Prop 12 Payoff: Tort Reform Saves Medical Practices


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Cover Story - September 2007  

By  Crystal Conde
Associate Editor  

David Cantu, MD, was working full-throttle in early 2003, desperately trying to keep up with the demands of a family medicine and obstetrics office and exhausting himself physically and mentally to maintain a viable practice. His partner, Yvonne Haug, MD, was growing frustrated by skyrocketing medical liability insurance premiums that hindered their ability to break even financially while continuing to offer high-quality care.

A patient roster that included many Medicaid patients who required obstetrical care, accompanied by a few months of spending the practice's revenue to cover the costs of running the clinic, led to a difficult decision: Drs. Cantu and Haug had to discontinue providing obstetrical care at the Fredericksburg Mid-Texas Health Care Clinic in the spring of 2003.

"It became cost prohibitive because our reimbursement of Medicaid is one-third of what private pay reimburses per delivery," Dr. Haug said. "We had to do three times as many deliveries."

The doctors kept the family medicine phase of the clinic open but had to turn away their pregnant patients for about six months.

Fortunately for them and their patients, relief came when a monumental lobbying effort by the Texas Medical Association and its allies resulted in the Texas Legislature passing landmark medical liability reforms - House Bill 4 - and Proposition 12, an amendment to the Texas Constitution that caps noneconomic damages in health care liability cases. The Medical Malpractice and Tort Reform Act of 2003 went into effect Sept. 1, 2003. Twelve days later, Texas voters approved Proposition 12.

Shortly thereafter, Dr. Cantu called his liability insurance carrier, Texas Medical Liability Trust (TMLT), and happily discovered their insurance premiums were dropping, allowing him and Dr. Haug to provide obstetrical care once again. They celebrated their return to caring for pregnant women with an ad in the local Fredericksburg Standard .

The predicament Drs. Cantu and Haug faced wasn't uncommon. Four years ago, specialists and primary care physicians had to weigh the financial feasibility of offering particular services. Some ceased practicing altogether. The Texas Medical Board (TMB) reports that during 2000-06, the number of obstetrician-gynecologists reached a low of 2,796 in 2003. The number climbed to 2,897 by 2006. And this year, TMB reported in May that 92 physicians sought licensure in the field of obstetrics. (See " Top 10 Medical Specialties Seeking Licensure in Texas .")

Texas had been on the American Medical Association's list of states in medical liability crisis for years. Painfully aware of the dire situation facing them, Texas' medical community sprung into action in 2003.

During the 13 weeks leading up to Sept. 13, 2003, TMA worked feverishly with the "Yes on 12" coalition, made up of key health care and business groups. The coalition's message was direct, effective, and simple: Texans' access to health care has been encumbered by lawsuit abuse. TMA staff members worked overtime to create and disseminate educational materials doctors could use to spread the word among their patients. TMA raised $1.2 million for the campaign and called on each physician across the state to contact 21 voters to urge them to support health care at the polls.

Despite losing the fundraising drive in the campaign against trial attorneys, organized medicine triumphed at the ballot box, thanks to concerted efforts among TMA, the Texas Alliance for Patient Access (TAPA), the Texas Hospital Association (THA), and county medical societies. The grassroots efforts of physicians in conjunction with their patients, local political leaders, and medical students cemented a victory for health care.

Since 2003, tort reform has brought improved access to quality care, overhead savings for physicians and hospitals, and a deluge of out-of-state doctors - many of them specialists - who want to practice in Texas. And AMA, acknowledging the progress the state had made, removed Texas from its crisis list in 2005. (See  Proposition 12 Produces Healthy Benefits on the TMA Web site.) 

Good for Business  

The passage of medical liability reforms in Texas had physicians poised to reap long-awaited financial relief. In January 2004, TMLT cut premiums 12 percent. Other carriers subsequently followed suit, and more medical liability insurance companies entered Texas, eager to sell policies to physicians.

"The results of tort reform have been absolutely amazing," said David Teuscher, MD, chair of TMA's Committee on Professional Liability. "I don't think anyone in their right mind would have testified four-and-a-half years ago that if we pass this, you'd see physicians' insurance rates drop in half and the number of carriers multiply eightfold."

