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Summary of M-Care Act 1802

SUMMARY OF NEW M-CARE LAW House Bill 1802

The following is a brief summary of the provisions in House Bill 1802. The emphasis in this outline is on changes in the law, e.g. to the extent the bill merely incorporates existing law, little if any mention is made of the provisions. References to the "department" are the Insurance Department of the Commonwealth of Pennsylvania.

The formal name of the bill is The Medical Care Liability And Reduction of Error Act (M-Care). The effective date of the bill is March 20, 2002. Almost all of the substantive legal changes in the law apply to causes of action which arise on or after March 20, 2002. With minor exceptions, the miscellaneous portions of the bill take effect sixty days later on May 20, 2002.

1. PATIENT SAFETY

• The Act establishes a Patient Safety Authority, made up of eleven (11) people, four (4) of whom are regular citizens appointed by the Senate. They will collect and analyze data regarding reports of "serious events" and "incidents" among other things. [§303]

• A "serious event" is defined as something that results in death or an "unanticipated" injury. An "incident" is defined as something that could have injured the patient, but did not. [§302]

• The authority can issue recommendations to doctors and hospitals regarding safety improvements. [§304(7)]

• Healthcare workers can report incidents anonymously. [§304(b)]

• The authority will make a report to the General Assembly summarizing things for that year, and the report shall be publicly available. [§304(c)]

• The authority will be funded by a surcharge on licensing fees, the total surcharge in any given year not to exceed $5,000,000 (five million). [§305]

• The department shall approve all patient safety plans, and also investigate serious events [§306(a)].

• Hospitals must establish patient safety plans which appoint a patient safety officer and a patient safety committee. [§307]

• Doctors, nurses, etc. must report serious events and incidents to the hospital. The hospital, in turn, must notify the patient of any serious events within seven (7) days of the event. The notice must be in writing. [§308]

• The patient safety officer shall investigate all serious events and incidents. [§309]

• The patient safety committee must have at least two (2) residents of the local community on it. They review serious events/incidents and make recommendations. [§310]

• Confidentiality shall apply to documents generated solely for the purpose of compliance with patient safety provisions and the material shall not be discoverable in a civil case. The same is true of documents received by the authority or the department. [§311] No confidentiality, however, as to documents otherwise available fro original sources. [§311(a)(f)]

• Current or former employees of the authority or the department cannot be asked to testify to any matters gained by reason of their review of confidential documents. [§311(e)]

• Hospitals have to report all serious events to the department and also to the authority within 24 hours. [§313(a)]

COMMENT: The key to all of this is how one defines a "serious event." What is "unanticipated"? Obviously, this may generate a lot of paperwork for the hospitals because they have to report everything that is unanticipated to the patient, the authority and also to the state. The hospital may say that nothing is really "unanticipated" and therefore, they do not have to report anything. On the other hand, where you have a death, it does not appear as if that death has to be unanticipated. Thus, when read literally, the statute would require any death to be reported to the patient, the authority and the department.

The confidentiality provisions seem to broadly track the common law of peer review.

It remains to be seen how diligent doctors or nurses are in reporting serious events and incidents to the hospital. This seems to be the key link in the chain, for if the people "on the floor" do not report an event, the hospital will never know about it.

If a doctor or hospital sends a letter to a patient informing them of a "serious event," is that letter admissible at trial? It could certainly constitute an admission depending on who authors the letter.

2. INFORMED CONSENT [§504]

• The Duttry case is overruled and a doctor is liable if he knowingly misrepresents his credentials, training or experience.

COMMENT: The act does not say that the misrepresentation must be "material" but that will likely be required.

3. PUNITIVE DAMAGES [§505]

• 75% of punitive damages shall be paid to the prevailing party, and 25% shall be paid to the Medical Care and Reduction of Error Fund (M-Care Fund).

COMMENT: The big change here is that 25% of punitive damages gets paid back to the state. Will that raise a constitutional challenge?

