REPORT 20 OF THE BOARD OF TRUSTEES (A-09)

Michigan Patient Compensation as Tort Reform Alternative

(Reference Committee B)

EXECUTIVE SUMMARY

The Michigan State Medical Society (MSMS) has drafted an innovative medical liability reform
(MLR) alternative program. MSMS has asked our AMA to study the program to determine if it is a
feasible MLR alternative. The program focuses on improving patient safety and creating a more
reliable and consistent compensation system based on a workers’ compensation model. Our AMA
commends MSMS’ efforts in this regard, but there are several issues that need further discussion,
refinement, and research before our AMA is able to recommend this model act to Michigan or to
other states. A major concern is the program’s shift from the negligence standard to the
avoidability standard. This report discusses other issues and recommendations as well. This
analysis is not meant to dissuade MSMS’ efforts; rather, it is intended to raise issues that the
MSMS leadership should consider as they work to improve the proposal.
 REPORT OF THE BOARD OF TRUSTEES

B of T Report 20-A-09

Subject: Michigan Patient Compensation as Tort Reform Alternative

(Resolution 219, A-08)

Presented by: Joseph M. Heyman, MD, Chair

Referred to: Reference Committee B

(Monica C. Wehby, MD, Chair)

1INTRODUCTION
2
3At the 2008 Annual Meeting, the Michigan Delegation introduced Resolution 219, “Michigan
4Patient Compensation as Tort Reform Alternative.” The resolution asks our AMA to study the
5Michigan State Medical Society (MSMS) Michigan Patient Compensation Act (model act) to
6determine if it could serve as model alternative legislation for those states where tort reform has
7proven inadequate, failed, or not been achieved. The resolution was referred, so that the Board of
8Trustees could study the model act and report back to the House of Delegates at the 2009 Annual
9Meeting.
10
11BACKGROUND
12
13Our AMA remains steadfast in its support of effective medical liability reform (MLR) laws based
14on California’s Medical Injury Compensation Reform Act (MICRA).i MICRA-based reforms have
15stabilized California’s medical liability climate and have proven effective in other states as well.
16The key provision in MICRA is a $250,000 cap on non-economic damages. To date, about half of
17the states have enacted a cap on non-economic damages, and six have enacted a cap on total
18damages.ii,iii The remaining states have either run into staunch political opposition to MICRA-
19based reforms, or they have constitutional prohibitions on such MLR statutes.
20
21Despite Michigan’s stable liability climate, MSMS formed a Task Force on No-Fault Liability to
22develop a no-fault proposal that would address several of the weaknesses with the current liability
23system, including the current system’s inability to efficiently delineate between meritorious and
24meritless cases; to compensate injured patients in a timely fashion; and to improve patient safety.
25MSMS drafted the model act to improve its own liability system and hopes that its model act could
26be utilized by other states as well.
27
28The MSMS model act is 90 pages in length,iv so this Board of Trustees Report includes a high level
29summary of the model act. The report also compares some of the model act’s main provisions to
30current AMA policy and offers analysis and suggestions for MSMS to consider.
 1 B of T Rep. 20-A-09 -- page 2
2
1SUMMARY OF MSMS MODEL ACT
2
3Claim Determination Procedure
4
5Under the model act, patients must have notice that a facility or provider is participating in the
6program.v Patients who have suffered an injury initiate the process by filing a “notification of
7claim” form with the appropriate facility within one year of obtaining knowledge of the injury.vi
8Patients must show by a preponderance of the evidence that the injury resulted from an avoidable
9event.vii The facility shall then determine if the patient has met this burden. The facility bases its
10determination on five questions:
11
12  Did the injury result from treatment?
13  Was the treatment appropriate?
14  Was the injury avoidable? (With the information available when the medical decision was
15 made, without the wisdom of hindsight, would a “prudent provider” have made the same
16 decision?)
17  Was there a failure to render a treatment option when such treatment option was
18 appropriate?
19  Did the disability from the injury persist for 30 days or more?viii
20
21The facility has 21 days to make a determination or to ask for more information from the patient.ix
22The facility’s investigation shall be completed within 45 days.x The patient then has 60 days to
23appeal the facility’s determination.xi After these initial steps have been completed, the facility shall
24forward its decision to the Patient Compensation Commission (the “Commission”) for approval or
25denial of the decision. If the Commission determines that a claim for compensation is valid, then
26the patient shall be notified of the decision and the terms of compensation.xii The Commission may
27send the medical aspects of the review process to a medical panel of physicians to make an expert
