COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. No.: 3380-15

Bill No.: SS 2 for SS for SCS for HS for HCS for HB 1304 with SSA 1 for SA 1, SA 2, SA 3, SA 4, SA 5, and SA 7

Subject: Civil Procedure; Courts; Health Care; Health Care Professionals; Evidence; Physicians; Liability; Attorneys

Type: Original

Date: April 8, 2004

FISCAL SUMMARY

Numbers within parentheses: ( ) indicate costs or losses.

This fiscal note contains 15 pages.

ASSUMPTION

Officials from the Office of Administration - Administrative Hearing Commission, Department of Mental Health, Department of Labor and Industrial Relations, and the Department of Insurance assume the proposal would have no fiscal impact on their agencies.

Officials from the Office of Attorney General, Office of Administration - Division of Budget and Planning, Department of Health and Senior Services, Missouri Consolidated Health Care Plan, and the Department of Conservation did not respond to Oversight's request for fiscal impact. However, in response to a previous version of the proposal, officials assumed the proposed legislation would have no fiscal impact on their agencies.

Officials from the Office of State Courts Administrator assume the proposed legislation would have no fiscal impact on the courts.

ASSUMPTION (continued)

Officials from the Department of Transportation (MoDOT) assume Section 537.067 of the proposal incorporates the application of doctrine of joint and several liability in tort claims. The doctrine of joint and several liability contemplates that regardless of the percentage of fault assessed among all co-defendants, each one of these defendants is liable to pay the entire judgment if one or more of the remaining co-defendants cannot pay. This legislation limits the application of joint and several liability against a defendant in a tort action, which would include Missouri Highways and Transportation Commission (MHTC), only if the defendant is found to be ten or more percent at fault. In actions where there is the finding of liability for an intentional tort, all defendants shall be jointly and severally liable. If the plaintiff is more than fifty percent at fault, then defendants shall only be liable for their percentage of fault. This provision could be advantageous to MHTC/MoDOT. However, an accurate estimate would be impossible to determine as the benefit of this revision would depend upon the number of cases impacted, the potential liability of MHTC in such cases, and other related factors.

Senate Amendment 2

Sections 135.163, 379.316, and 383.112 to 383.230

Officials from the Office of State Courts Administrator, Department of Social Services, Missouri Department of Transportation, Missouri Consolidated Health Care Plan, Missouri Department of Conservation, Office of Attorney General and Department of Economic Development - Division of Professional Registration assume the proposal will have no fiscal impact on their organizations.

Officials from the Department of Public Safety - Missouri State Highway Patrol defer to the Missouri Department of Transportation for response regarding the potential fiscal impact of the proposal on their organization.

Officials from the Office of Administration - Division of Budget and Planning (BAP) state section 135.163.1 creates a tax credit for physicians, not to exceed $15,000, in order to offset 15% of their increases in malpractice insurance premiums. Section 135.163.2 provides a five-year carry-forward provision. Section 135.163.4 limits the total credits issued at $15 million per fiscal year.

BAP officials state according to the Department of Economic Development - Division of Professional Registration, there are 21,553 permanently licensed physicians in Missouri. The BAP does not have a methodology to forecast increases in malpractice insurance rates.

ASSUMPTION (continued)

Officials from the Office of the Secretary of State (SOS) state this proposal enacts various civil liability reforms. Based on experience with other divisions, the rules, regulations and forms issued by the Department of Insurance could require as many as 12 pages in the Code of State Regulations. For any given rule, roughly one-half again as many pages are published in the Missouri Register as are published in the Code because cost statements, fiscal notes and notices are not published in the Code. The estimated cost of a page in the Missouri Register is $23.00. The estimated cost of a page in the Code of State Regulations is $27.00. The actual costs could be more or less than the numbers given. The fiscal impact of this legislation in future years is unknown and depends upon the frequency and length of rules filed, amended, rescinded and withdrawn. The SOS estimates the cost of this legislation to be $738 [(12 pp x $27) + (18 pp x $23)].

Oversight assumes the SOS could absorb the costs of printing and distributing regulations related to this proposal. If multiple bills pass which require the printing and distribution of regulations at substantial costs, the SOS could request funding through the appropriation process. Any decisions to raise fees to defray costs would likely be made in subsequent fiscal years.

