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Five Myths about Expanding Tort Reform in Iowa

Five Myths about Expanding Tort Reform in IowaPublic discussion is gearing up on a very contentious healthcare topic: Medical tort reform. In a span of two days last week, there were two opposing viewpoints in the Des Moines Register opinion section on whether or not tort reform should expand in Iowa.  A Waterloo OB/Gyn wrote a piece supporting expansion, while I penned an opposing view one day earlier.

In Iowa, two bills are in the legislature, HSB 596 and SSB 3085. Both are being pushed by the healthcare provider community to ensure their medical-malpractice premiums are held in check by hard-capping ‘non-economic damages,’ at $250,000 – damages that “arise from pain, suffering, inconvenience, physical impairment, mental anguish, emotional pain and suffering, loss of chance, loss of consortium, or any other nonpecuniary damages.”

The specific argument being made by the Iowa Medical Society and others who support this legislation is that “Iowa’s health care crisis” has experienced five lawsuits since 2017 – whereby Iowa juries awarded plaintiffs more than $63 million for “non-economic damages.” The argument being made is that physician’s malpractice insurance policies have a $1 million – $2 million limit, while hospitals also have policy limits. Consequently, when juries award a large amount beyond these limits, the doctors and hospitals are forced to pay the rest out-of-pocket.

According to an article written by the Iowa Clinic in the February 14 edition of the Des Moines Business Record, the ‘simple solution’ is for the Iowa legislature to place a firm dollar hard cap of $250,000 on “non-economic damages,” but patients could still receive unlimited “economic damages” to cover treatment costs and lost wages. By placing a “reasonable” limit on “non-economic” damages, lawmakers, not juries, can ensure “fair awards” for plaintiffs, providers and hospitals “while keeping costs down for all Iowans.”

There you have it. Can we assume that hard-capping “non-economic” damages will miraculously eliminate “Iowa’s health care crisis” as we know it?  The quick answer is “NO.” But to better understand why Iowa’s on-going healthcare crisis will not be remotely solved by these bills, it is helpful to know the pertinent facts conveniently left unshared by the Iowa medical establishment.

There are five myths that the medical establishment would like for lawmakers (and key health payers) to believe. I will summarily refute each myth with some verifiable facts.

1. Iowa malpractice premiums are greatly increasing

Overall, insurance is a risk tool that is predicated on the experience of those being insured. If claims go up, the premiums will also move up. As is often the case, insureds are encouraged to mitigate the inherent risks within their organizations to keep the premiums affordable. The same principle applies to physicians and hospitals. If ‘safety’ and ‘best practices’ that help avoid preventable medical errors are widely pursued, adopted and implemented as the new culture of a medical organization, claims and, consequently, med-mal premiums would indeed go down.

For some Iowa physicians and hospitals, it is true that med-mal premiums are increasing. Much of this will depend on the actual claims experience for each physician practice and hospital. Here is what we currently know about med-mal premiums in Iowa:

  • Over the last 10 years, the medical liability insurance industry has taken in $709 million in premiums from the Iowa medical profession, and paid out just $308 million in combined losses and expenses. Stated another way, the med-mal insurance industry has $401 million in surplus premiums. (Source: NAIC Countrywide Summary of Medical Professional Liability Insurance – Calendar Years 2009 – 2018)
  • The average Iowa medical malpractice insurance premiums have increased 0% for Iowa doctors over the last 10 years. (Source: Annual Rate Survey, Medical Liability Monitor, October 2009-2018)
  • Over a 20-year period (1990 – 2010)*, only 1.73 percent of Iowa physicians were responsible for one-half of all the money paid out for medical malpractice in Iowa. Most of these physicians had multiple malpractice payments. If this small proportion of physicians were either ‘re-trained’ or ‘restricted’ from practicing in this same pattern of behavior, the claims could be cut in half. But only 16 percent of these doctors had reportable action – not even a slap on the wrist reprimand – by the Iowa Board of Medicine. About 10 percent had any reportable action taken against their clinical privileges by an Iowa hospital. Consequently, only about one-sixth of the 1.73 percent of physicians have had any action taken against their licenses – and only one-tenth of them have had any action taken against their clinical privileges. (Source: Robert E. Oshel, Ph.D., retired Associate Director for Research and Disputes for the National Practitioner Data Bank at the U.S. Dept. of Health and Human Services.)