28ruling.xiii If the patient or other party disagrees with the findings of the medical panel, then the
29Commission may schedule a hearing.xiv Parties may also call for the use of mediation or arbitration
30as a method of settling disputes at various points in the process.xv If the parties cannot reach an
31agreement, then the claim will proceed to a hearing in the Medical Injury Court (the “Court”).xvi
32
33The Court shall have broad authority to settle the dispute and is not bound by the common law or
34statutory rules of evidence.xvii The Court may call independent experts to offer their guidance.xviii
35The model act limits attorney involvement until the Court phase, and it prohibits them from
36collecting contingency fees.xix Within 15 days of the hearing, the Court shall issue a written ruling
37on the matter.xx Finally, if any of the parties still disagree with the determination, then they can
38proceed to the Michigan Court of Appeals for review and then to the Michigan Supreme Court if
39they are granted certiorari.xxi (A graphic of the process is included in Appendix B.)
40
41Threshold for Compensation
42
43Under the current liability system, plaintiffs must prove that negligence occurred in order to
44recover damages from a facility or physician. The model act uses the standard of “avoidability”
45rather than negligence. The model act states,
46
47 In order to establish a superior system for compensating patients injured by medical
48 treatment . . . this act will provide for compensation of patients that experience an
49 ‘avoidable medical injury,’ regardless of whether or not the care was negligent. The
50 underlying purpose of this act is to improve the quality of patient care and reduce both
 3 B of T Rep. 20-A-09 -- page 3
4
1 the number and the severity of patient injuries.xxii
2
3The model act defines a compensable “medical injury” as a physical injury which is: a) the
4avoidable result of medical care rendered; b) the result of inappropriate medical care; or c) the
5avoidable result of failure to render a treatment option when such treatment option was
6appropriate.xxiii The model act also defines lack of informed consent as a “medical injury” under
7certain circumstances. The model act does not provide a specific definition for “avoidable” or
8“avoidable result.”xxiv The model act excludes self-inflicted injuries and injuries that are a natural
9consequence of the patient’s physical condition at the time of treatment. It also excludes short-term
10injuries where the disability resolves within 30 days from the time of the treatment or failure to
11treat.xxv
12
13Compensation Determined
14
15If a patient’s claim is determined to be a medical injury, then the patient shall receive
16compensation. Compensation is governed by §501-§531 of the model act. The compensation
17structure is similar to a workers’ compensation model. It sets up general recovery provisions and
18then includes several caveats and exceptions to these provisions. The general rules state that:
19
20  Previously incurred out-of-pocket expenses are payable in a lump sum;
21  Future out-of-pocket expenses are payable within 30 days of being incurred;
22  The Commission shall calculate a lost wages total based on how long the patient could not
23 work and then subtract compensation that the patient received as long-term disability
24 income; and
25  The Commission shall determine any appropriate death benefit based on a medical
26 injury.xxvi
27
28The model act does not permit subrogation of the patient’s recovery by other entities, and it does
29not include a provision for the payment of non-economic damages.xxvii
30
31Patient Compensation Commission
32
33The Governor shall appoint the board of directors for the Commission, and the board shall include
34two citizen representatives, two allopathic or osteopathic physicians, two facilities’ representatives,
35one casualty insurer representative, one attorney, and the director. The physician nominees shall be
36nominated by the state medical association, and the governor shall receive the consent of the senate
37on the nominees. The model act assigns the Commission broad powers and numerous duties
38including overseeing payments to injured patients, maintaining lists of qualified experts and
39qualified judicial candidates, and overseeing the facility and physician assessment process.xxviii The
40Commission shall have broad access to materials relevant to cases before it and the ability to
41inspect facilities where relevant materials are kept.xxix
42
43Compensation Fund
44
45The model act establishes a compensation fund to distribute funds to patients who suffer a medical
46injury. The board of directors shall oversee the fund, and it will be financed with facility and
47physician assessments.xxx The model act states that when determining the aggregate and individual
48assessments, the board’s duty is “to fix and maintain assessments at the lowest possible rate of
49contribution consistent with the maintenance of a solvent medical injury compensation fund . . .”xxxi
 5 B of T Rep. 20-A-09 -- page 4
6
1The state Commissioner of Insurance shall have an actuarial analysis of the fund completed in its
2first year, and then have biennial analyses done in the future.xxxii