Officials from the Department of Revenue (DOR) state the proposal will have an administrative impact on the DOR. Personal Tax will need one (1) Tax Processing Tech I for every 4,000 credits claimed for verification and processing, one (1) Tax Processing Tech I will be needed for every 3,000 additional pieces of correspondence generated on this credit, and two (2) Tax Season Temporaries will be needed to key the additional line on the tax return. Business Tax will need one (1) Tax Processing Tech I for every 3,600 credits claimed for verification and Processing. To modify the tax systems, processing and electronic filing, DOR estimates 2,076 hours of programming will be needed to modify and create all necessary systems at a cost of $69,255. DOR estimates total personal service, fringe benefit, and equipment and expense costs for FY 05 of $195,388; $125,565 for FY 06; and $128,186 for FY 07.

Oversight has, for fiscal note purposes only, changed the starting salary for the three (3) Tax Processing Techs I to correspond to the second step above minimum for comparable positions in the state's merit system pay grid. This decision reflects a study of actual starting salaries for new state employees for a six month period and the policy of the Oversight Subcommittee of the Joint Committee on Legislative Research.

Oversight also assumes the DOR would not require additional space for three (3) FTE and two (2) Seasonal Tax Temporaries.

ASSUMPTION (continued)

Officials from the Department of Insurance (INS) state this proposal provides various measures pertaining to medical malpractice insurance. The following assumptions related to the fiscal impact of this proposal were provided:

Section 135.165 - The tax credit provision would require additional staffing and database development to administer the credit. For the INS, this would involve processing tax credit certifications for roughly 22,000 physicians and surgeons in the State. There would be both data entry and analysis involved in this process. It would require a new database system to compile the data and issue certifications. The INS would require one (1) Accountant I to analyze and certify tax credits and one (1) Clerk Typist would also be required for data entry and clerical support. Development of a tax credit database for this purpose would require approximately 1,960 contract computer programming hours at a cost of $186,000.

Section 383.200 (1) states that all medical malpractice insurance rates are to be subject to prior approval by the Director of INS. This is an expansion of authority and responsibility for the department. This provision will result in a need for greater actuarial involvement in the rate review process as it would specifically require approval or disapproval prior to implementation by the insurer. In addition, it is anticipated hearings would be required to adjudicate appeals by insurers of disapprovals by the INS of proposed rates.

The INS would require one (1) additional full-time Actuary and one (1) Economist to handle the increase in workload for approval of rate filings. They would be responsible for collecting and analyzing market competitiveness, claims data, and other criteria used to establish rates. They would also be responsible for reviewing and approving rates based on the analysis is this data. In addition, one (1) Attorney would be required to oversee the rate hearings and provide legal counsel to the INS.

The INS estimates total costs, including personal service costs, fringe benefits, equipment and expense, and contracted programming costs to be approximately $541,626 for FY 05; $348,078 for FY 06; and $356,868 for FY 07.

Oversight notes tax credits for malpractice insurance premiums are capped at $15 million per fiscal year but may be carried-forward for a maximum of five years. Oversight has, for fiscal note purposes, assumed a range of up to $15 million in tax credits will be issued and used each fiscal year.

This proposal will reduce Total State Revenue.

ASSUMPTION (continued)

Sections 383.600 to 383.655

Officials from the Office of the Governor, Office of Administration (COA) - Division of Accounting, COA - Division of Risk Management/General Services, Department of Economic Development - Division of Professional Registration, Department of Revenue, Department of Insurance, and Missouri Senate assume the proposal will have no fiscal impact on their organizations.

Officials from the COA - Division of Budget and Planning (BAP) state the proposal creates the "Missouri Physicians Mutual Insurance Company Act" and requires the General Assembly to place up to $10 million in the Physicians Mutual Insurance Company Loan Fund. The proposal should not result in additional costs or savings to the BAP.

Officials from the Office of State Treasurer (STO) state if the proposal passes, the STO would have to make loan payments, track interest charges and loan repayments. The STO would need one (1) FTE at the Accounting Analyst II level, with the corresponding expense and equipment. The STO estimates FY 05 costs of $50,299; FY 06 costs of $57,159; and FY 07 costs of $58,589.