In 2003, four medical liability insurance carriers were doing business in a state that now boasts more than 30. TMLT was one of the four insurance carriers that not only endured the tort reform battle, but was instrumental in supporting Proposition 12. In 2002, TMLT helped create TAPA; its 200 members fought to pass the crucial legislation. TMLT has worked ever since to achieve meaningful tort reform and to preserve it through ensuing legislative sessions.

"Some of our competitors today who are enjoying the new, more reasonable legal environment weren't even around in 2003 when the battle for tort reform was won by TMA and the members of TAPA," said Bob Fields, TMLT's chief executive officer.

With a current policyholder count of 14,224, TMLT insures more physicians in Texas than any other carrier and has reduced rates four times: 12 percent in 2004, 5 percent in 2005 and 2006, and 7.5 percent this year. Policyholders will also receive a 20-percent dividend this year.

Since 2003, TMLT has reported a premium savings of nearly $139 million and has returned dividends of 25 percent, amounting to nearly $45 million. These dividends were declared in 2005 and 2006 for return to policyholders in 2006 and 2007. And claims intake has dropped. (See " TMLT Claims Intake, 2000-06 .")

TMLT isn't the only company decreasing premiums. Last year, Advocate MD reduced premiums 19.9 percent, The Doctors Company cut premiums 18 percent, and Medical Protective lowered them 13 percent. American Physicians Insurance Company lowered premiums twice - by 5 percent and 13 percent - in 2005. The same year, the Joint Underwriting Association cut premiums 10 percent.

Getting in on the action in Texas' medical liability insurance sector was Austin-based Medicus Insurance Company, which began writing policies in September 2006. Charles Bailey, MD, was TMA president in 2003 and is now vice president of medical relations for Medicus.

"Increased competition is without a doubt exactly what we were all hoping for when we got tort reform passed," Dr. Bailey said. "The result of Medicus coming into the state has been that, as we've quoted rates to different physicians with existing carriers, the carriers almost uniformly have lowered their rates to become competitive with us."



Texas : A Model State  

Texas' success in achieving and preserving medical liability reform has inspired other states. (See "Surrounding States' Medical Liability Climates.")

"As I have traveled, visiting different states like New Jersey and Pennsylvania, talking to their state medical associations, clearly they want to talk about how we did it, how it happened," said Jim Rohack, MD, senior staff cardiologist at Scott & White Clinic in Temple and a member of the AMA Board of Trustees. "We reminded them that it required a coalition with business and more importantly a coalition with patients who were affected because they saw physicians leave."

The challenge now for Texas tort reform advocates is to  fend off attacks on the successes of 2003. Trial lawyers were back at the Capitol during this year's legislative session in support of Senate Bill 468, which aimed to reduce the burden of proof in emergency medical care cases. TMA coordinated efforts among member physicians, prompting them to meet with local government officials and legislators to send a message that such a change would adversely affect patient access to emergency medical services. With help from TAPA and THA, the campaign proved successful, and SB 468 never made it to the Senate floor. (See " Tort Reform Protected ," August 2007 Texas Medicine , pages 35-38.)

Other states can learn from Texas' example, according to Joseph Annis, MD, of Austin, chair of the AMA Board of Trustees Task Force on Medical Liability Reform. "Individual physicians getting involved with their state medical societies make a difference," he said. "It's very important for physicians to start educating their patients, because our patients are our best allies. That's what helped in Texas."

AMA is working to help states in medical liability crisis try to accomplish reform. Physicians in New York, for instance, will experience a 14-percent increase in their premiums this year. New York is one of 17 states on AMA's medical liability crisis list.

"The problem is oftentimes you don't get change until there is a crisis. That's been the situation in the past in other states where we've had tort reform. They had to have a crisis of physicians saying, 'I can't practice here anymore,'" Dr. Annis said.

The crisis Texas faced in 2003 set the stage for developing a tort reform package that would limit physicians' financial liability. According to Dr. Rohack, the $250,000 cap on physician exposure for noneconomic damages and the $750,000 total stacked cap for noneconomic damages in health care lawsuits are key to the favorable medical atmosphere Texas takes pride in.

"When Proposition 12 passed and medical liability premiums stabilized and actually reversed in Texas, but more importantly, when the data showed the number of physicians in high-risk specialties reentering Texas and not leaving anymore, that was the proof of the pudding," he said. 

