Consequences Arising From State Medical Indemnity Fund

Diverse Consequences Arising From State Medical Indemnity Fund

Lawrence Knipel

New York Law Journal

November 15, 2011

In recent years, states across our nation have increasingly focused on legislation in an effort to contain medical malpractice insurance premiums. Although only a few percent of overall medical costs,1 medical malpractice expenses have been blamed for ruining medical practices and forcing hospital closures. Birth-related neurological injuries constitute a disproportionately large share of overall malpractice costs and have become a principal target of cost containment efforts. Newly effective Public Health Law Section 2999 represents New York's latest cost containment effort. Pursuant to this legislation, a Medical Indemnity Fund is created for future care associated with birth-related neurological injuries expressly "to reduce premium costs for medical malpractice insurance coverage." 2

Birth related neurological injury is defined as "...injury to the brain or spinal cord of a live infant caused by the deprivation of oxygen or mechanical injury..." 3 Henceforward the cost of care will be paid for the injured plaintiff only through disbursements from the fund and not via jury award or settlement proceeds. 4 Participation in the fund is mandatory, not discretionary. 5 To appreciate the likely impact of the new legislation, the contextual nexus between birth-related neurological injuries and medical malpractice needs to be explored.

Birth-related neurological injury undoubtedly generates some of the largest monetary awards in medical malpractice litigation. In Desiderio v Ochs, 100 NY2d 159 (2003), an award of $40 million for future nursing care was sustained. In Flaherty v. Fromberg, 46 AD3d 743 (2d Dept. 2007), an award of future nursing and personal care expenses of $25 million was sustained. Typically, anticipated future care related expenses constitute the single largest category of monetary damages contained in the award. It has been estimated that as much as half of all medical malpractice expenses relate to cases involving neurologically impaired infants. 6

Advocates contend that the establishment of the fund will generate huge medical malpractice savings because of inaccurate and exaggerated estimates of future health care needs under the current malpractice award system and optimistically project that the fund will lower providers' malpractice insurance premiums by as much as 25 percent and reduce hospital malpractice costs by as much as $320 million per year statewide.7 Jason Helgerson, the Governor's Chief Medical Reform Advisor, estimates that between 150 and 200 babies will qualify annually for participation in the fund. 8

In addition to the cost of administering the fund, which could be considerable, at 200 infants entering per year, the fund would need to save $1.6 million for each newly enrolled infant to achieve this projected level of savings. Writers have already expressed concern relating to possible pressure on those responsible for administering the fund to overly restrict expenditures to participants to achieve the ambitious levels of savings projected.9 In early conferencing of fund cases, two additional issues have arisen which although not widely discussed in the literature, may substantially, even dramatically, impact on efforts to prevent medical malpractice and the pool of participants in the Medical Indemnity Fund.

Reallocation of Risk

It has rapidly become the convention in New York courts when conferencing fund-eligible cases, to allocate 50 percent of the settlement award to the fund. This reflects common trial experience that when these cases go to the jury, about half to two-thirds of the total verdict awarded are usually in fund-eligible categories. It is important to understand that when dealing with fund-eligible cases, the amount of the settlement or verdict allocated to the fund is essentially meaningless to the plaintiff. The only concern to the plaintiff is whether he or she is included in the fund. It makes no difference to the plaintiff whether only one dollar or $100 million is allocated to fund-related expenses.

If any amount at all is allocatable to the fund, then the infant plaintiff qualifies for all fund-related expenses for the rest of his or her life. Equally significant, no party obtains or pays the amount of the award allocated to the fund. By this I mean that the plaintiff does not obtain any sum allocated to the fund; instead he or she obtains fund benefits. Likewise, neither the defendant nor his insurance carrier is liable for payment of that part of the award allocated to the fund.

The fund is financed through an assessment upon all New York health insurers (other than Medicare and Medicaid).10 In other words, the costs of the fund are shared by all health insurers. For example, if a case settles for $20 million, 50 percent of which is allocable to the fund, the plaintiff obtains $10 million from defendant (from which is deducted expenses and attorney fees) and is enrolled as a fund participant. Aside from defense payment of plaintiff attorney's counsel fees on that portion of the award allocable to the fund, no other money changes hands. The negligent tortfeasor, in this example, realizes a near $10 million windfall savings over the results that would otherwise obtain had the prior law applied. The cost of plaintiff's participation in the fund is borne by all New York hospital health insurers.

Although superficially similar to reallocation of risk common to policies of insurance, the structure of funding herein is fundamentally dissimilar to most insurance in that risk under this statutory scheme is allocated entirely without regard to fault. Those who purchase typical policies of automobile or premises liability insurance are given an incentive to maintain vigilance because they know that policy premiums will rise as claims accumulate for covered risks. There is no such incentive for care here. The assessment to finance the fund remains fixed and unchanging no matter the conduct of the party (see footnote 10).