Oversight has, for fiscal note purposes only, changed the starting salary for the Accounting Analyst II to correspond to the second step above minimum for comparable positions in the state's merit system pay grid. This decision reflects a study of actual starting salaries for new state employees for a six month period and the policy of the Oversight Subcommittee of the Joint Committee on Legislative Research.

Senate Amendment 7

Officials from the Department of Insurance (INS) assume they will be required to develop the risk-reporting categories and develop a database for the actual rates charged to generate the median rate. Annual review of rates to median would be required to determine if rates are reasonable. These requirements would require one (1) Research Analyst III to update and maintain the database rate information reported. This position would also publish the market rate reflecting the median of actual rates for each of the 26 reporting categories. The INS estimates one-time programming costs of $12,025 would be required to develop and implement the risk reporting database.

Medical malpractice insurers will be required to re-file policy forms to conform with the cancellation provision. There are 41 insurers that have written premium for medical malpractice insurance in 2002. Amendments must be filed with the INS along with a $50 filing fee. The INS ASSUMPTION (continued)

estimates one-time revenues to the Insurance Dedicated Fund of $2,050 (41 insurers X $50).

One half (½) FTE actuarial staff would be required to review detailed information of any rate change deemed unreasonable including actuarial justification and other information as prescribed by the department. The actuary would assist the director in conducting the public hearing and make recommendations on the determination of whether the rate change is justified. Depending on the number of hearings and appeals, additional legal staff may be required, but are not being requested at this time. Sections 383.404, 383.405, and 383.406 which require the additional actuarial staff are effective July 1, 2007. This would require six (6) months of one half (½) actuary for FY 07 and 12 months in future years.

The INS estimates costs for this proposal at $73,689 for FY 05; $58,577 for FY 06; and $96,621 for FY 07.

Oversight assumes the INS would require additional equipment and expense for the Research Analyst III. Oversight assumes additional equipment and expense would not be required for the 0.5 FTE actuarial staff person.

Officials from the Office of the Secretary of State (SOS) state this proposal creates notice provisions, reporting requirements, public market rates and presumptions for the Department of Insurance and entities providing medical malpractice and professional negligence insurance. This proposal may result in the Department of Insurance promulgating rules to implement the legislation. Based on experience with other divisions, the rules, regulations and forms issued by the Department of Insurance could require as many as 22 pages in the Code of State Regulations.

For any given rule, roughly one-half again as many pages are published in the Missouri Register as are published in the Code because cost statements, fiscal notes and notices are not published in the Code. The estimated cost of a page in the Missouri Register is $23.00. The estimated cost of a page in the Code of State Regulations is $27.00. The actual costs could be more or less than the numbers given. The fiscal impact of this legislation in future years is unknown and depends upon the frequency and length of rules filed, amended, rescinded and withdrawn. The SOS estimates the cost of this legislation to be $1,353 [(22 pp x $27) + (33 pp x $23)].

Oversight assumes the SOS could absorb the costs of printing and distributing regulations related to this proposal. If multiple bills pass which require the printing and distribution of regulations at substantial costs, the SOS could request funding through the appropriation process. Any decisions to raise fees to defray costs would likely be made in subsequent fiscal years.

ASSUMPTION (continued)

This proposal will result in an increase in Total State Revenue.

FISCAL IMPACT - Small Business

No direct fiscal impact to small businesses would be expected as a result of this proposal.

Senate Amendment 2

This proposal could have an unknown effect on small business insurance companies.

This proposal could impact small business insurance companies that offer physicians liability insurance as well as small business physicians' offices that may choose to obtain their liability insurance through the Missouri Physicians Mutual Insurance Company.

DESCRIPTION

The proposed legislation would make changes to the laws affecting claims for damages and the payment thereof. In its main provisions, the proposal would:

Detail the procedures for service of process, notice, or demand on a corporation (Section 355.176).