Money Where It Counts  

Because Texas hospitals and physicians alike no longer have to allocate as much funding toward paying exorbitant insurance premiums or heavy settlement awards, they're able to pass the savings along to patients and staff members.

Randy Finley, system director of risk management for CHRISTUS Health, says the health system agreed to make a renewed commitment to loss prevention if tort reform succeeded. After the 2003 medical liability reforms took effect, CHRISTUS began using savings to improve patient care. The CHRISTUS Health system includes more than 40 hospitals and other health care ministries in Texas, Louisiana, Arkansas, Utah, Oklahoma, Missouri, Georgia, and Mexico.

For the past four years, the system's insurance carrier has funded more than $8 million in loss-prevention initiatives, including an Association of Women's Health, Obstetric and Neonatal Nurses program to ensure all labor and delivery nurses have certification in interpreting electronic fetal monitors. CHRISTUS has implemented a skills-improvement program called the Performance Based Development System to test and assess nursing competency in critical thinking and interpersonal skills.

The system also is pumping funding into providing additional medical services to underserved South Texas communities. Richard Davis, MD, regional chief medical officer for the CHRISTUS Spohn Health System, cites the Westside Corpus Christi clinic as one example of expanding the health system's reach. Before the state achieved the tort reforms, CHRISTUS operated the clinic out of a portable building. Since 2003, the Nueces County Hospital District has built a permanent facility where economically disadvantaged patients can receive ongoing preventive care.

In the Corpus Christi area, CHRISTUS Spohn operates eight clinics and employs community health workers who work hand in glove with the clinics. Part of their mission is to find those patients who frequent the emergency department and connect them with a medical home through the clinics.

"They'll get better, more comprehensive care and also stay out of the emergency department and get their issues addressed before they become serious medical complications," Dr. Davis said.

Driscoll Children's Hospital in Corpus Christi is allotting medical liability savings to improve access to care. The hospital opened satellite operations with Valley Baptist Medical Center in Brownsville and McAllen so that children can receive care close to home.

In Fredericksburg, Drs. Cantu and Haug invest savings into practice efficiency and human resources initiatives. They've been able to purchase electronic medical records technology and have continued to provide health insurance and a retirement plan to their clinic employees. 

Gone to Texas  

Word has spread that Texas is a more auspicious health care climate for practicing medicine. The state's impressive reputation among physicians throughout the nation has resulted in a flood of license applications. In May, TMB had a processing backlog of 2,533 license applications, exceeding the 2,516 physicians licensed last year.

Much-needed relief came from House Bill 15, a supplemental appropriations measure of $1.8 million to fund additional processors and information technology. In June, TMB issued 504 licenses. At that rate, it stands to license a near-record 3,024 physicians within one year. TMB currently has 11 license processors to expedite applications.

Out-of-state interest in Texas has been overwhelming. TMB reports that the top referring states for license applications are New York, California, Florida, Louisiana, Illinois, Pennsylvania, Massachusetts, Michigan, New Jersey, and Oklahoma. Of those, AMA classifies New York, Florida, Illinois, Pennsylvania, Massachusetts, and New Jersey as states in a medical liability crisis.

Sought-after specialists are among the thousands of physicians desiring to practice in Texas. As of May, TMB reported that 23 neurosurgeons sought licensure. That's more than have ever been licensed in Texas in a single year. TMB experienced another single-year record with 92 obstetricians applying for licenses. Of all applicants, 82 percent are from out of state.

TAPA Executive Director Jon Opelt says Texas actually is gaining specialists at a far greater clip than the rate of population growth. Texas is now recouping the physicians it lost before 2003's medical liability reforms.

"Many area subspecialists such as neurosurgeons, obstetricians, orthopedic surgeons, and trauma surgeons were in the decline. In many areas of medicine, doctors were restricting their practices to minimize the prospect of a career-threatening lawsuit," he said.

Dr. Teuscher, an orthopedic surgeon in Beaumont, laments his inability to recruit an orthopedic surgical subspecialist before tort reform. This year, he's been able to enlist two partners, one of whom is the subspecialist he's been searching for.