*This calculation was made by Dr. Oshel in 2010 for each state, but has only been repeated since then on a national level only. The calculation is Dr. Oshel’s own independent, unpublished research using the NPDB Public Use File for reports information from www.statehealthfacts.org for the number of physicians in the state. This data was last updated using June 2019 data. According to Dr. Oshel, “the results for this almost 30-year period were very similar to what they have been for the 20-year period using the 2010 data. I would expect 30-year Iowa data also to be very similar.”

2. Tort reform reduces medical errors

The tort reform push in Iowa does nothing to address the root causes of why preventable medical errors occur in the first place. The medical establishment wishes to use hard caps to mitigate their claims and hold down their insurance premiums, but hard caps do not address or incent physicians and hospitals to provide safe care more effectively, through best practices.

After Texas implemented a hard-cap tort reform (passed in 2003), a University of Texas School of Law report years later (authored by Silver, Hyman and Black) stated that “Using standard patient safety measures, we find evidence that hospitals made more avoidable errors after the adoption of HB4 (name of reform).” This report, by the way, does an excellent job of detailing the actual subsequent outcomes of malpractice claims, healthcare costs, influx or exodus of physicians due to tort reform, and other issues that refute many of the arguments made by hard cap supporters.

A study by Black & Zabinski examined five states that enacted caps during 2003-2005 used standard Patient Safety Indicators (PSIs) that were available for at least two years prior to caps being implemented in each state allowing for comparisons later. When comparing data in the five states (Florida, Georgia, Illinois, South Carolina and Texas) to PSIs from previous years, and with other ‘control’ states, the authors determined:

  • “Consistent evidence that patient safety generally falls” after caps are passed.
  • “We find a gradual rise in rates for most PSIs after [caps were passed], consistent with a gradual relaxation of care, or failure to reinforce care standards over time.”
  • “We find evidence that reduced risk of med mal litigation, due to state adoption of damage caps, leads to higher rates of preventable adverse events in hospitals.”

(Source: Bernard S. Black and Zenon Zabinski, “The Deterrent Effect of Tort Law: Evidence from Medical Malpractice Reform,” Northwestern University Law & Economics Research Paper No. 13-09 (July 2014). http://ssrn.com/abstract=2161362.).

The ultimate question that Iowa lawmakers must answer is whether hard caps will reduce medical errors. Unfortunately, rehabilitation of health providers to provide better and safer care is not baked into this tort reform, and other states consistently prove this point. Eliminating financial deterrents for medical providers will only shield them from having accountability to their patients.

3. Tort reform will reduce healthcare costs

The Texas report does confirm one key initiative that physicians and hospitals supporters wish to have:  Hard caps through tort reform greatly reduces the frequency of paid med mal claims, in addition to sharply reducing total payouts.

But implementing hard caps will do little-to-nothing toward curtailing healthcare costs. Various national sources indicate that between 21 – 47 percent of healthcare costs are considered to be waste. This waste, which represents about $1 trillion in the U.S., comes from six categories:

  1. Administrative Complexity
  2. Overtreatment – includes excessive and inappropriate care
  3. Fraud and Abuse
  4. Pricing Failures
  5. Care Delivery Failures
  6. Care Coordination Failures

Many of the above problems exist due to inefficiencies in a poorly-functioning healthcare system. Tort caps are nothing but a small band aid to a much larger systemic problem that the medical establishment fails to meaningfully address. When using this information, the estimated annual waste in Iowa employer health premiums is $2,400 for single and $6,600 for family coverages.