Prejudgement interest would be calculated 90 days after the demand or offer is received by certified mail return receipt. Such demands and offers would be in writing, accompanied by an affidavit from the claimant covering the legal theory and damages claimed, list the medical providers of the claimant, include other medical information and contain authorization to allow the other party to obtain employment and medical records, and be left open for 90 days. If the claimant would fail to file a cause of action within 30 days after the expiration of 90 days, the court would not award prejudgement interest. Claims for prejudgement interest in tort actions would be calculated at an interest rate tied to the Federal Funds Rate, as established by the Federal Reserve Board, plus five percent. Claims for post-judgement interest in tort actions would be calculated at an interest rate tied to the Federal Funds Rate plus seven percent (Section 408.040).

Where the cause of action accrues in Missouri, venue in all tort actions would be in any county within the judicial circuit where the cause of action accrued. If the cause did not accrue in Missouri, then venue would be in any county within the judicial circuit where an individual defendant resides or in any county within the judicial circuit where the defendant's registered agent is located for corporate defendants. Motions to dismiss or to transfer based on a claim of improper venue would be granted if not denied within 90 days of filing, unless the time period is waived by all parties (Section 508.010).

DESCRIPTION (continued)

Allow discovery of a defendant's assets in tort actions, including torts for improper health care, only after a court determines that the plaintiff has a submissible case on punitive damages (Section 510.263).

The proposal would change the statute of limitations if the person bringing the action is a minor to ten years from the date of the act or ten years from the minor's 18^th birthday, whichever is later. Currently, the statute of limitations is ten years from the date of the act or ten years from the minor's 21^st birthday, whichever is later (Section 516.105).

In tort actions, other than intentional torts, a defendant would be jointly and severally liable for the amount of economic damages. A defendant would not be jointly and severally liable for more than the percentage of noneconomic damages or punitive damages for which fault is attributed to the defendant. If the plaintiff is found to be 51% or more at fault, then there would be no joint and several liability (Section 537.067).

Add long-term care facilities licensed pursuant to Chapter 198, RSMo, to the definition of "health care provider" as used in Chapter 538. Adds exemplary damages and damages for aggravating circumstances to "punitive damages" (Section 538.205).

The cap on noneconomic damages for all plaintiffs would be lowered from its current inflation-adjusted cap of $565,000 (adjusted from its base amount of $350,000 in 1986) to $450,000. There would be an inflation adjustment beginning on August 28, 2006. No plaintiff would recover more than $450,000 regardless of the number of defendants. This section would also remove the words "per occurrence" to ensure a single cap and not multiple caps per incidents of medical malpractice as held by the court in Scott v. SSM Healthcare. The cap would apply to any person or entity that is a defendant in a lawsuit brought against a health care provider or that arises out of the rendering of health care services. No hospital or health care provider would be liable for actions of entity or person who is not an employee of such hospital or health care provider. Any spouse claiming loss of consortium would be considered the same plaintiff as their spouse. All persons and entities asserting a wrongful death claim would be considered one plaintiff (Section 539.210).

Licensed physician who renders care in a hospital would not be held liable for more than $200,000 for noneconomic damages when the care is rendered in a hospital or emergency department, the care is necessitated by a traumatic injury demanding immediate medical attention, and the care is offered in good faith (Section 538.213).

DESCRIPTION (continued)

A judgment ordering periodic or installment payments would be required to specify a future medical periodic payment schedule (Section 538.220).

Require a court to dismiss any medical malpractice claim where the plaintiff fails to file an affidavit stating that he or she has obtained the written opinion of a legally qualified health care provider which states that the defendant failed to use reasonable care and such care caused plaintiff's damages. Currently, it is within the court's discretion to dismiss the case. The opinion of the health care provider would be subject to review by the court upon request of a defendant in order to ensure that the health care provider meets the qualifications to offer such opinion. The health care provider offering the opinion must be licensed in substantially the same profession and hold a current and active board-certification in substantially the same specialty as the defendant. The time for filing the affidavit could be extended for up to 90 days (Section 538.225).

Prohibit statements, writings, or benevolent gestures expressing sympathy from being admissible as evidence of an admission of liability in a civil action. Statements of fault would be admissible (Section 538.227).

The proposal contains a severability clause (Section 1).

The proposal would clarify that certain provisions would only apply to causes of action filed after August 28, 2004 (Section 2).