3Patient Safety and Medical Error Reporting

4
5Improving patient safety is a major point of emphasis in the model act. It states, “The primary
6responsibility of physicians under this act is the reporting of medical errors.xxxiii Under this act, the
7greatest transgression a physician can commit is to not report an error.” However, the language of
8the model act appears to create a voluntary reporting system for individual physicians.xxxiv The
9model act requires facilities to report medical errors to the Commission and to file a report on how
10the facility will prevent similar errors in the future.xxxv The model act also includes a provision that
11allows physicians to appeal error determinations.xxxvi
12
13Under the model act, a health care facility must establish a department of patient safety to inform
14medical staff members of the procedural requirements that they must follow, to provide educational
15items, and to assist medical care personnel and patients in completion of the error reporting
16form.xxxvii
17The Commission is also required to establish a searchable electronic database to receive data from
18the Court. Information from this database shall be made available for patient safety analysis to
19hospital patient safety offices and to patient safety regulatory authorities, research organizations,
20and health care purchasing or quality entities in accord with federal and state privacy laws. Finally,
21the Commission is required to publish an annual report summarizing trends in claiming and patient
22safety data.xxxviii
23
24AMA ANALYSIS
25
26Our AMA applauds MSMS for tackling some of the major problems with the current liability
27system. The model act is a good first step in trying to develop options to fix key weaknesses with
28the system. It focuses on improving patient safety, and it attempts to bring reliability and
29consistency to patient compensation. Other positives include:
30
31  Injured patients would receive fair compensation for their economic damages;
32  Injured patients would recover in a more timely fashion;
33  Injured patients would not face subrogation of their compensation awards except in limited
34 situations;
35  It would appear to preclude unpredictable non-economic damage awards from driving the
36 system into crisis;
37  It would allow patients to recover more of a compensation award by limiting attorney
38 contingency fees and other litigation costs;
39  It would establish a medical court to resolve medical liability claims;
40  Medical court judges would be encouraged to call on independent experts to assist with
41 their deliberations;
42  Medical error reporting would be done on a voluntary basis;
43  It would encourage the use of alternative dispute resolution when parties disagree about
44 claim determinations; and
45  It would include a strong appeals process for both sides of the claim.
46
47MSMS intends for the model act to be implemented as a pilot program to judge its effectiveness.
48Our AMA is supportive of state efforts to find innovative solutions to the broken liability system,
49and therefore, we commend MSMS in these efforts. However, there are too many variables and
 7 B of T Rep. 20-A-09 -- page 5
8
1departures from AMA policy in the model act for our AMA to recommend this proposal as an
2alternative MLR program either to Michigan or to other states at the present time. Once the
3program has been implemented as a pilot, and data are available to analyze, our AMA will be able
4to make a more informed decision on the proposal.

