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Changes to California’s MICRA will affect healthcare providers in 2023

The cap on non-economic medical malpractice damages will increase in California on January 1, 2023 as the Modernized Medical Injury Compensation Reform Act (MICRA) takes effect.

12/15/2022 · 8 minute read

The cap on non-economic medical malpractice damages will increase in California on January 1, 2023 as the Modernized Medical Injury Compensation Reform Act (MICRA) takes effect. All healthcare providers in California will be affected by this change in the law including: hospitals, physicians, and clinical facilities.

MICRA was enacted in 1975 to reduce medical malpractice insurance premiums, as the high cost of premiums were considered a threat to the quality of healthcare in the state. The original MICRA legislation made three changes to medical malpractice lawsuits in California:

  • Imposed a $250,000 cap on non-economic damages in medical malpractice actions
  • Set staggered limits on contingency fees for attorneys based on the amount recovered
  • Created several litigation rules for medical malpractice cases.

For nearly 50 years, the law remained unchanged until updates were passed in May 2022 and take effect in 2023. AB 35, the Modernized MICRA law, will become effective January 1, 2023, and is not retroactive.  

What is changing

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Increases the prior $250,000 cap on non-economic damages in medical malpractice actions by creating three types of caps for both non-wrongful death and wrongful death medical malpractice claims. These new caps apply regardless of whether a claim is resolved via settlement, arbitration, or judgment:

Non-Wrongful Death Actions

  • $350,000 cap for all healthcare provider defendants, collectively
  • $350,000 cap for all healthcare institution defendants, collectively
  • $350,000 cap for unaffiliated defendants with separate and independent acts of negligence (“Unaffiliated” means that defendant has no contractual, ownership, employment, joint venture, or other business relationship with the other defendants)
  • Total possible non-economic damages cap: $1,050,000

Wrongful Death Actions

  • $500,000 cap for all healthcare provider defendants, collectively
  • $500,000 cap for all healthcare institution defendants, collectively
  • $500,000 cap for unaffiliated defendants with separate and independent acts of negligence
  • Total possible non-economic damages cap: $1,500,000

Stacking of the non-economic damages caps is possible in a single medical malpractice lawsuit, depending on the number and type of defendants. This will be most relevant for health systems which insure both physicians and facilities, in which case the system could face two non-economic damages caps – $700,000.  The likelihood of a case involving all three non-economic caps is fairly remote – there would have to be an unaffiliated clinical lab or other non-facility provider that commits an additional, separate act of negligence.  The definition of “unaffiliated” is vague, and there are already rumors of challenges to the “unaffiliated” cap provision in court circulating.

  • The individual caps will automatically increase by $40,000 (non-wrongful death) and $50,000 (wrongful death) each January 1 until 2033, after which the caps will increase by 2% per year. 
  • The cap in effect at the time of the settlement, arbitration, or judgment (as opposed to the year in which the claim occurred or was made) determines the amount of the cap.

Increases the contingency fee for plaintiff’s attorneys to 25% of financial recovery obtained prior to the filing of a complaint or demanding arbitration, and 33% of all financial recovery after the filing of a complaint or demanding arbitration. Plaintiff’s attorneys also have the ability to seek higher fees from the court in litigated or arbitrated cases upon a showing of good cause.

  • The threshold for requesting periodic payments of a medical malpractice judgment over a term of years is increased from $50,000 to $250,000. This will require more rapid payout of judgments.
  • Expanded protection for sympathetic statements to all communications that suggest fault regarding an adverse incident, made before the filing of arbitration/litigation. Such communications are confidential and cannot be used as evidence of liability for any purpose.

What is not changing

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  • Actual medical expenses paid by a plaintiff’s health insurer continue to be admissible as damages evidence.
  • Health insurers/collateral sources are still prevented from recovering against a plaintiff.

 

  • Remains 3 years from the date of injury, or one year after the plaintiff should have discovered the injury is still in place. 
  • Notice of Intent is required 90 days prior to filing suit.
  • Still valid in medical services contracts.
  • Clause must be listed in the first paragraph of the contract. 

The changes to MICRA are not as extreme as they could have been, but the increase in the non-economic damages cap, and the financial incentives for plaintiff’s attorneys to file litigation will increase the number of medical malpractice lawsuits going forward. Insurers will also be required to pay out verdicts more quickly than in past years.

How is MICRA changing insurance premiums?

AB 35 will immediately alter the value of claims in the primary layer of medical professional liability insurance next year. But how the pricing of those insurance layers may change in 2023 really depends on the type of insurance carrier, the structure of the program, and the type of healthcare facility.

Most admitted carriers are not planning any imminent increases to their filed base rates in 2023 mainly due to the complicated and time consuming application process to do so. Filing new rates and gaining approval from the state will take time. Insurance carriers are required to evidence their need for higher rates with data and that will take some time to develop and compile. It is unknown at this time how the state insurance department will view rate increase requests given their historical position to keep rates relatively flat.

Admitted insurance carriers insure largely physicians, allied health providers and smaller facilities/clinics. Since they will not be able to significantly increase rates quickly enough to correspond to the pace of the changing landscape in medical professional liability claims, we may see them look to other strategies to mitigate deterioration of their results in their portfolio.  We expect some carriers will be more conservative in their underwriting review of new business, especially in high-risk specialty areas like obstetrics, emergency medicine, radiology, and surgery specialties. Other carriers may seek to increase price by reducing discretionary credits, if justified, or look to move some of their portfolio to their excess and surplus lines insurance companies, where they will have more freedom to adjust rates and terms as needed.

Size of facility may affect rate changes

Mid-size healthcare facilities and medical groups that purchase their primary layer of insurance (versus self-insuring) from excess and surplus lines carriers will likely see the most immediate impact to their rates, since non-admitted carriers can react quickly to the changing landscape.

Larger healthcare facilities typically purchase excess insurance, while self-insuring some amount in the primary layers. These larger facilities will see increased funding needs recommended from their actuaries in their retained layers. Excess insurance rates for healthcare systems are heavily weighted on that organization’s loss development, so as AB 35 changes impact underlying claim amounts, excess pricing will increase. Insurance carriers writing coverage for providers and healthcare organizations that have captives or are self-insured are all anticipating increased frequency and increased settlement amounts next year.

Excess carriers

Most excess carriers are not imposing a specific rate increase in 2023 due specifically to AB 35, but underwriters will be taking it in account as a part of their review. Adverse loss trends, namely social inflation and increased severity in all venues, is pushing rates upward regardless of the impact of AB 35 at this point. Increased pricing may take a few years to play out on the excess layers. What is more uncertain is how plaintiff attorneys may or may not change their behavior in 2023 in response to these changes.

Lawsuit timelines may shift

Plaintiff attorneys in California are expected to hold off on filing new claims until after January 1, 2023, when the MIRCRA changes take effect.  The changes provide a financial incentive for the attorney to file litigation, rather than settle a claim pre-litigation. Plaintiff attorneys may be less willing to timely settle a claim even after litigation is filed, since the caps increase over time. Finally, plaintiff’s attorneys are now incentivized to name defendants in each class (physicians, facilities, unaffiliated providers) so that they can potentially access all three classes of the non-economic damages caps in any given claim.

Given the gradual, but definitively adverse impact to providers and healthcare systems in California, we will be watching closely and will advise clients of our experience in this changing marketplace often.

Contact us

To learn more about how MICRA changes may affect your healthcare professional liability, contact your local Marsh representative or Marsh’s HealthCare Practice. 

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Sheila Brunsell

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