Any time prior to the commencement of a trial, if the addition or removal of a plaintiff or defendant from the complaint would alter the determination of venue, the judge would order it be commenced in a proper forum or transfer the case to a proper forum (Section 3).

Senate Amendment 2

A tax credit is allowed, up to $15,000, for 15% of the amounts paid for medical malpractice insurance premiums in the aggregate in one policy period for any physician.

The proposal requires the director of the Department of Insurance to approve or disapprove rates for medical malpractice insurance. The proposal sets out factors for the Director to consider including the Missouri loss experience, rather than the loss experience in other states unless the failure to do so would jeopardize the insurer's financial stability. The Director must also ensure that the rates reflect the impact of any state and federal legislation regarding tort reform or medical malpractice insurance. The Director must approve or disapprove rate filings within 60

DESCRIPTION (continued)

days unless additional time is needed based on applicant's failure to provide information. If the Director finds a rate to be excessive, the director may order a refund of the excessive portion of the rate to the policyholder.

This proposal creates a mutual insurance company, a nonprofit corporation, to provide medical malpractice insurance coverage to health care professionals in the state. The proposal establishes the Physicians Mutual Insurance Company Loan Fund, to be administered by the State Treasurer. The corporation will be capitalized through a loan from this fund, from which the corporation may borrow up to $10 million. The corporation will also have the authority to issue revenue bonds, not to exceed $50 million. The interest on these bonds will be exempt from state income tax.

The proposal sets the process for creating a nine-member board of directors to oversee the corporation and hire an executive director. Board members cannot be employed by, or have any financial interest in, any hospital, health maintenance organization, or insurance entity. Board members will be reimbursed for necessary expenses and may be paid a stipend of up to $1,000

per board meeting. Among the board's duties will be the formulation and implementation of a program designed to decrease medical negligence by physicians and their staff, via training seminars.

Senate Amendment 3

Would establish a remediation program within the Board of Healing Arts. It would also establish a risk management unit within the Board of Healing Arts.

Senate Amendment 7

This proposal makes changes to the laws governing medical malpractice insurance. In its main provisions, the proposal:

(1) Prohibits insurance companies and other entities providing malpractice insurance to health care providers in Missouri from: (a) Increasing charges without 60 days' prior notice to the insured; (b) Refusing to renew policies without 60 days' prior notice, unless the refusal to renew is based upon nonpayment of insurance premiums or license termination or suspension; and (c) Ceasing to issue insurance policies without 180 days' prior notice to the Division of Insurance;

(2) Requires the division to establish 12 to 24 risk-reporting categories for medical malpractice premiums and regulations for reporting premiums by category by May 30, 2005;

DESCRIPTION (continued)

(3) Requires insurance companies and other entities providing malpractice insurance to health care providers in Missouri to provide the division, by June 1, 2005, and annually thereafter, with reports on premium rates charged by category;

(4) Requires the division, by December 31, 2006, and annually thereafter, to establish and publish a market rate reflecting the median of the actual rates charged for each risk-reporting category for the preceding year;

(5) Provides that, after January 1, 2007, insurance premium rates charged by insurance companies and other entities providing malpractice insurance to health care providers in Missouri which are no greater than 20% higher or lower than published market rate will be presumed reasonable, and rates greater than 20% higher or lower will be presumed unreasonable;

(6) Any insurer who proposes to increase or decrease premium rates to they are presumed unreasonable shall notify the director, in writing, at least 60 days in advance of the effective date of the proposed premium rate change. Within 10 days of receipt of the notice, the director will

set a date for a hearing on the proposed rate change. The hearing may be a public hearing. Within 20 days after the close of the hearing, the director will review all information submitted and determine if the rate change is justified;

(7) If provisions of the proposal are violated, the director may impose a penalty not to exceed $500 for each violation unless the violation is found to be willful. Willful violations may result in a penalty up to $5,000 for each violation; and

This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space.

SOURCES OF INFORMATION

Office of the Attorney General

Office of Administration

- Administrative Hearing Commission

Office of State Courts Administrator

Department of Transportation

Department of Mental Health

Department of Health and Senior Services

Department of Labor and Industrial Relations

Missouri Consolidated Health Care Plan

Department of Insurance

Department of Conservation

Mickey Wilson, CPA

Director

April 8, 2004