Opinion ID: 1787098
Heading Depth: 2
Heading Rank: 4

Heading: The Rational Basis

Text: ś 97. We now explore whether a rational relationship exists between the legislative objective of compensating victims fairly and the classification of medical malpractice victims into two groupsâ those who suffer noneconomic damages under $350,000 and those who suffer noneconomic damages over $350,000. With regard to the classification of victims, the Equal Protection Clause `imposes a requirement of some rationality in the nature of the class singled out.' [114] ś 98. No one disputes that the cap does not apply equally to all medical malpractice victims. Indeed, the burden of the cap falls entirely on the most seriously injured victims of medical malpractice. Those who suffer the most severe injuries will not be fully compensated for their noneconomic damages, while those who suffer relatively minor injuries with lower noneconomic damages will be fully compensated. [115] The greater the injury, the smaller the fraction of noneconomic damages the victim will receive. ś 99. According to a 1992 report by the Wisconsin Office of the Commissioner of Insurance, children from ages 0 to 2 with medical malpractice injuries comprise less than 10% of malpractice claims, yet their claims comprise a large portion of the paid claims and expenses of insurers and the Fund. [116] That is, [p]laintiffs with the most severe injuries appear to be at the highest risk for inadequate compensation. Hence, the worst-off may suffer a kind of `double jeopardy' under caps. [117] ś 100. Young people are most affected by the $350,000 cap on noneconomic damages, not only because they suffer a disproportionate share of serious injuries from medical malpractice, but also because many can expect to be affected by their injuries over a 60- or 70-year life expectancy. This case is a perfect example. Matthew Ferdon has a life expectancy of 69 years; he was injured at birth. An older person with a similarly serious medical malpractice injury will have to live with the injury for a shorter period. Yet both the young and the old are subject to the $350,000 cap on noneconomic damages. Furthermore, because an injured patient shares the cap with family members, the cap has a disparate effect on patients with families. ś 101. The legislature enjoys wide latitude in economic regulation. But when the legislature shifts the economic burden of medical malpractice from insurance companies and negligent health care providers to a small group of vulnerable, injured patients, the legislative action does not appear rational. Limiting a patient's recovery on the basis of youth or how many family members he or she has does not appear to be germane to any objective of the law. ś 102. If the legislature's objective was to ensure that Wisconsin people injured as a result of medical malpractice are compensated fairly, no rational basis exists for treating the most seriously injured patients of medical malpractice less favorably than those less seriously injured. No rational basis exists for forcing the most severely injured patients to provide monetary relief to health care providers and their insurers. [118] ś 103. At least as to the legislative objective of ensuring fair compensation, the legislative classification created by a $350,000 cap on noneconomic damages is arbitrary and creates an undue hardship on a small unfortunate group of plaintiffs. Limitations on noneconomic damages are regressive. ś 104. This court made these very same observations in 1995 in Martin v. Richards . Martin involved a successful due process challenge to the retroactivity of the $1,000,000 cap on noneconomic damage awards. This court concluded that the cap unfairly sought to repair the tort system at the expense of those more seriously injured: There is yet one more measure of unfairness that the cap extracts, not just to the Martins but to all people whose noneconomic damages exceed [the cap]. The underlying assertion of the defendants, and of all who seek to impose a cap, is that the tort system is broke or at least badly in need of repair. Assuming the truth of that assertion for the sake of argument, the cap imposed here seeks to fix that system at the sole expense of those most seriously injured. That strikes us as neither fair nor equitable. A person whose noneconomic damages is [at or below the cap] recovers 100 percent of his or her noneconomic loss. Those whose injuries exceed the cap receive but a fraction. [119] ś 105. We therefore conclude that a rational relationship does not exist between the classifications of victims in the $350,000 cap on noneconomic damages and the legislative objective of compensating victims of medical malpractice fairly.