4. COLLATERAL SOURCES [§508]

• The plaintiff is precluded from recovering damages for past medical expenses or past lost earnings if they were already paid by a private or public benefit or gratuity.

• The plaintiff has the option of introducing the medicals into evidence, but they cannot actually recover those amounts unless the plaintiff remains "legally responsible for such payment."

• Subrogation is done away with respect to a public or private source.

• Exceptions to this rule include life insurance, pension or profit sharing plans, social security, cash or medical assistance by DPW, or any public benefits under a federal program that has the right of subrogation.

COMMENT: The first thing to note here is that this only applies to past medicals or wages. As in other contexts, this rule will not apply if you are talking about benefits that are paid under some federal statute including ERISA.

Although the plaintiff is given the option to introduce the medical bills, is there a strategic disadvantage to doing so, i.e., would the fact that they are introduced into evidence but not to be awarded suggest to the jury that the plaintiff has the benefit of some insurance coverage? On the other hand, one could argue that the jury will make that assumption anyway. Also, if the past medical is not collectible, but the future medical is collectible, does that suggest to the jury that there is no insurance to pay for future medical expense, and if so, is that something that is favorable to the plaintiff?

5. FORM OF VERDICT [§509]

• The jury will have to set out in the verdict the specific amount that they award for past and future medical expense, loss of earnings and pain and suffering.

• The award for future medical expenses is to be separately itemized for each year. All other damages are stated in lump sum form.

COMMENT: In general, this may be favorable to plaintiffs in the sense that it requires the jury now to itemize both and past and future damages in the categories of medical, wages and pain and suffering. It could lead to higher awards because they jury is going to be entering six (6) different figures potentially, although it may also lengthen jury deliberations. The annual itemization of future medical will be very cumbersome and could make the verdict form very lengthy.

6. PERIODIC PAYMENTS [§509]

• Except in those cases where the future medical medicals, without reduction to present worth, do not exceed $100,000.00, all other future medical expenses shall be paid periodically after payment of attorneys fees and costs.

• The jury can take into account inflation in medical costs and also the cost of medical improvements.

• The attorney fees are paid as a lump sum based on the present value of the future medicals awarded.

• The annual periodic payments are to be paid quarterly. If payments are late, the plaintiff is entitled to interest at the legal rate.

• Liability for periodic payment ceases at the death of this plaintiff.

• The periodic payments are to be funded by an annuity, a trust or other qualified funding plan purchased by the defendants and approved by the court. The state is going to annually publish a list of approved insurance carriers who issue annuities.

COMMENT: This is obviously a major change in previous law. At a minimum, plaintiffs are going to have get economists involved in any cases involving life care or future medical costs because they will want to put in an inflation factor based on historical tends in medical costs.

There are several practical problems that may arise here. Consider this example. Suppose the plaintiff obtains a verdict totaling $1,500,000.00, and the jury breaks that down into an award of $500,000.00 for pain and suffering, $500,000.00 in wage loss and $500,000.00 in future medical expense. Suppose that the defendant only has $1,000,000.00 of coverage. Is the plaintiff entitled to demand that the full $1,000,000.00 be paid in a lump sum to satisfy the pain and suffering and wage loss portion of the verdict? Conversely, is the defendant entitled to pro-rate the $1,000,000.00 and devote one-third of it to periodic payments to satisfy the future medical expenses? Obviously, the plaintiff would prefer the former result because, among other things, it eliminates the risk that the future payments will stop if the plaintiff dies prematurely.

Another practical problem relates to the jury's inability to foresee the future. Assume that, based on testimony introduced by the plaint0iff, the jury concludes that he/she will need a surgery in the year 2013, and it is estimated that the procedure will cost $25,000. Based on that testimony, the jury awards $25,000 for the year 2013. What happens if it turns out that the surgery is needed in the year 2011, and it ends up costing $45,000, not $25,000. Where does the plaintiff get the money? In the old days of lump sum awards, presumably the plaintiff would have a cushion to draw from and cover the unanticipated expense. Not so under the new rule.