A 2014 study by Black, Hyman and Paik, examined healthcare spending trends in nine states that enacted caps during the period, 2002-2005, and compared this with data from other ‘control’ states. The authors found:

  • “Damage caps have no significant impact on Medicare Part A (hospital) spending, but lead to 4-5 percent higher Medicare Part B (physician) spending.”
  • “[O]ne policy conclusion is straightforward: There is no evidence that limiting med mal lawsuits will bend the healthcare cost curve, except perhaps in the wrong direction. Policymakers seeking a way to address rising healthcare spending should look elsewhere.”

(Source: Bernard S. Black, David A. Hyman and Myungho Paik, “Do Doctors Practice Defensive Medicine, Revisited,” Northwestern University Law & Economics Research Paper No. 13-20; Illinois Program in Law, Behavior and Social Science Paper No. LBSS14-21 (October 2014), http://ssrn.com/abstract=2110656.)

The Texas study mentioned earlier found that “tort reform is unlikely to reduce overall healthcare spending, and could even lead to higher spending…that overall (healthcare) growth is driven primarily by rapidly rising costs for prescription drugs, and by healthcare providers, especially hospitals, charging ever-higher prices for doing much the same things as before.” The report found that “Doctors who fear liability may sometimes do more (conduct more defensive tests and procedures) but they may also sometimes do less (avoid risky procedures). Texas was among the higher spending states per capita before (tort) reform, and is among the higher spending states today.”

4. Tort reform will increase physicians in our state

If tort reform in Iowa is the solution to attract and retain physicians, we can learn from Texas and other states that have already implemented these reforms. A major finding from the Texas study revealed that “neither an exodus of physicians before the passage of HB4 nor an influx thereafter…Texas had a lower ratio of physicians to population than most other states before reform, and has a lower ratio today.”

Another study by Black, Hyman and Paik, examined physician supply in nine states that enacted caps during 2002-2005, and compared this data to other “control” states. The authors found:

  • “No evidence that cap adoption predicts an increase in total patient care physicians, in specialties that face high med mal risk (except plastic surgeons), or in rural physicians.”
  • “[W]e find no evidence that the adoption of damage caps increased physician supply in nine new-cap states, relative to twenty no-cap states.”
  • “Physician supply does not seem elastic to med mal risk. Thus, the states that want to attract more physicians should look elsewhere.”

(Source: Bernard S. Black, David A. Hyman and Myungho Paik, “Does Medical Malpractice Reform Increase Physician Supply? Evidence from the Third Reform Wave,” Northwestern University Law & Economics Research Paper No. 14-11; University of Illinois Program in Law, Behavior and Social Science Research Paper No. LBSS 14-36 (July 2014) http://ssrn.com/abstract=2470370.)

A suggestion to Iowa lawmakers would be to find new approaches to support effective strategies ensuring the Iowa Board of Medicine has all the resources it needs to take action when confronted with physicians who repeatedly have malpractice claims and payments brought against them. Self-policing of doctors can be effective when appropriate culture allows for this to happen. Additionally, Iowa hospitals should be encouraged to ensure that peer reviewers take needed actions. As mentioned earlier by Dr. Oshel, restricting or retraining this small proportion of physicians would be most beneficial to patients and other doctors practicing within Iowa.

Another issue that was raised by the OB/Gyn physician who wrote the DMR Op-Ed is rural communities and their hospitals. It is true that rural hospitals are financially struggling. Rural providers are not seeing as many patients as they have in the past, and because of an older patient mix, they are increasingly being paid at reduced amounts by public payers, such as Medicaid and Medicare. This requires a host of other difficult decisions and solutions, but this discussion and any subsequent solutions goes well beyond med mal issues. This is not only an Iowa problem, it is a national concern.

5. Tort reform reduces defensive medicine

It is true that defensive medicine – a practice by which physicians and hospitals perform additional tests to help mitigate potential lawsuits – is a problem. But as mentioned earlier, there are six primary categories that are extremely wasteful in our healthcare system that require major reform.

