No Evidence That Prop 46 Will Affect Community Clinics' Services

Posted on 30 September 2014

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By J.G. Preston

Consumer Attorneys of California

Proposition 46, the patient safety initiative on California’s November ballot, would adjust the state’s 39-year-old cap on compensation for non-economic damages in medical malpractice cases to give it the same economic value it had when it was enacted in 1975 (it has not changed since). “Non-economic damages” are awarded as compensation for such harm as the loss of limbs, brain damage, ongoing crippling pain, or the death of a child, just to name a few.

Since 1975 California has limited compensation for non-economic damages to $250,000, the lowest such cap in the nation (nearly two dozen states have no cap at all). That seemed like a significant amount of amount of money in 1975, but it’s the equivalent of less than $60,000 today thanks to inflation. Prop 46 would adjust California’s cap only to account for nearly four decades of inflation and would include annual inflation adjustments going forward.

Some leaders of community clinics that serve those in need have made the argument that updating the cap would lead to higher malpractice insurance premiums that would in turn directly affect clinics’ bottom lines and ability to provide care. Let’s examine the assumptions made in that argument.

Would adjusting the cap lead to higher malpractice premiums? There is no evidence to support that claim from states where similar caps have been raised in recent years. Courts in three states – Illinois, Georgia and Missouri – struck down caps on medical malpractice non-economic damages. Those caps were not just raised, as California’s would be under Prop 46, but eliminated altogether. None of those three states has higher malpractice premiums today. Here are the average premiums in each state, both with and without the cap, according to Medical Liability Monitor, the industry standard:

In addition, none of these states offers doctors the equivalent of California’s Proposition 103, which gives the state Insurance Commissioner the power to order reductions in unwarranted proposed malpractice premium increases. According to annual statements filed with the National Association of Insurance Commissioners, California’s two largest malpractice insurers, The Doctors Company and NORCAL Mutual Insurance, have between them more than $2.3 billion in surplus cash, over and above what they have spent on expenses and set aside to pay their estimated future claims. They will have a hard time arguing they have a financial need for draconian premium increases.

Would higher malpractice premiums affect community clinics? For more than 20 years, clinics that receive federal funding pursuant to the Health Center Program established by Section 330 of the Public Health Service Act are eligible for coverage under the Federal Tort Claims Act (FTCA). The federal government pays all costs of defending such clinics from medical malpractice suits and pays any claims resulting from those suits, all at no cost to the clinics.

In 1992 Congress enacted the Federally Supported Health Centers Assistance Act (FSHCAA), establishing a demonstration program under which health centers (community-based and patient-directed organizations that provide primary health care to the medically underserved) were treated as federal employees under the FTCA. In 1995 Congress amended the FSHCAA to make permanent FTCA coverage of both health centers and health center officers, directors, employees and contractors. It thus immunized both centers and their personnel from medical malpractice liability, and eliminated the need for them to buy medical malpractice insurance.

In 1996, Congress enacted the Health Insurance Portability and Accountability Act (HIPAA), which amended the FTCA so that it covered not only health centers and center personnel but also volunteers at free clinics. And in 2010, the Affordable Care Act expanded FTCA coverage regarding free clinics so that it applied to free clinic officers, directors, employees and contractors as well as volunteers.

Four different types of health centers are designated as eligible to receive federal funding under the Public Health Service Act and to be treated as federal employees for purposes of the FTCA: Community Health Centers, Migrant Health Centers, Health Care for the Homeless Centers, and Public Housing Primary Care Centers. The FTCA provides protection to both full- and part-time employees, including clinicians, administrators, directors, nurses, and other personnel; officers and governing board members; all full-time contractors (those working at least 32.5 hours a week); and part-time contractors in the fields of family practice, obstetrics and gynecology, general internal medicine, and general pediatrics.

In addition, the FTCA covers not only services rendered at community health center sites but also services rendered on behalf of the health center at alternative settings, including those in connection with hospital on-call arrangements, cross coverage arrangements, community outreach and interventions, emergencies due to natural disasters, health fairs, and clinical training. Finally, the FTCA covers not only volunteers at free clinics but also free clinic officers, governing board members, employees, and contractors.

This protection for health centers did not exist in 1975, when California’s cap on medical malpractice damages was enacted. But it does today, and it is available at no cost to these federally-funded clinics, leaving them with immunity from malpractice liability and no malpractice premiums to pay. Thus even if there were an increase in California malpractice premiums or damage awards under Prop 46, clinics covered by the Federal Tort Claims Act would not be affected at all.

Let’s look at two prominent Los Angeles health organizations that have been involved in the advocacy against Prop 46. Internal Revenue Service Form 990 (“Return of Organization Exempt From Income Tax”) does not include a specific listing for medical malpractice insurance, but it does include a listing for the organization’s total insurance expenses (Part IX, Line 23), presumably including such things as the cost of insuring the various premises involved.

According to the 2012 Form 990 of the Community Clinic Association of Los Angeles County, the organization spent $9,999 on insurance. That was 0.28% of its total functional expenses of $3,570,577.

According to the 2012 Form 990 of St. John’s Well Child and Family Center, the organization spent nothing on insurance. Zero dollars. Its total functional expenses were $26,771,830.

Both these organizations are eligible for free malpractice coverage under the Federal Tort Claims Act. And even if their current insurance expenses are somehow all for malpractice coverage, it is impossible to see how even the most dramatic percentage increase in their current expense would affect their ability to provide care.

(Form 990s are available online via

There is no evidence to show community clinics would be adversely affected by a change in California’s cap on malpractice damage compensation under Prop 46. However, those they serve who are affected by medical harm would see a significant benefit in raising the cap on non-economic damages.

The unemployed, the disabled and those with low incomes do not qualify for much if any in “economic damages” based on lost wages, which are not limited in California. While a highly-paid insurance company executive who is unable to work because of medical negligence can receive hundreds of thousands of dollars to make up for that lost income, someone who suffers the exact same harm and is unemployed receives nothing in economic damages. People in that situation rely entirely on non-economic damages, as determined by a jury that hears evidence presented by both sides. That is their only possible compensation for the harm that was done to them. Likewise, in the event medical negligence kills a minor child, a retired parent, a disabled person unable to work or anyone with no income, that life is valued under California’s current law at no more than $250,000.

Furthermore, there is substantial evidence that non-white and economically disadvantaged populations are more likely to receive substandard care and potential exposure to medical harm. According to the 2013 National Healthcare Disparities Report by the U.S. Department of Health and Human Services’ Agency for Healthcare Research and Quality, blacks and Hispanics received worse care than whites for about 40% of quality measures, and poor people received worse care than high-income people for about 60% of quality measures. These groups are disproportionately affected by caps on non-economic damages.

Proposition 46 will benefit victims of medical negligence without affecting the ability of community health centers to care for those in need of their services.

J.G. Preston is press secretary for Consumer Attorneys of California, an organization whose members include some attorneys who represent victims of medical malpractice. CAOC supports Proposition 46. Some members of CAOC are on the board of directors of the group that funds