Even assuming that there is adequate money to pay an entire verdict and, therefore, there is no question that future periodic payments are going to be made on the medical expenses, there are a host of other questions that will arise about the payment of attorney's fees. For example, how do you calculate the present value of the future medical payments? The insurance carrier may want to minimize the present value so as to reduce the lump sum amount which they have to pay as counsel fees, whereas plaintiff's counsel might naturally disagree with their figure and argue for a higher present value. Does each side have to get an economist in order to settle this post-verdict dispute in front of the court? Does that create a conflict of interest for plaintiff's counsel to the extent he or she is arguing for a larger lump sum fee?

Ironically, the carriers used to trumpet the high present value that their annuities offered, whereas now they may be trying to hold down the present value so as to reduce the lump sum payment as attorney's fees.

Exactly how is this provision to be applied? Assume that the jury awards future medicals of $100,000/year for 50 years, an aggregate amount of $5,000,000.00. Assume further that the present value of that future stream of payments is $1,200,000.00. It would seem that the defendant would immediately owe as counsel fees the plaintiff's contingency fee as applied to that present value of $1,200,000.00. If that amount is a 1/3 contingency fee, then $400,000.00 would be paid to counsel in a lump sum.

Once attorney's fees are paid, the biggest debate undoubtedly will concern what exactly the defendant must pay to the plaintiff in each future year. Going back to our prior example of a $5,000,000 gross verdict with a present value of $1,200,000, once the attorney's fee of $400,000 has been paid, what does the plaintiff receive every year? The defense may argue that it takes the remaining portion of the present value of the verdict, $800,000, and uses that to purchase an annuity making payments for the next 50 years. That may mean the plaintiff receives something less than $100,000/year as the jury awarded since some of the present value was "used up" to pay attorney's fees, i.e. not all the present value was devoted to purchasing an annuity. On the other hand, plaintiffs may argue that after having paid attorney's fees the defendants still have the obligation to make periodic payments in the full amount of the verdict, $100,000/year. Although this may seem unfair because, in effect, it would require the defendant to pay attorney's fees plus the full verdict, plaintiffs can counter that it is appropriate in the context of this new rule for the following reasons:

• The rule gives the defendant a huge new benefit by providing that payments cease if the plaintiff dies prematurely. In certain cases, this could produce a significant windfall to the insurance carriers, so it is only natural that they should take on some additional burdens under the rule, namely, paying the full verdict plus attorney's fees.

• Subsection (e) of the rule stays that "if full funding of an award pursuant to this section has been provided, the judgment is discharged....." Therefore, the implication is that if "full funding" is not provided, then the judgment is not discharged, and "full funding" means paying the full amount awarded by the jury, in our hypothetical $100,000/year.

• In many instances there will actually be enough money in the present value to cover both attorney's fees and the full amount of the verdict because of advantages available in the annuity marketplace. For example, in our hypothetical verdict having a present value of $1,200,000, the $800,000 of remaining present value might be enough to purchase an annuity paying $100,000 for 50 years because of the concept of "rated age." In other words, while the jury concluded that the plaintiff would live and incur medical expense for an additional 50 years, the insurance company selling the annuity may be more pessimistic about the plaintiff's health and assign him or her a rated age that yields a life expectancy of only 15 years. In that event, the insurance carrier would be willing to sell a 50-year annuity relatively cheaply because they are betting that the plaintiff will only live another 15 years. And remember, under the rule the payments cease as soon as the plaintiff dies! Therefore, the $800,000 of present value that remains after attorney's fees are paid may indeed be enough to purchase an annuity covering a potential 50 year obligation of $100,000 annually. In addition to rated age, another thing that will reduce the cost of the annuity is the issuing company's recognition that they do not have to guarantee the annuity for a given number of years. Most annuities are sold with 20-30 year guarantees to protect the plaintiff in the event of a sudden and unexpected death, but under M-Care, the payments stop automatically when the plaintiff dies, i.e., there is no guarantee that the payments will continue for a minimum number of years. That too should reduce the cost of the annuity.

