lacks merit, avoid wasteful
expenditures, and encourage quicker and more efficient resolution of
disputes.
(b) Section 3101(d) of
the Civil Practice Law and Rules (section 4 of chapter 294) provides for the
advance disclosure of expert witnesses, their qualifications and the subject
matter of their testimony, and streamlines other discovery procedures. This
should result in an earlier and more equitable resolution of claims, which the
superintendent believes will contribute to a reduction in overall costs to the
system.
(c) Rule 3406 of the Civil
Practice Law and Rules (section 5 of chapter 294) contains procedures which
expedite the filing of cases in the courts and provides for selective
pre-calendar conferences to encourage settlements, but empowers the Chief
Administrator of the Courts to exempt named jurisdictions from such conferences
if no demonstrated need exists. This provision should result in more efficient
handling of suits, encourage settlements, simplify or limit issues, and
establish a timetable for disclosure, future conferences and trial.
(d) Section 14 of chapter 294 (Judiciary Law,
section
1 98-a[1])
and section 22 of chapter 294 authorize, as an experiment, the elimination of
mandatory medical malpractice panels in the Fifth Judicial District and Suffolk
County, areas in which the panels may have contributed to expensive
delays.
(e) The previous items
relate to provisions of chapter 294 which the superintendent expects will have
both a retrospective and prospective impact on rates. Other changes effected by
chapter 294, such as the procedures for the prompt resolution of grievances by
patients that might otherwise result in claims of malpractice, and closer
review by hospitals of physicians' competence, also will apply to policies with
anniversary dates after July 1, 1984 whose expiration dates will occur on or
after July 1, 1985, when these provisions became effective.
(v) Taken in the aggregate, the
provisions of chapter 294 have so changed the environment that existed at the
time that the superintendent approved rates for the 1984-1985 policy period,
that the superintendent is compelled to conclude that a 15-percent reduction of
those rates is appropriate in order that rates for such policy period comply
with statutory rating standards.