RAND: California Med-Mal Award Caps Trim Payments By 30 Percent

July 12, 2004

A landmark California law that caps non-economic awards in medical malpractice lawsuits has cut defendants’ payments by 30 percent to plaintiffs who win such lawsuits at trials, according to a RAND Corporation study (www.rand.org).

But because of limits on attorneys’ fees contained in the California Medical Injury Compensation Reform Act (MICRA), net recoveries actually realized by these plaintiffs were only 15 percent less than they would have been without the award caps or fee limits, researchers found.

The findings are from a study by the RAND Institute for Civil Justice that examined 257 plaintiff verdicts in medical malpractice trials in California from 1995 to 1999. The information came from an extensive database of jury verdicts that the RAND Institute for Civil Justice has created and used to analyze trends in the nation’s civil justice system.

Researchers found that cases involving patients who died were much more likely to have awards reduced than non-fatal injury cases, and the median change in total award size when the verdict was capped were larger among cases involving death than for injury cases (49 percent versus 28 percent).

In addition, researchers found that the combination of award caps and attorney’s fee limits reduced by 60 percent the amount collected by plaintiffs’ attorneys, which would have resulted in a significant shift in the types of malpractice claims an attorney might agree to represent.

“While MICRA’s impact on claims that do not reach trial is difficult to measure, the law has had a direct and observable role in about half the malpractice cases where there is a verdict for the plaintiffs,” said Nicholas Pace, the project’s lead researcher. “For defendants, for plaintiffs, and for attorneys, MICRA has clearly changed the playing field upon which malpractice claims are litigated in California.”

MICRA was passed by the California Legislature in 1975 when the state was in the midst of a medical malpractice insurance crisis, with premiums skyrocketing and some medical specialists unable to find coverage.

The law limits to $250,000 the amount a plaintiff can recover for non-economic damages such as pain, suffering, distress, or disfigurement. Damages for economic losses, such as medical expenses or lost wages, are not capped.

Juries in California make malpractice judgments without knowledge of the limits and judges then adjust the awards to comply with the state law. The law also limits the fees that may be collected by plaintiff’s attorneys, establishing a sliding scale that decreases the percentage paid to plaintiff’s attorneys as the size of a judgment grows.

Some lawmakers and groups have reportedly pointed to MICRA as a possible model for national reform of the medical malpractice system that might help resolve complaints about the cost and availability of medical malpractice insurance occurring in many states. Opponents of MICRA-like laws point to the significant impact the limits have on patients and their families and suggest that any problems with the malpractice insurance industry should be addressed in other ways.

Researchers found that caps on non-economic awards were imposed in 45 percent of the California medical malpractice cases won by plaintiffs, with a median change in judgment size of $366,000 when the cap takes effect, according to the report.

Other key findings of the study include:

* Death cases were subject to post-verdict caps on awards 58 percent of the time, compared with 41 percent for cases involving injuries.
* Plaintiffs with the severest non-fatal injuries (such as brain damage or paralysis) had their non-economic damage awards capped far more often than injury claims generally and had median reductions exceeding $1 million.
* Plaintiffs who lost the highest percentage of their total awards due to the cap were those with injuries that led to relatively modest economic damage awards (about $100,000 or less), but caused a great loss to the quality of life (as suggested by the jury’s million-dollar plus awards for pain, suffering, anguish, distress, and the like). * These plaintiffs sometimes received final judgments that were cut by two-thirds or more from the jury’s original decision.
* Plaintiffs younger than age 1 had awards capped 71 percent of the time. Injury cases with reductions of $2.5 million or more usually involved newborns and young children with very critical injuries.
* The sliding scale on plaintiffs’ attorney fees imposed by MICRA also has had a dramatic effect on the participants in these cases, according to researchers. The law prohibits attorneys from charging more than 40 percent of the first $50,000 of any recovery, 33 percent of the next $50,000, 25 percent of the next $500,000, and 15 percent of any amount over $600,000.

Researchers estimated that attorney fees in these cases were reduced 60 percent overall, with the sliding fee scale having a greater effect on those fees than the damage cap does. The smaller fees paid by plaintiffs would have tempered some of the impact of the cap but the limits on contingency fee percentages would have effectively shifted some of the costs for compensating medical malpractice from defendants to plaintiff’s counsel.

“Attorneys have always needed to be very careful about selecting new malpractice cases because they are expensive to prepare and in California, plaintiffs lose nearly eight out of every 10 cases that are taken to trial,” continued Pace. “Add in the dual effect of the cap on awards and the limits on fees, and the level of scrutiny given to potential clients would go up markedly.”

While the RAND study provides one of the most in-depth looks to date at MICRA’s impacts on the size of jury verdicts, there are many issues related to the law that are beyond the scope of the study. For example, the study does not examine MICRA’s direct influence on premium levels and the availability of medical malpractice insurance in California over the past three decades.

Other unanswered questions include whether injured patients have received payments sufficient to provide for their future needs, MICRA’s effects on pre-trial settlement size, whether MICRA has affected demographic groups differently, and whether the law has had an impact on the quality of medical care.

The RAND report is titled “Capping Non-Economic Awards in Medical Malpractice Trials: California Jury Verdicts Under MICRA.” Other authors of the RAND report are Daniela Golinelli and Laura Zakaras of RAND.

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