Neither side is likely to give much ground here, and thus, the issue will be decided by the appellate courts.

Some related issue raised by the fact that payments cease upon the premature death of the plaintiff are these: Should the defendant no longer be able to argue a shortened life expectancy, at least with respect to the future medicals? (It can still be relevant to the duration of future pain and suffering or wage loss.) Should the plaintiff be able to inform the jury that the future medicals will be paid in periodic payments and will cease with the death of the plaintiff in order to allay their concern that the defendant should not have to pay beyond the death of the plaintiff?

The requirement of quarterly payments is going to create a lot of paperwork for the insurance carriers. Also, there may now be debates about the security of the funding instrument which a defendant proposes to utilize. The plaintiff may feel that it is not adequately secure to guarantee the payments. Ultimately, the court may be involved in resolving these disputes.

Finally, in light of all of its complexity, may the parties simply stipulate to use the traditional lump sum verdict slip?

7. REDUCTION TO PRESENT VALUE [§510]

Future wages are to be reduced to present value, although the plaintiff can introduce evidence about productivity increases and inflation over time.

COMMENT: Again, it seems that this going to make the economist more involved. Under the current law, we use the total off-set method, but now the economist is going to have to increase future wages for inflation and productivity and then reduce to present value according to whatever the claimant can earn on a reasonably secure fixed income investment.

8. ACCURACY OF MEDICAL RECORDS [§511]

• Entries in records are made contemporaneously with the events.

• If there has been an alteration or destruction of medical records, the court may give the jury on an adverse inference instruction.

• Alternation or destruction can cause suspension of a person's license.

• It is o.k. to change a record if the earlier information was entered erroneously or the new information is added to clarify a point. All corrections are to be dated and timed.

COMMENT: The major change here is the express permission for the court to give an adverse inference instruction for inaccurate medical records. Obviously, there will be debates over whether the "inaccuracies" are merely benign or intended to deceive.

9. EXPERT WITNESSES [§512]

• In order to testify, the expert has to have a valid license, not be retired for more than five (5) years, practice in the same subspecialty or one that has a substantially similar standard of care for the specific issue in the case.

• There are certain circumstances under which the court can waive these requirements if they are otherwise satisfied with the expert's competence.

COMMENT: This should not impact many plaintiffs since most experts are board certified in the subspecialty involved or a related subspecialty.

10. STATUTE OF REPOSE [§513]

• Seven (7) year statute of repose from the date of alleged tort.

• The rule does not apply to injuries caused by foreign objections unintentionally left behind.

• As to minor's, the rule is seven (7) years from the date of the tort or when the child attains the age of 20, whichever is later.

COMMENT: This is going to impact mainly adult claims, and particularly cases involving the failure to diagnose cancer and other instances where there is a long lag time between the negligent act and the injury. It appears that this rule, in effect, does away with the discovery rule. This could be a very substantial change in the law, because there are many cases where the negligence goes back more than seven (7) years.

11. DEATH CASES - STATUTE OF LIMITATIONS [§513]

• It is a two-year (2) year statute for wrongful death and survival in the absence of affirmative misrepresentation or fraudulent concealment of the cause of death.

COMMENT: This simplifies the present law and eliminates any confusion that might exist about the interplay between survival and wrongful death claims as it relates to the statute of limitations.

12. VENUE [§514]

• A commission is established consisting of the Chief Judge of the Supreme Court or his designee, Chairman of the Civil Procedure Rules Committee, a judge, the Attorney General, general counsel and two (2) private attorneys.

• The commission is to give a report by September 1, 2002, to the General Assembly and the Supreme Court which includes recommendations for legislative action or the promulgation of rules on the issue of venue.

COMMENT: This provision, which is obviously aimed to cure the perceived "problem" in Philadelphia County, may be struck down by the Supreme Court on the basis that the legislature lacks authority to do anything about venue, including the establishment of a commission.