ś 106. Providing reasonably priced medical malpractice insurance for health care providers is one of the objectives the legislature believed necessary to achieve quality health care for the people of the state. The State has a legitimate interest in reasonably priced premiums for medical malpractice insurance if the cost or delivery of health care is threatened by escalating premiums. The legislature apparently concluded that reducing the size of medical malpractice awards would reduce medical malpractice insurance premiums. ś 107. As of 1997, health care providers in Wisconsin must carry primary insurance coverage of $1,000,000 per occurrence and $3,000,000 aggregate per year. [120] The Fund then acts as an excess carrier, covering any losses above that amount. Therefore, [s]ince the increase in the threshold to $1,000,000 per incident and $3,000,000 aggregate, in 1997, the primary [medical malpractice insurance] carriers are subject to more of an impact from the enactment of Wisconsin Act 10. [121] ś 108. We discuss first the relationship between the cap and premiums charged by primary medical malpractice carriers, and then we discuss the relationship between the cap and the assessments by the Fund. ś 109. A $350,000 cap on noneconomic damages in medical malpractice actions intuitively appears to be rationally related to the legislative objective of lowering medical malpractice insurance costs to ensure quality health care for the people of the state. If medical malpractice insurance costs are fueled by large judgments and settlements, as the legislature declared in 1975, a cap would limit payouts by insurance companies; the lower payouts would enable insurance companies to reduce premiums to health care providers; a cap would enable insurance carriers to have greater predictability about the size of payouts and greater ease in calculating premiums and in setting more accurate rates; lower premiums and lower assessments by the Fund would decrease overall health care costs to consumers. ś 110. The Wisconsin legislature chose a $350,000 cap on noneconomic damages as the means of achieving its objective. We do not question the wisdom of that choice, but we must test whether the legislative hypothesis that a $350,000 cap on noneconomic damages bears a rational relationship to malpractice insurance premiums has a basis in reality. ś 111. In testing the hypothesis, we begin with the recognition, in deference to the legislature, that to some extent the selection of any specific monetary limitation on noneconomic damages is arbitrary, in the sense that any limitation is based on imponderables. [122] The legislature decides the specific numerical cap after balancing equal justice and fiscal considerations. [123] The legislature's decision fixing a numerical cap must be accepted unless we can say it is very wide of any reasonable mark. [124] We have said that a statutory limit on tort recoveries may violate equal protection guarantees if the limitation is harsh and unreasonable, that is, if the limitation is too low when considered in relation to the damages sustained. [125] ś 112. Nevertheless, considerations of equal protection require some rationale for the cap and the figure chosen. ś 113. For the reasons we shall set forth below, we conclude that the $350,000 ceiling adopted by the legislature is unreasonable and arbitrary because it is not rationally related to the legislative objective of lowering medical malpractice insurance premiums. ś 114. A statute may be constitutionally valid when enacted but may become constitutionally invalid because of changes in the conditions to which the statute applies. [126] A past crisis does not forever render a law valid. [127] ś 115. This court previously discussed caps on noneconomic damages and their impact on medical practice costs in 1995. In Martin v. Richards , this court was confronted with a due process constitutional challenge to the retroactive application of the $1,000,000 cap. The argument favoring the constitutionality of the retroactive application of the cap was that a cap on noneconomic damages prevents high awards and therefore keeps medical malpractice insurance premiums from rising. The court acknowledged having seen these arguments raised in other forums and the media [128] and being familiar with the generic reasons which are often cited for caps on noneconomic damages. [129] ś 116. The court went on to conclude, however, that a retroactive application of the $1,000,000 cap was unconstitutional because the cap would have a negligible effect on malpractice costs in the state and would not further the purposes asserted. [130] ś 117. The Martin court referred to several studies in making this point. ś 118. The studies showed that the $1,000,000 cap had an insignificant, if any, effect on medical malpractice costs, the express purpose of this legislation. The Martin court summarized the evidence as follows: First, evidence indicates that few individuals receive noneconomic damages in excess of $1,000,000. In fact, the U.S. Department of Justice Tort Policy Working Group found that only 2.7 percent of all medical malpractice claimants receive noneconomic damages in excess of $100,000. See Report of the Tort Policy Working Group on the Causes, Extent and Policy Implications of the Current Crisis in Insurance Availability and Affordability, U.S. Dept. of Justice, at 66, February 1986. Further, in those medical malpractice cases going to verdict where noneconomic damages above $100,000 are awarded, the noneconomic damages award averages between $428,000-$728,000. Id. See also Gary J. Highland, California's Medical Injury Compensation Reform Act: An Equal Protection Challenge, 52 S. Cal. L. Rev. 829, 951 n.745 (recognizing that nationally, fewer than 1 percent of all awards in 1970 exceeded $100,000); Carson v. Maurer, 120 N.H. 925, 424 A.2d 825, 836 (1980) (noting as significant the fact that `few individuals suffer non-economic damages in excess of $250,000' [the legislative cap in New Hampshire] (citation omitted)). Acknowledging that few individuals receive damages in excess of $1,000,000, we can safely assume that the number of persons retroactively affected by the law whose jury awarded noneconomic damages exceed $1,000,000 is too insignificant to have an affect [sic] on future malpractice costs. [131] ś 119. The Martin court concluded then that these assertions [of the effect of the cap on medical malpractice insurance costs] are supported by a paucity of evidence. [132] Subsequent reports and commentary [133] support this court's conclusions in Martin. [134] ś 120. The Wisconsin Commissioner of Insurance is charged by law to report every two years on the impact of 1995 Wisconsin Act 10 (which adopted the cap and other measures). [135] The Commissioner of Insurance's 2005 report on the impact of 1995 Wis. Act 10 draws