Tort reform has resulted in not only greater access to care for patients, but also a fairer medical liability environment for health care professionals. Howard Marcus, MD, past chair of the TMLT Board of Governors and TAPA chair, recalls the pre-tort reform days when nearly 90 percent of claims filed against doctors were closed without indemnity. The vast majority of those claims were frivolous. Tort reform has redressed and corrected the imbalance and unfairness in the system, thus creating greater certainty for physicians.

"I feel a lot more confident practicing medicine in a medicolegal environment that is more predictable, reasonable, and rational than before 2003. I'm certain that many of my fellow Texas physicians feel the same way," he said.

Dr. Haug realizes the impact lawsuits have on doctors' confidence and on their desire to practice medicine. "Medical liability suits take all the joy out of practice," she said. "If you can cut down on some of the frivolous lawsuits through tort reform, it is helpful psychologically for a physician." 

Change on a Federal Level  

Before Proposition 12 passed in Texas, Dr. Annis says, 80 percent of lawsuits against physicians resulted in no money paid to plaintiffs. "That's a system that has an 80-percent failure rate," he said. "I couldn't stay in business with an 80-percent failure rate, yet this system endures."

Dr. Annis and the AMA's Task Force on Medical Liability Reform plan to focus on state efforts to enact tort reform. AMA has been engaged in establishing tort reform policy at the federal level since the mid-1970s, when the medical liability crisis first occurred. Given the current Democratic majority of the House of Representatives and Senate, however, Dr. Annis recognizes that policy reform at the federal level is unlikely. While AMA isn't abandoning the push for federal reform, it will concentrate on providing financial resources and professional expertise to states that are in crisis.

AMA also is examining alternative methods of trying medical liability cases. Because health care-related lawsuits can be complex and emotionally charged, Dr. Annis regards the establishment of health courts as a potential way to remove emotion and bias from such lawsuits. Health courts would ideally create an impartial courtroom environment for patients and physicians.      

"We [AMA] think that because health care in general is so complex and a jury of laypeople can be so easily swayed by the emotional aspects that oftentimes accompany medical issues, we need a different way of doing it," he said. "Health courts are one way through tort reform of making it not so attractive for people who have nothing to lose to sue a physician for a jackpot."

The special courts, supported by such groups as the American Academy of Family Physicians and the National Committee for Quality Assurance would employ judges trained in medical standards. Expert witnesses would evaluate cases for the court, not for the defendant or plaintiff. The AMA House of Delegates in June approved new guidelines for the fair and effective operation of health courts.

Dr. Rohack cautions that the applicability and effectiveness of health courts have yet to be proven. If the Fair and Reliable Medical Justice Act, filed in both houses of Congress in May, passes, the U.S. Secretary of Health and Human Services could award up to 10 demonstration grants to states to install special health courts or to create other alternatives to lawsuits for resolving medical injury disputes. (See "House, Senate Bills Create Special Health Courts," July 2007 Texas Medicine , page 37.)

Louis J. Goodman, PhD, TMA executive vice president and chief executive officer, recalls the environment that allowed TMA to pass HB 4 and Proposition 12.

"Governor Perry called the professional liability crisis an emergency legislative issue in 2003, and that set the stage for our landmark reforms," Dr. Goodman said. "We were able to form strong coalitions with business, hospitals, and insurance companies, but it was the grassroots efforts of practicing physicians and the support of their patients that ultimately prevailed in the legislature and at the voting booth.

"TMA will continue to stand up for the reforms accomplished under HB 4 and Prop 12, but we must remain vigilant against those who would roll back what medicine has achieved. We will protect our reforms from any encroachment and seek to extend liability protections even further in 2009."

Crystal Condecan be reached at (800) 880-1300, ext. 1385, or (512) 370-1385; by fax at (512) 370-1629; or by e-mail at Crystal Conde .  



TMLT Claims Intake, 2000-06

Sept 07 Feature Chart  

Source: Texas Medical Liability Trust  

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Surrounding States' Medical Liability Climates

Texas' neighbors look to the Lone Star State as a role model for effective tort reforms that limit physicians' exposure for noneconomic damages, while improving the practice landscape for specialists and general practitioners alike. And, like Texas, those states with medical liability reforms in place fight each legislative session to defend and retain certain provisions under their systems. For some states, however, merely achieving passage of tort reform packages remains elusive. Here's a roundup of how tort reform efforts in Arkansas, Louisiana, Oklahoma, and Tennessee have fared.