13. REMITTITUR [§515]

• Where the defendant claims that a verdict is excessive, the trial court can consider whether the verdict will have an impact on the availability of healthcare in the community.

• If the judge wishes to deny the remittitur request, he has to set forth specific factors that he considered with respect to the impact on the community.

• An appellate court can reverse the decision if it concludes that the trial judge has not "adequately considered" the evidence on impact.

• Appeal bond may be reduced by the trial judge if requiring a bond in excess of the policy would effectively deny the right of appeal.

COMMENT: This provision is designed to address huge verdicts where the defendant says they cannot afford to pay. The remittitur can be awarded, not because the verdict "shocks the conscience," but simply because the defendant's having to pay it would adversely effect healthcare in the community. In other words, the judge could conclude that it is a very fair verdict given the size of the damages to the plaintiff, yet he could still order a remittitur because it could potentially put the hospital out of business.

It is unclear what "impact" must be established in order to justify a remittitur. The statute simply says the judge is to consider the impact.

Obviously, this is not going to come into play in cases where there is insurance, but instead it is going to apply in those cases where the hospital (or doctor) has to dip into their private funds. Conceivably it will open up the books of the hospital, and there could be a whole round of discovery about how wealthy the hospital is and what payment of a verdict would do to the delivery of healthcare.

14. OSTENSIBLE AGENCY [§516]

• The plaintiff has to prove that a reasonably prudent person in the patient's position would be justified in believing that the care that was rendered by the hospital or one of its agents.

• Staff privileges at a hospital alone is not sufficient to establish this standard.

COMMENT: This standard is probably the statutory equivalent of the "holding out" requirement that currently exists under the Capan case, except this does change the law in the sense that it moves it away from a subjective standard and to an objective standard.

15. CAT FUND - M-CARE FUND [§713, §5101]

• The CAT Fund as it currently exists is immediately transferred under the supervision of the Insurance Department [§5101], and then the CAT Fund ceases to exist as of October 1, 2002.

• The CAT Fund is replaced by a new fund known as the Medical Care Availability and Reduction of Error (M-Care). This new fund is to be administered by the Insurance Department [§713].

• The M-Care Fund is to contract with a third party to do the claims adjusting, and to the extent possible, that third party is not to be a company that is already in the business of underwriting medical malpractice policies. [§713(a)]

COMMENT: Previously, the CAT Fund operated as an autonomous agency. Now, the M-Care Fund will be run under the auspices of the Insurance Department. The concern for settlement purposes is whether this will add a new layer of bureaucracy, i.e., will claims adjusters at the M-Care Fund have to get approval not only from their supervisors but also people at the department, or will the department largely defer to the claims supervisors?

16. BASIC COVERAGE LIMITS [§711]

• As of calendar year 2002, the primary limits are $500,000.00.

• In the year 2006 and thereafter, basic coverage is increased to $750,000.00, unless the Insurance Commissioner finds that basic coverage in that amount is not available, in which event, the limits stay at $500,000.00 for primary, and the situation gets re-evaluated every two years.

• Three (3) years after the coverage limits go to $750,000.00, whenever that is, basic coverage goes to $1,000,000.00 (one million).

COMMENT: The changes contemplated in 2006 and thereafter are contingent on the availability of private coverage in the marketplace.

17. EXCESS COVERAGE [§712]

• Excess coverage shall remain at the level of $700,000.00 for calendar year 2002, and then it drops down to $500,000.00 in 2003 and stays there except if, in fact, the basic coverage limits go to $750,000.00, in which case the excess coverages drops to $250,000.00.

• Excess coverage goes to zero (0) if, and when, basic coverage is increased to $1,000,000.00 (one million) as intended three years after it goes to $750,000.00.

• Starting in the year 2003, the fund will make assessments every year based on the prevailing primary premium, and the assessment shall be enough to pay all the claims during the preceding claims period (which, by the way, continues to be the August 31 deadline), and also sufficient to create a 10% reserve of that amount.