5Compensation Threshold
6
7One major concern with the model act is its shift away from negligence to the avoidability
8standard. While the model act would not create a pure no-fault system like many states’
9automobile insurance systems, the model act’s avoidability standard comes close. In 2003, our
10AMA issued Board of Trustees Report 32 (A-03), which evaluated numerous MLR alternative
11reforms. The report considered a no-fault system as a possible federal option. The Board Report
12concluded:
13
14 All in all, based on numerous studies on applying a no-fault compensation system to
15 medical liability, the overall expected cost of such a system appears to be overwhelming.
16 Whereas automobile no-fault insurance systems spread the costs of funding such systems
17 over millions of drivers, with medical liability there is a very limited community of health
18 care providers. There is also an issue of setting premiums based on different specialties,
19 subspecialties, and experience, with the potential for physicians who practice lower risk
20 medicine and surgery to pay relatively higher insurance rates. In addition, under current
21 law any physician who has a claim paid on his or her behalf is subject to reporting to the
22 National Practitioner Data Bank (NPDB), regardless of fault. Without modifying or
23 eliminating this aspect of NPDB reporting, such consequences would be patently unfair to
24 physicians.xxxix
25
26Several MLR experts have endorsed the avoidability standard in recent years. For example,
27Common Good uses this standard in its health courts model. To date, there is an absence of
28empirical evidence available to allay concerns that an avoidability standard would cause a
29significant increase in the compensation awarded to plaintiffs in medical liability actions.
30Specifically, the concern is that this increase in compensation would drive up liability premiums
31which would lead to less access to care for patients.
32
33Supporters of the avoidability standard contend that although there will be more compensated
34claims under the proposed system, the claims will be for smaller amounts and there will be a
35greater level of consistency and reasonability with the more serious claims. Until there is evidence
36that this theory is effective in practice, our AMA remains committed to supporting the negligence
37standard. The AMA strongly encourages MSMS to obtain an actuarial analysis completed by a
38medical liability expert with access to Michigan closed claim data who could evaluate the possible
39cost effects of changing the standard from negligence to avoidability. Such analysis could offer
40Michigan physicians considering participation in a pilot project a better picture of how
41participation might affect them.
42
43Program Assessments
44
45Another concern with the model act is how the Commission would set assessments for physicians
46and facilities. Physician assessments could be more onerous than their current liability premiums if
47the no-fault system leads to an influx of claims or if the system does not work as intended. Prior to
48participation in the pilot, physicians should seek an initial projected assessment. Also, physicians
49practicing at both participating and non-participating facilities should determine whether they will
50have to pay for both the assessment for the pilot project and a standard liability policy for his or her
 9 B of T Rep. 20-A-09 -- page 6
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1work at a non-participating facility. A significant education effort will be needed to explain these
2issues to physicians considering participating in a pilot.
11 B of T Rep. 20-A-09 -- page 7
12
1Program Review
2
3Sections of the model act call for the completion of performance audits and annual reports.xl,xli
4While these reports are a good idea, they do not review the program as a whole. Instead, they
5focus on specific aspects of the program. Further, they do not grant any entity or person the
6authority or discretion to either sunset or recommend sunsetting the program for financial failure or
7other operational issues. MSMS should consider adding a financial backstop provision in case the
8pilot program experiences financial difficulties. The backstop could be a governmental entity or a
9foundation interested in these issues. It would be advisable to set up these provisions on the front
10end of any pilot project in order to limit the financial effect that the model might have if it does not
11operate as intended.
12
13Commission Authority
14
15A further concern is the breadth of authority that the model act provides to the Commission over
16participating physicians and facilities.xlii The inspection and seizure provisions are overbroad.
17Since the participating facilities and physicians are volunteering to take part in this system, MSMS
18may want to consider limiting the Commission’s authority. Preventing errors and improving
19patient safety are major goals of the model act, and the volunteers who sign up for it will have
20these goals in mind. Physicians and facilities may not sign up if they have to face a Commission
21that has too much authority to intervene in their practices.
22
23Judicial Training
24
25The model act fails to call for specific training for health court judges. In the AMA’s Health Court
26Principles, our AMA calls for health court judges to have specialized training before being
27appointed to the bench. Our AMA believes this to be a critical element of our principles and
28recommends that MSMS consider calling for this type of training in the model act as well.
29
30AMA Guides
31
32To mention one last minor suggestion, the model act references the 3d Edition of the AMA Guides
33to the Evaluation of Permanent Impairment rather than the 6th and current version of the Guides.
34The Michigan workers’ compensation system has not adopted the Guides, but MSMS may want to
35consider utilizing the most current version of the Guides in the model act.
36
37CONCLUSION
38
39MSMS has drafted an innovative and thought-provoking MLR alternative program. Our AMA
40commends their efforts in this regard. The model act is a significant departure from the current
41medical liability system, and there are several issues that need further discussion, refinement, and
42research before our AMA is able to recommend it to Michigan or other states. This analysis is not
43meant to dissuade MSMS’ efforts in this regard; rather, it is intended to raise issues that MSMS
44should consider as the MSMS leadership works to improve the proposal.
45
46RECOMMENDATION
47
48 1) The Board of Trustees recommends that Resolution 219 (A-08) not be adopted and the
49 remainder of the report be filed.
50
51Fiscal Note: Less than $500.
13 B of T Rep. 20-A-09 -- page 8
14
1
2Appendix A
3
4RELEVANT AMA POLICY
5
6H-435.967 Report of the Special Task Force and the Advisory Panel on Professional Liability
7(1) It is the policy of the AMA that effective medical liability reform, based on the California
8Medical Injury Compensation Reform Act (MICRA) model, is integral to health system reform.
9The AMA's MICRA-based federal tort reform provisions include: (a) a $250,000 ceiling on non-
10economic damages, (b) the offset of collateral sources of plaintiff compensation, (c) decreasing