The Arkansas Civil Justice Reform Act passed in 2003 and capped damages at $1 million. Additional key provisions include reduced physician liability exposure under the joint and several laws and requirement of an affidavit of merit (which must be filed within 30 days of filing the suit) by a physician of the same specialty as the one being charged.

Arkansas' leading insurer of physicians, State Volunteer Mutual Insurance Company, released a 2005 report that showed 12 new suits per 100 physicians were filed in 2002. The rate dropped to seven per 100 by mid-2005.

In July 2006, the Arkansas Medical Society and the American Medical Association jointly filed an amicus brief supporting the affidavit of merit requirement established under the Arkansas Civil Justice Reform Act. The organizations filed the brief in response to a claim by a plaintiff's attorney that the requirement is unconstitutional. The Arkansas Supreme Court is set to hear oral arguments in the case in January 2008.


The Louisiana Medical Malpractice Act of 1975 limits physicians' liability to $100,000 and sets a damages cap of $500,000. Because the legislation is 32 years old, the Louisiana Medical Mutual Company (LAMMICO), the state's largest medical liability insurance carrier, recognizes the need to change the system.

Flaws in the current system cited by the group include high claims frequency, high defense costs, and liability insurance rates that are higher than those of neighboring states. LAMMICO plans to work with health care organizations to develop a unified plan to improve Louisiana's tort reform system.

Earlier this year, the Louisiana Supreme Court sent two cases challenging the constitutionality of the state's $500,000 medical malpractice cap back to the Third Circuit Court of Appeals. The state's Supreme Court has asked the lower court to decide whether the cap violates patients' due process, violates the constitutional separation of powers, and is a special law that favors a special class.


This legislative session, state Sen. Cliff Branan (R-Oklahoma City) and Rep. Dan Sullivan (R-Tulsa) wrote Senate Bill 507 in an effort to pass a medical liability reform package. The legislation included the following provisions:

  • Affidavit required from a plaintiff showing that a qualified expert attests that the case has merit,
  • Across-the-board $300,000 cap on noneconomic damages,
  • Elimination of joint and several liability,
  • Defendant be served within 180 days,
  • Punitive damages,
  • Periodic payment of future damages,
  • Elimination of prejudgment interest,
  • Eight-year statute of repose, and
  • Peer review proceedings not discoverable in litigation.

But after surviving the House and Senate, Gov. Brad Henry vetoed the bill on April 28. The Oklahoma State Medical Association will continue to focus its efforts on tort reform in the 2008 legislative session.


The Tennessee Medical Association has sought to pass medical liability reform for five years. Tennessee continues to see signs that medical liability is affecting access to care, particularly among obstetrician-gynecologists and in rural areas.

Tennessee House Bill 1993 and Senate Bill 2001 included the following provisions:

  • $ 250,000 stacked cap on noneconomic damages that has a maximum noneconomic damage award of $500,000,
  • Sliding scale for attorney fees,
  • Periodic payment of future damages more than $75,000, and
  • Affidavit of merit requirement for medical liability suits.

Organized medicine in Tennessee faced opposition to the legislation early on. The House Judiciary Committee chair, a trial lawyer, approached reform bill sponsors with a compromise that included removing noneconomic damages from the legislation.

After a final amendment by the House Judiciary Committee that weakened the legislation's existing locality rule, the medical association and coalition partners quickly launched a grassroots effort, successfully urging house members to reject the amendment. The bill was sent back to the Judiciary Committee and never revived.

The Tennessee Medical Association remains committed to seeking comprehensive, lasting reform for the state's medical liability system.

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Top 10 Medical Specialties Seeking Licensure in Texas

1.      Internal medicine (411)
2.      Family practice (274)
3.      Radiology (180)
4.      Anesthesiology (169)
5.      Pediatrics (155)
6.      Emergency medicine (133)
7.      Psychiatry (108)
8.      Obstetrics (92)
9.      Pathology (80)
10.    General surgery (67)

Source: Texas Medical Board, May 8, 2007  

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