A 2010 paper by Mello et al. attempted to determine the cost of defensive medicine in the U.S. The authors took great effort to review other reports on this topic, but conveyed language from the U.S. Congress Office of Technology Assessement, stating, “that defensive medicine is highly prevalent, [but] reliable estimates of its cost are notoriously difficult to obtain.” Mello et al. ventured to estimate that the overall health system cost of defensive medicine to be $55.6 billion in 2008 dollars, approximately 2.4 percent of total national healthcare spending in 2008.

The argument that defensive medicine is expensive has merit, but we must not be led to believe that it makes up a large component of high healthcare costs – it does not. It is important to keep our eye on the true drivers of healthcare costs and the associated waste.

Summary

I do not support unwarranted lawsuits that result in large payouts. But I will say, especially with this particular issue, there are two sides to this story. Much too often, the lobbyists who represent the medical establishment are powerful, vocal – and extremely well-financed – to promote their own self-interests at the public’s expense. They will use this particular issue to leverage the argument about why we have skyrocketing health costs in our state and country. I wish it were that easy.

Iowa and the U.S. does indeed have a “health care crisis.” But it is not because of malpractice costs…which is merely a symptom of a much larger issue. Medical errors are the third-leading cause of death in the U.S.  Based on my analysis in 2016, “Silently Harmed’ in Iowa,” using Iowa and national hospital data, an estimated 2,400 Iowans die and 85,000 are harmed in Iowa hospitals by preventable medical errors each year. Even if the actual numbers were a quarter of these estimates, we would still have an absolute crisis on how care is performed in our state and country. It must be said that estimates are necessary because medical providers often fail to report medical errors, which would be a useful process to gauge future improvement initiatives.

True reform should not come in the form of med mal caps, but rather, how Iowa medical organizations practice and behave in the delivery of medical care. Additionally, the small proportion of Iowa physicians who make up about half of malpractice costs must be held accountable, primarily through the authority and appropriate action of the Iowa Board of Medicine.

Former Senator Daniel Patrick Moynihan said it quite well, “Everyone is entitled to his own opinion, but not to his own facts.” This discussion represents the other side of what we are being led to believe as truth.

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Using the IRS to Tame Healthcare Costs

As I approach the eve of receiving results from our 19th annual Iowa Employer Benefits Study©, a survey that was on sabbatical in 2017 to accommodate our Iowa Patient Safety Study©, I am waiting in great anticipation as to the status of employer benefits in Iowa after this one-year hiatus.

From this latest study, we will be learning quite a bit regarding many key components found in health and dental insurance, life and disability coverages, retirement, and a multitude of paid-time off components that are extremely important to employees.

But as in previous studies, I will be highly focused on health insurance components, such as premiums, employee contributions and out-of-pockets expenditures. As we are all painfully aware, the cost of health insurance, although experiencing relative tepid growth in the past few years, continues to outpace inflationary costs. In May, the Milliman Medical Index was released showing that, on a national average for 2018, the total cost of insurance for a family of four exceeded $28,000 (it was $23,215 in 2014). As we know, the rising cost of health insurance and medical care alters purchasing behaviors – rational or not.

A recent commentary written in the Wall Street Journal, “The IRS Can Save American Health Care,” by Regina Herzlinger (professor at Harvard Business School) and Joel Klein (chief policy and strategy office at Oscar Health) piqued my interest. Now it must be noted that Dr. Herzlinger is a huge proponent of “consumer-driven healthcare,” while Oscar Health is a technology-focused health insurance company that primarily focuses on individuals purchasing health coverage through designated state marketplaces. Oscar would presumably benefit greatly from what these authors have proposed.

The Existing Problem

Thanks to a 2017 Kaiser Family Foundation report, the authors make a point that eight percent of employers offer a choice of tighter provider networks for their employees to use. Tighter networks restrict the number of providers that can be covered in a geographical location, but in return, providers concede on price, making the plans’ cost more competitive. By abdicating the important choice to exclude higher-cost providers, the authors argue that large hospitals that are dominant in local markets are able to charge higher prices without facing much backlash.