11incremental or sliding scale attorney contingency fees, (d) periodic payment of future awards of
12damages, and (e) a limitation on the period for suspending the application of state statutes of
13limitations for minors to no more than six years after birth. (2) Our AMA also supports federal
14reform to achieve: (a) a certificate of merit requirement as a prerequisite to filing medical liability
15cases; (b) statutory criteria that outline expert witness qualifications; and (c) demonstration projects
16to implement potentially effective alternative dispute resolution (ADR) mechanisms. (3) Our AMA
17supports medical product liability reform, applicable to the producers of pharmaceuticals and
18medical devices, as an important state and federal legislative reform objective. (4) Any health
19system reform proposal that fails to include MICRA type reform, or an alternative model proven to
20be as effective in a state, will not be successful in containing costs, providing access to health care
21services, and promoting the quality and safety of health care services. Under no circumstances
22would support for federal legislation be extended or maintained if it would undermine effective tort
23reform provisions already in place in the states. Federal preemptive legislation that endangers
24effective state-based reform will be actively opposed. (BOT Rep. 53, I-93; Reaffirmation A-00;
25Reaffirmation I-03; Reaffirmed: Sub. Res. 910, I-03; Reaffirmation A-04)
26
27H-435.969 Report of the Special Task Force on Professional Liability and the Advisory Panel on
28Professional Liability
29Our AMA: (1) reaffirms its support for investigating promising Alternative Dispute Resolution
30(ADR) mechanisms, in the context of demonstration projects designed to evaluate whether they
31resolve medical liability claims fairly and in a more timely and cost-effective manner. (2) The
32AMA strongly recommends that if cost containment goals are to be achieved, ADR proposals
33designed to provide greater access to legal process must incorporate effective mechanisms to: (a)
34identify non-meritorious claims and dispose of them; (b) decrease the proportion of cases being
35litigated; (c) increase the portion of any settlement payment received by the patient; and (d)
36identify appropriate guidelines for the payment of damages; and (3) continues to monitor and
37disseminate information to state and component medical societies about state and federal initiatives
38that address the issue of protections from liability risks for physicians who provide volunteer
39activities and care of the indigent, as well as the effectiveness of those initiatives. Effective
40medical liability reform, based on the California Medical Injury Compensation Reform Act
41(MICRA) model, is integral to health system reform. (BOT Rep. M, I-92; BOT Rep. I-93-53;
42Modified: Sub. Res. 205 and Reaffirmation A-00; Reaffirmation A-04; Reaffirmation A-06)
43
44H-335.965 Patient Safety
45Our AMA: (1) continues its advocacy efforts in the area of patient safety and work to promote a
46meaningful long-term approach to ensure greater patient safety in the delivery of health care in our
47nation; (2) will work in collaboration with the National Patient Safety Foundation, national
48medical specialty societies, state and local medical societies, other provider groups and a broad
49range of public and private organizations to continually advance efforts to improve patient safety
50through educational activities and all other available means to discover and promote "best
51practices" in the delivery of health care services; (3) continues to advance non-punitive,
15 B of T Rep. 20-A-09 -- page 9
16
1evidenced-based health systems error data collection as well as strong legal protections for
2participants in safety programs. At a minimum, these protections must ensure that all information
3reported or otherwise gathered in the process of patient safety and error reporting programs
4(including any data, report, memorandum, analysis, statement, or other communication) intended
5either for internal use, or to be shared with others solely for the same purposes, remain confidential
6and not be subject to discovery in legal proceedings. Such protections must extend from the time
7of reporting to post-incident review activities and with regard to the repositories of identifiable data
8from such reporting programs; (4) continues to call for a central role for the Agency for Healthcare
9Research and Quality (AHRQ) in coordinating the multifaceted, multi-industry national patient
10safety initiative envisioned by the AMA. The AHRQ must have sufficient funding to carry out
11research and development activities to support and advance public and private patient safety
12initiatives across the nation; and (5) continues to help us inform our patients and the public in
13general concerning on-going efforts to improve quality and reduce errors in medical care. (Sub.
14Res. 202, A-00; Reaffirmed: BOT Rep. 13, I-00; Reaffirmation A-01; Reaffirmation I-03;
15Reaffirmation A-05)
16
17H-435.951 Health Court Principles
18AMA PRINCIPLES FOR HEALTH COURTS These principles are intended to serve as legislative
19guidelines for state medical associations and can be amended on an as needed basis. Health courts
20should be structured to create a fair and expeditious system for the resolution of medical liability
21claims with a goal of resolving all claims within one year from the filing date. Health court judges
22should have specialized training in the delivery of medical care that qualifies them for serving on a
23health court. Negligence should be the minimum threshold for compensation to award damages.
24Health court judgments should not limit the recovery of economic damages, but non-economic
25damages should be based on a schedule. Qualified experts should be utilized to assist a health
26court in reaching a judgment. Health court pilot projects should have a sunset mechanism in place
27to ensure that participating physicians, hospitals, and insurers do not experience a drastic financial
28impact based on the new judicial format. (Excerpt – full list of principles available upon request.)
29
30REPORT 32 OF THE BOARD OF TRUSTEES (A-03) Medical Liability Reform: Report on
31MICRA Enhancements
32It is important to reiterate that the discussion below on alternative liability system reforms is not to
33be construed as any reduction or diversion of support for MICRA reforms in H.R. 5, but rather is an
34exploration of additional liability reforms that might serve to further our goals. Alternative liability
35system reforms, such as a no-fault system, or fault-based administrative system, realistically could
36best be implemented as targeted demonstration projects in selected jurisdictions, with Federal grant
37money and studies to collect empirical evidence as to their efficacy. Indeed, some of these
38alternative reforms demonstrate the limits of the ability of federal legislation to dictate to states
39how liability cases should be heard and tried. They are more appropriate as state initiatives.
40(Excerpt – full report available upon request.)
17 B of T Rep. 20-A-09 -- page 10
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Appendix B