COMMENT: The upshot of all of this is that after the year 2002, the total mandatory coverage is reduced to $1,000,000.00. There is definitely a shift of most of this coverage to make it basic coverage, the plan being to gradually go to $750,000.00 and then hopefully to $1,000,000.00 in basic coverage by the year 2009, at which point the M-Care Fund ceases to exist.

18. CONSENT TO SETTLE [§712(n)]

• The doctor must pay an additional premium to maintain the right to consent to settle.

COMMENT: Obviously, this may make it easier to settle some cases because there are doctors out there who are not going to want to pay that extra premium. Quare: How are the carriers going to market this, i.e., are they going to encourage the doctors to purchase it or discourage them?

19. DUTY TO DEFEND [§714(c)]

• The primary carrier continues to have the duty to provide the defense to the doctor and the fund.

20. RELEASE OF THE BASIC CARRIER [§714(e)]

• The plaintiff can settle with the primary carrier up to the limits of its policy and that does not release or impact the liability of the fund.

COMMENT: This seems to be status quo vis-á-vis the so-called "702(e)" release.

21. DELAY DAMAGES AND POST JUDGMENT INTEREST [§714(h)]

• The primary carrier is responsible for its proportionate share of delay damages and post-judgment interest.

COMMENT: This appears to be status quo.

22. EXTENDED CLAIMS a/k/a "605" CASES [§715]

• This refers to those claims where the negligence is at least four (4) years old as of the time the complaint is filed. In these cases, the department defends the claim and pays all damages from "dollar-one," i.e. there is not basic coverage.

• The fund's limit of liability is $1,000,000.00 (one million).

• To qualify as an "extended" claim, virtually all of the negligent treatment must be more than four years old as of the time the complaint is filed, i.e., if some of the negligence is more recent than four (4) years, it is not an "extended" claim and primary coverage depends and pays first.

COMMENT: This appears to be status quo.

23. PODIATRISTS [§716]

• Within two (2) years of the effective date, they are no longer participants in the fund.

24. MANDATORY REPORTING OF CLAIMS PAID [§746]

• The basic carriers and the fund are required to report all settlement payments to the licensing board. They may submit the same copy of what is now transmitted to the National Practitioners Data Bank.

• Information transmitted is not considered public information under the "Right to Know" law, unless it is used in a formal disciplinary proceeding. [§746(c)]

COMMENT: Will this make it even more difficult to settle cases if the doctors knows that settlement are going not only to the data bank but also to the licensing board. Will the licensing board remain largely a "paper tiger" when it comes to negligence claims?

25. REPORTING AND INVESTIGATION OF CIVIL COMPLAINTS [§903]

• The doctor is required within sixty (60) days of service of a complaint to notify the licensing board.

• The doctor is also required to notify the board of disciplinary action taken by another state or of certain criminal arrest or other criminal activity.

• The licensing board is to develop criteria to assess the frequency and severity of complaints against the physician, and they have four (4) years to institute proceedings against the doctor. [§904]

• The licensing board, if they determine there was negligence, has the right to impose disciplinary action. [§905]

• Most of what goes on with the licensing board investigation shall remain confidential. [§907]

• The board submits annual reports to legislature listing complaints and action taken. Report is public information. [§909]

COMMENT: Again, it remains to be seen if the licensing board will simply remain a paper tiger. They are not compelled to investigate a complaint.

26. CAT FUND ELIMINATION

• The CAT Fund is immediately taken over by the department and then it expires October 1, 2002. [§5101]

27. 1975 HEALTHCARE SERVICES MALPRACTICE ACT

• The Act is basically repealed. [§5104]

28. EFFECTIVE DATE

• The effective date of the Act is March 20, 2002, and therefore, most of the provisions are going to apply to causes of action accruing after that date. However, certain of the sections take effect immediately. For a specific listing of which sections apply immediately and which apply to claims arising after March 20, 2002, you must consult §5105 and §5108 of the final printer's copy of House Bill 1802; this information is not contained in Purdons.

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