Employers benefit from using pretax dollars when they purchase insurance on behalf of employees, who understandably, are unsure about the true cost of health insurance as this tax exemption greatly distorts and conceals this cost. As a result, employees are likely to believe that someone else is paying the majority of the cost and may not feel as compelled to discern the charges they rack up. If employees work for employers who don’t offer health insurance, they can buy policies on their own through the individual markets, however, they will not benefit from the same tax breaks allowed to employers.

According to the authors, it is who pays for the coverage that ultimately impacts healthcare costs.

Proposed Approach to Put Employees in Charge of Health Costs

Herzlinger and Klein are advocating the IRS to adjust its technical definition of Health Reimbursement Arrangements (HRAs) so that they can be used to pay insurance premiums to satisfy the ObamaCare employer mandate. How could this happen? Employers would simply fund a fixed amount of money into each employees’ HRA, and then have the employee buy the best health plan for their families in ACA-exchanges. Employees would now have tax-free money to purchase health insurance, and if any money is left after the purchase, they can pocket the savings as taxable income. This provides an economic incentive to employees to become thrifty with their money.

The thought process is that employees would now have the appropriate tax break to induce buying cheaper, more-tailored policies – rather than receive a standard plan offered by their employer. The theory is that having more workers purchase coverage through the individual marketplaces would “drive down premiums.” Workers may be more inclined to select a scaled-down provider network that would have fewer providers, but in return, the insurer would be empowered to negotiate lower prices with hospitals and physicians. Such activity would eventually break the stronghold that dominant health providers have in their markets. A 2017 McKinsey analysis suggests that tighter provider networks can be at least 18 percent cheaper (and still achieve similar outcomes).

With this IRS adjustment, the authors feel the Department of Health and Human Services – and Treasury – could work with states and employers on offering HRAs to employees. There would be no act required by Congress to make this happen, bypassing the common gridlock found in Washington.

Will This Be Successful?

This approach is simple in concept and may have some merit of pushing workers to become better healthcare ‘consumers.’ However, expecting a new insurance approach – even through different tax advantages – to overcome the myriad of twisted, inefficient, and opaque incentives that mold how providers and other stakeholders behave is, I’m afraid, mere wishful thinking.

I do consider myself to be an advocate of ‘market-driven’ forces to make healthcare more efficient, safe and affordable, however, it will take a carefully-crafted menagerie of both public-private approaches to ‘tame’ this beast and eventually alleviate runaway health costs.

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Direct Primary Care (DPC) – New Iowa Healthcare Law Flies Under the Radar

During the 2018 session, the Iowa legislature and governor passed and signed legislation that affects Iowa law on a number of healthcare-related issues – specifically banning nearly all abortions, changing the state mental health system, developing association health plans and allowing the Iowa Farm Bureau Federation to work with Wellmark Blue Cross and Blue Shield to sell health insurance plans that are exempt from state-regulation scrutiny. All have received a great deal of public interest and varied opinions – both from supporters and detractors.

Direct Primary Care (DPC)

But, there was another Iowa health-related bill (HF 2356) signed into law on March 28 – that has not received the amount of attention that it potentially deserves. This particular law is the Direct Primary Care arrangement, or DPC. To date, 25 states have passed DPC laws, including Iowa. Five other states have introduced DPC into their legislation process. Suffice it to say this ‘movement’ has reached a critical tipping-point in the U.S.

What is DPC, you ask?