Patient Doctor
Nurse, etc.

Local Hospital
Patient Safety
Committee - Ombudsman

Decision + -

Appeal Dr/Patient

2 Citizens Michigan Patient Referral to 3 Doctors, at least

2 Doctors Compensation one of whom is in the same
2 Facility/Hospital Commission specialty
1 Insurance
1 Lawyer Ombudsman

Statewide Patient
Safety Database
List of qualified Judges Appeal
For medical injury court
List of Expert Witnesses

Attorney
Medical
Injury
Court
21i Cal Civ Code §3333.2 (2008)
22ii Several state non-economic damages caps are in various stages of litigation, so this number may fluctuate.
23iii Colorado has enacted both a non-economic and an economic damages cap.
24iv Full model act available upon request.
25v Michigan Patient Compensation Act §204
26vi Id. at §607 and §601(1)
27vii Id. at §207(1)
28viii Id. at §608(1)
29ix Id. at §608(2)
30x Id. at §608(3)
31xi Id. at §608(6)
32xii Id. at §609
33xiii Id. at §610
34xiv Id. at §611
35xv Id. at §613 and §614
36xvi Id. at §617
37xvii Id. at §618 and §619
38xviii Id. at §619(3)
39xix Id. at §620
40xx Id. at §623(3)
41xxi Id. at §628 and §634
42xxii Id. at §102(3)
43xxiii Id. at §103
44xxiv Id. at §103
45xxv Id. at §103
46xxvi Id. at §501
47xxvii Id. at §502
48xxviii Id. at §302
49xxix Id. at §307 and §308
50xxx Id. at §401
51xxxi Id. at §408
52xxxii Id. at §413
53xxxiii Id. at §203
54xxxiv Id at §608.75
55xxxv Id. at §608.5(1)
56xxxvi Id. at §608.5(2)
57xxxvii Id. at §609(7)
58xxxviii Id. at §302(3)(u)
59xxxix Board of Trustees Report 32 (A-03)
60xl Michigan Patient Compensation Act §302(3)(b)
61xli Id. at §626
62xlii Id. at §307