To visualize this problem in concrete terms, one need only consider the ongoing comprehensive obstetrics safety program at New York Presbyterian Hospital/Weill Cornell. Amos Grunebaum, leader of the obstetrics team, is quoted as claiming that instituting the program was well worth its expense because related medical malpractice payouts dropped from an average of $28 million before the program was instituted, to only $2.6 million a year afterward.11

Much of this savings may now be forfeited because annual Fund contributions remain unchanged no matter the success or failure of the hospital's obstetrics safety program. Beyond peradventure, the burden of paying for the cost of malpractice shifts from hospitals, which are the source of the malpractice, to those that are not. In practical terms this may well result in the shifting of the economic burden away from less well-funded, non-teaching institutions, which are a disproportionately greater source of malpractice claims, to those larger well-funded teaching hospitals from which relatively fewer claims emanate.

Number of Plan Participants

Another area of concern relates to the projected number of plan participants. Only 150 to 200 participants are projected to join the Fund each year (see footnote 8). To the extent the actual number of participants varies from this projection, money available for pro rata distribution to participants will likewise wax or wane because the total sum added yearly will be fixed pursuant to the aforementioned formula, and not vary based on the total number of Fund participants (see footnote 10). If the number of new participants significantly exceeds the amount projected, the Fund's resources could rapidly diminish.

It is important to recognize that the number of neurologically impaired infants born each year, independent of attribution of fault or causation, vastly exceeds the projected number of plan participants. For example, autism and cerebral palsy are both recognized as neurological developmental disorders which affect a substantial number of infants born each year.

A wide spectrum of neurological developmental disorders are classified as Autism Spectrum Disorder (ASD). It is generally, although not universally, accepted that the connection between an insult during birth and ASD is weak, at best. The National Institutes of Health has stated,

Scientists aren't certain about what causes ASD, but it is likely that both genetics and environment play a role...abnormalities suggest ASD could result from disruption of normal brain development early in fetal development caused by defects in genes that control brain growth and that regulate how brain cells communicate with each other, possibly due to the influence of environmental factors on gene function.12

The number of individuals diagnosed with ASD has increased dramatically in recent years.13 The Centers for Disease Control and Prevention (CDC) reports that approximately 1 percent of children born in the United States are now diagnosed with ASD. 14

Because of the difficulty establishing a connection between ASD and errors during delivery, few lawsuits are brought for ASD, and of those not dismissed, most will settle for a relatively insignificant sum of money.

Actions brought on behalf of significantly injured plaintiffs founded upon dubious claims of liability are commonly settled for minor sums by defendants seeking to avoid a variety of risks including the cost of continued litigation, the vagaries of litigation, and the possibility of establishing unfavorable precedent. Both parties benefit from the expeditious resolution and move on to litigate matters of greater substance.

However, when this sort of action is resolved in connection with a claim that would be encompassed under Public Health Law §2999, the result is anything but inconsequential. Even a minor settlement of a properly framed claim brought in whole or part for an autism-related birth injury can trigger Fund eligibility and lifetime benefits. For a severely impaired infant, lifetime benefits could easily be worth millions of dollars. Moreover, the settling defendant does not have much incentive to resist this resolution. As discussed previously, the settling defendant does not have to pay the cost for plaintiff's inclusion in the Fund, and its annual premium to finance the Fund, if any, remains unaffected. One can well imagine that which is now a trickle of autism-related litigation turning into a torrent.

Cerebral palsy presents a similar, although more nuanced predicament. Like autism, those afflicted with cerebral palsy may require a lifetime of care. Approximately one in 300 8-year-olds15 and up to 800,000 people in the United States have been diagnosed with this disease. 16 Medical understanding about the causes of cerebral palsy have been evolving. The CDC, a highly respected operating component of the Department of Health and Human Services, summarizes current medical understanding as follows:

The majority of children with cerebral palsy are born with it...This is called congenital cerebral palsy. In the past, if doctors couldn't identify another cause, they attributed most cases of congenital cerebral palsy to problems or complications during labor that caused asphyxia (a lack of oxygen) during birth. However extensive research by NINDS scientists and others have shown that few babies who experience asphyxia during birth grow up to have cerebral palsy or any other neurological disorder. Birth complications, including asphyxia, are now estimated to account for only 5-10% of the babies born with congenital cerebral palsy.17

As the connection cannot peremptorily be ruled out, perhaps a Frye hearing 18 is the appropriate vehicle for the court to explore the causal relationship between asphyxia and cerebral palsy in a particular case. In any event, one can envision an increasing number of cerebral palsy cases commenced whose principal goal might be Fund inclusion.

Accordingly, while the cost containment concept behind the formation of the Fund may be sound, the deterrent effect on medical malpractice is less than convincing and the actual number of Fund participants may have been grossly underestimated.

Lawrence Knipel i s a Justice for the New York State Supreme Court in Kings County.

Daniel Flanzig, Esq.

Flanzig and Flanzig LLP

323 Willis Avenue

PO Box 669

Mineola, New York 11501-0669


F-516- 665-7812

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