At the state level, DPC provides a viable legal arrangement for physicians to provide primary care to patients at a lower cost than traditional practice models typically available through insurance plans. Generally, with DPC, a primary care physician or group practice charges patients a membership fee (also known as a medical retainer) ranging from $30 to $500 a month giving patients most primary care services – including chronic care management – for no additional payment when they need it. Advocates of DPC arrangements suggest that market forces will set the price for services based on demand instead of relying on distant third-party payers and central planners. Patients who use medical services outside the DPC arrangement will still need to purchase high-deductible insurance coverage to cover other non-primary care services, such as hospitalization, specialized care, prescription drugs, etc. NOTE: To provide premium relief to DPC patients, it would be ideal for them to eventually purchase high-deductible plans that EXCLUDE primary care services from its’ premium pricing.

DPC arrangements are not considered insurance contracts. This means that no insurance company is involved between the primary care physician and the patient – reducing the red tape hassles of reimbursement costs that require both time and money. DPC advocates claim there is a dramatic cost reduction using this approach, in addition to allowing the physician to spend more time with patients and improving the quality of care.

DPCs are typically exempt from scrutiny by state insurance regulators, and in return, are restricted from billing insurers for consultations on a traditional fee-for-service basis. Additionally, DPC laws – Iowa included – require a valid written agreement between the provider and patient that outlines the following agreement requirements:

  • Must be in writing
  • Be signed by the direct provider (or provider agent) and the direct patient (or patient representative)
  • Describe scope of primary care health services covered by the provider
  • State the location(s) of the direct provider and any out-of-office primary care services covered by the agreement
  • Specify the direct service charge, frequency and payment terms
  • Specify any additional costs not covered by this arrangement
  • Specify the duration of the agreement, and whether renewal is automatic
  • Terms and conditions under which this agreement can be terminated by the direct provider or the patient
  • Include a notice in bold, twelve-point font that states this agreement is NOT health insurance and is NOT a plan that provides health coverage for purposes of any federal mandates. Recommends the patient obtain health insurance to cover healthcare services not covered under the DPC agreement

One key feature within the Iowa law is that a direct care provider cannot refuse to accept a new direct patient OR “discontinue care of an existing direct patient based solely on the new patient’s or the existing direct patient’s health status.”

DPCs Can Be Funded by Third Parties

Another very interesting portion of this law states that direct providers “may accept payment of a direct service charge for a direct patient either directly or indirectly from a third party.”

Employers can be involved with DPC under the following approach:

“A direct provider may accept all or part of a direct service charge paid by an employer on behalf of an employee who is a direct patient of the direct provider. A direct provider shall not enter directly into an agreement with an employer relating to a direct primary care agreement between the direct provider and employees of the employer, other than an agreement to establish the timing and method of the payment of a direct service charge paid by the employer on behalf of the employee.”

Based on the above language, this arrangement opens up the possibility of third parties being not only employers, but public payers, such as Medicaid and/or Medicare.  In fact, in just the last two weeks, America’s Physician Groups, an association of medical groups, submitted to the Centers for Medicare and Medicaid Services (CMS) a provider contracting model that would allow a provider network to receive Medicare funds upfront to manage their patients’ care – through the DPC method.

It is common knowledge that many physicians and healthcare staff are operating within the current medical environment under great stress – if not burnout conditions. In fact, from the results of our 2017 Iowa Patient Safety Study, patients feel a large reason that medical errors occur are directly linked to overworked (and stressed) medical staff. For many physicians who have adopted DPCs in other states, they praise DPC because it allows them to spend more time with patients and less time dealing with the bureaucracy of filing claims to various insurance vendors that do not provide the value patients are hoping to have when seeking care.

Currently, Iowa does not appear to have many primary care physicians operating on a medical retainer basis. However, this new law will most likely generate more interest from primary care physicians wishing to deliver more affordable care while enhancing a direct relationship with their patients. Not surprisingly, insurance companies and other critics of DPCs claim that direct providers may withhold necessary services to be profitable. However, according to DPC advocates, this concern has been unwarranted in other states with DPC laws.

The implications of this new Iowa law will play out over time. Given that healthcare price transparency is such a hot topic, and rightfully so, this new legislation is intriguing for both patients and payers alike.

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