450 Hospitals Share $10-Million Refund

About 450 of California’s hospitals are splitting a $10-million refund from their insurer this year--and will share an additional $40 million by the end of next year--because their malpractice insurance losses were less than expected in the mid-1970s.

The refunds come in the wake of a federal appeals court ruling in August that upheld the constitutionality of a California law that, among other things, imposed a $250,000 ceiling on damage awards for pain and suffering caused by medical malpractice.

Experts say the refunds are evidence that the state law is helping to slow the increase in medical insurance premiums, which had risen so rapidly in recent years that some doctors were considering abandoning certain high-risk specialties such as anesthesiology and obstetrics.

“God help us if we didn’t have the law,” said James Ludlam, a Los Angeles lawyer who serves as senior counsel for the California Hospital Assn. in Sacramento. “Most hospitals and physicians wouldn’t be insurable.”

California hospitals were granted the refunds under an agreement negotiated in 1973 with Truck Insurance Exchange of Los Angeles. Between 1973 and 1979, the hospitals accepted higher premium increases to cover potential future malpractice losses on the condition that any surplus would be returned in 1986. That agreement made it more attractive for Truck to remain in the medical malpractice insurance market at a time when costly awards had prompted other companies to refuse to write medical malpractice policies.

H. Robert Nichols, Truck’s vice president-professional liability, was not available for comment Tuesday, but he has told the association that the average refund that each of the hospitals will receive is $98,432 and that the hospitals have the option of receiving cash or crediting the refund toward current premiums.

Mary Quillin, assistant administrator of staff services at Torrance Memorial Hospital Medical Center, said the hospital received its refund several weeks ago. “It’s money that was owed us, and I guess we’re happy to get it back,” she said.

Many medical experts attribute California hospitals’ improved insurance experience to state reforms enacted under the Medical Injury Compensation Reform Act of 1975. The measure was passed in reaction to the malpractice crisis in the early 1970s, when insurance premiums escalated as much as 500% and many insurers dropped out of the business.

Since the law was enacted, the size of awards to victims has increased much more slowly than the national average. In 1974, the average plaintiff award nationally and in California was about $150,000, according to the California Hospital Assn. By 1984, the average award in California was $396,662 and the national average award was $974,858, according to a CHA Insurance News survey published in July.

Some states that have tried to curb claims solely for plaintiffs in malpractice lawsuits have run afoul of the equal-protection clause of the U.S. Constitution. However, all major provisions of the California law have been upheld by the state Supreme Court in the last year.

Those provisions allow defendants to pay large judgments in installments rather than lump sums, limit legal fees that the plaintiff’s attorney may charge and allow the defendant to introduce evidence showing that the plaintiff has other means, such as health insurance or state worker compensation benefits, to pay for injuries.

In a case involving a patient who suffered brain damage during surgery in May, 1981, a three-judge panel of the U.S. 9th Circuit Court of Appeals upheld the $250,000 damages award limit for pain and suffering.

A lower court judge had awarded the injured man $1 million for non-economic losses, a category that includes pain and suffering. But the federal Court of Appeals limited damages, saying: “The Legislature had found that the rising cost of medical malpractice insurance was threatening to curtail the availability of medical care and creating the real possibility that many doctors would practice without insurance.”