Medicolegal Issues

Liability, Medical Error Legislation


Liability. To a physician, the word conjures the threat of a malpractice lawsuit and the reality of escalating insurance costs. But some protection may be at hand in the form of several laws recently passed by Congress that aim to relieve both threat and reality.

Hospitalists and Liability

For the time being, the majority of hospitalists are covered by their employer’s liability insurance, according to the cover article in the December 2005 issue of The Hospitalist (“A Malpractice Primer” p. 1). However, that doesn’t mean they’re unaffected by risk of malpractice suits.

In some ways [hospitalists] are more at risk [for liability claims] because they are usually new to their patients. They have not had the opportunity to build a relationship with a patient, and must create trust and open communications in a very short time. This weak link can increase a hospitalist’s vulnerability. Lack of information and communication is one of the biggest reasons reported that patients choose to sue.

—Mary A. Germann, RN, MN, CHE

Mary A. Germann, RN, MN, CHE, certified healthcare compliance officer and founder of Operations Solutions for Healthcare, Inc., a consulting firm based in Atlanta, has answered many liability questions from hospitalists and believes they are at least as worried about the issue as other physicians.

“Hospitalists tend to be concerned about their risk,” she says. “They want to know how to protect themselves. Even though they may not be ‘personally’ at risk, their medical license is still on the line."

Germann explains that hospitalists may in fact be more vulnerable to liability suits than other physicians. “In some ways [hospitalists] are more at risk because they are usually new to their patients,” she says. “They have not had the opportunity to build a relationship with a patient, and must create trust and open communications in a very short time. This weak link can increase a hospitalist’s vulnerability. Lack of information and communication is one of the biggest reasons reported that patients choose to sue.”

With this in mind, let’s take a look at current and pending legislation that will shape liability risk and claims for years to come.

Overview of Pay-for-Performance Available

A new issue brief from the Alliance for Health Reform titled “Pay-for-Performance: A Promising Start” outlines how pay-for-performance programs work, why they have been established and what challenges—including physician acceptance—must be addressed.

The brief counts more than 100 pay-for-performance private-sector programs in the United States as of September 2005. Both Congress and the current Administration are keeping a close watch on these initiatives, even as CMS is piloting its own pay-for-performance program for Medicare beneficiaries and Congress is examining several pay-for-performance proposals that would apply the concept more broadly.

Download a copy of the brief from

The HEALTH Act of 2005

Passed into law in July of last year, the HEALTH Act (or Help Efficient, Accessible, Low-cost, Timely Healthcare Act), places multiple limits on liability claims. The law caps noneconomic damages in medical malpractice suits at $250,000 for compensating patient injury, limits attorneys’ contingency fees, and requires a finding of malicious intent to support an award of punitive damages. The law also exempts manufacturers and distributors of medical products from punitive damage awards if the U.S. Food and Drug Administration approved the product.

The Patient Safety and Quality Improvement Act of 2005

Also signed into law last July, this act establishes a voluntary, confidential reporting structure for use by physicians, hospitals, and other healthcare professional and entities. This law renders reported medical errors into confidential, privileged data and allows healthcare providers to report their medical errors under a “patient safety activity” umbrella that prohibits the information from being used in a civil action (i.e. liability case). All medical errors reported are covered by the law and not subject to subpoena, Freedom of Information Act request, or use in a disciplinary proceeding.

On reporting medical errors within a hospital system, Germann says, “This is really a joint effort; I don’t think any one entity or organization can do it by themselves. Hospitals have to have a system in place for reporting errors and near misses. Studies have shown that organizations that aggressively support error disclosure have a decreased incidence in the number of suits and a decrease in the compensation payouts.”

The National Medical Error Disclosure and Compensation Act of 2005

Also known as the MEDiC Act, this bill was introduced in the Senate in September 2005 by Senator Hillary Rodham Clinton (D-N.Y.) and Senator Barack Obama (D-Ill.).

Designed to extend the Patient Safety and Quality Improvement Act of 2005 and “promote a culture of safety within hospitals, health systems, clinics, and other sites of healthcare,” this act would establish a federal Office of Patient Safety and Health Care Quality to implement and oversee a new national patient safety database, as well as the MEDiC Program. This program would provide funding to those healthcare providers with systems to disclose medical errors to patients and offer fair compensation to patients if the provider is at fault.

In reducing administrative and legal costs for medical malpractice claims, the MEDiC Act would require participating medical liability insurance companies and healthcare providers to apply a percentage of their savings toward reducing medical errors. The bill also requires that, to the extent possible, some of these cost savings be passed along to providers as lower malpractice insurance premiums.

Although not specifically stated in the bill, a goal of the MEDiC Act is to provide an interim solution to the escalating costs of liability lawsuits.

“I think [medical error reporting] is a very good direction to take,” says Germann. “One of the major barriers to disclosing errors is fear of malpractice suits. To improve quality and decrease medical errors, it’s important for physicians to be able to disclose errors.”

In addition, she stresses that hospitalists and other physicians have little to fear in disclosure. “The majority of errors are not caused by incompetent physicians,” notes Germann. “They are secondary to system failures. Physicians must be able to expose these. And hospitalists see more system errors because they live within the system; they can be a great asset in helping hospital administrators improve quality and systems.”

The MEDiC Act has been under review by the Senate Committee on Health, Education, Labor, and Pensions since September.

So far, 2005 and 2006 have seen big changes in liability reform and in medical error reporting. Together, this legislation—perhaps in conjunction with future laws—will change the risks of liability faced by hospitalists. "No one law is going to solve the entire problem,” says Germann. “All of these together will make the improvements." TH

Jane Jerrard writes “Public Policy” every month for The Hospitalist.


New Rates for Acute-Care Hospitals

The Centers for Medicare and Medicaid (CMS) has issued a proposed 3.4% rate increase for acute-care hospitals in 2007. Rural hospitals would receive an average increase of 6.7%. The prospective payment system would weigh diagnostic related groups (DRGs) based on hospital costs rather than charges beginning October 1, 2006.

In addition, by 2008, CMS proposes to replace the current 526 DRGs with a system of 861 “consolidated severity-adjusted” DRGs, or an alternative severity-adjusted DRG system developed in response to public comments.

CMS has stated that these changes are proposed to more accurately reflect costs of services, and to prevent hospitals from being rewarded for treating large numbers of low-severity patients.

’07 Physician Pay Cuts: Trouble for Seniors

Although CMS’ proposed physician payment cut was averted for this year, 2007 may see cuts of 4% or 5%.

A recent study by the American Medical Association (AMA) warns that the reductions in Medicare payments to physicians scheduled to begin in 2007 will jeopardize seniors’ access to care. “Nearly half—45%—of the physicians surveyed by the AMA say next year’s Medicare cut will force them to either decrease or stop seeing new Medicare patients,” says AMA President J. Edward Hill, MD. “Physicians want to treat seniors, but Medicare cuts are forcing physicians to make difficult practice decisions."

SHM joined the AMA last year to successfully lobby Congress to avert a scheduled payment cut in 2006, and the physician community has begun an advocacy effort to persuade the Congress to address the Medicare physician payment problem again this year.

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