similar conclusions to the Commissioner's reports issued in 2003, 2001, 1999 and 1997. The 2005 Report's bottom line conclusion is that the only discernable effect on these areas has been [a] reduction in the actuarially determined assessment levels [of the Fund] over the last seven years. [136] ś 121. As to the Act's impact on medical malpractice insurance premiums, the Commissioner indicates that a number of factors affect malpractice premium insurance rates, and that it would be difficult to draw any conclusions from premium numbers based solely on the enactment of Wisconsin Act 10. [137] This is confirmation of the Commissioner's conclusions in 2003, 2001, 1999 and 1997. [138] The Commissioner also asserts that [n]o direct correlation can be drawn between the caps enacted in 1995 and current rate changes taking place in the primary market today. [139] ś 122. Nevertheless, the Commissioner does mention that rate stability could be dramatically impacted for both the Fund and primary carriers should the caps be removed and insurers face unlimited non-economic damages. [140] But private insurers do not face the possibility of unlimited noneconomic damages because private insurer's liability, even without a cap on non-economic damages, is $1,000,000 per occurrence and $3,000,000 per year. ś 123. Other studies support the Commissioner's finding that medical malpractice insurance premiums are not affected by caps on noneconomic damages. For example, studies by the U.S. General Accounting Office, a non-partisan federal government entity that is the audit, evaluation, and investigative arm of Congress, have concluded that a number of factors go into whether medical malpractice premiums increase or decrease and that there is no definitive correlation between caps on noneconomic damages and lower medical malpractice premium rates. [141] This conclusion was reached despite the recognition that losses on medical malpractice claims may constitute a large part of insurers' losses. [142] ś 124. One General Accounting Office study concluded that malpractice claims payments against all physicians between 1996 and 2002 tended to be lower and grew less rapidly in states with noneconomic damage caps. [143] The Office's ultimate conclusion was that these averages obscured wide variation between states and within a state from year to year. [144] The study's malpractice claims payments in cap and non-cap states therefore do not provide a rational basis for the connection between the cap and lower premiums. ś 125. Indeed, according to a General Accounting Office report, differences in both premiums and claims payments are affected by multiple factors in addition to damage caps, including state premium rate regulation, level of competition among insurers, and interest rates and income returns that affect insurers' investment returns. [145] Thus, the General Accounting Office concluded that it could not determine the extent to which differences among states in premium rates and claims payments were attributed to damage caps or to additional factors. [146] For example, Minnesota, which has no caps on damages, has relatively low growth in premium rates and claims payments. [147] ś 126. One reason that the cap does not have the expected impact on medical malpractice insurance premiums may be that a very small number of claims are ever filed for medical injuries, [148] and even fewer of any eventual awards are for an amount above the cap. [149] Another reason may be that insurers incur significant expense in defending non-meritorious claims. [150] The cap does nothing to eliminate the large number of meritless claims that are ultimately dismissed or dropped without any payments to the plaintiffs. [151] It is a reasonable inference that the cost of defending meritless suits contributes significantly to malpractice insurance premiums. [152] ś 127. Articles and studies, including a General Accounting Office study, indicated that in 1984, 57% to 70% of all claims resulted in no payment to the patient. [153] Wisconsin statistics are similar. According to information derived from the Office of Medical Mediation Panels, [154] from 1989 through 2004 a little more than 10% of the claims filed resulted in verdicts, with only about 30% of those favorable to the plaintiffs. In 2004, out of the 23 medical malpractice verdicts in Wisconsin, only four were in favor of the plaintiffs. ś 128. Victims of medical malpractice with valid and substantial claims do not seem to be the source of increased premiums for medical malpractice insurance, yet the $350,000 cap on noneconomic damages requires that they bear the burden by being deprived of full tort compensation. [155] While one federal Executive Branch agency, the Department of Health & Human Services, indicated that [t]he number of payments of $1 million or more [for all medical malpractice damages, not just noneconomic damages, has] ... exploded in the past 7 years [in a number of states other than Wisconsin], [156] the same has not been true in Wisconsin. The Director of the Wisconsin Patients Compensation Fund has written that Wisconsin has not seen the huge jury verdicts that have been reported in other states . . . . [157] ś 129. Based on the available evidence from nearly 10 years of experience with caps on noneconomic damages in medical malpractice cases in Wisconsin and other states, it is not reasonable to conclude that the $350,000 cap has its intended effect of reducing medical malpractice insurance premiums. [158] We therefore conclude that the $350,000 cap on noneconomic damages in medical malpractice cases is not rationally related to the legislative objective of lowering medical malpractice insurance premiums.
ś 130. We next examine whether the $350,000 cap on noneconomic damages is rationally related to the legislative objectives of keeping the Fund's annual assessments to health care providers at a low rate and enabling the Fund to operate on a sound financial basis. These objectives should ultimately relate to the primary objective of lowering health care costs for Wisconsin consumers. ś 131. The Fund was created to provide excess liability coverage for health care providers. [159] The Fund is managed by a Board of Governors [160] and administered by the Office of the Commissioner of Insurance. [161] ś 132. The [Fund] is funded through annual assessments paid by providers and through investment income. [162] Assessments are determined and collected based on a health care provider's specialty. For example, certified nurse anesthetists are placed in a category of providers that is assessed lower fees; those in the highest-risk specialties, like neurosurgeons and obstetric surgeons, are placed in a category of providers that is assessed higher annual fees. [163] Health care providers are required to participate in the Fund unless they qualify for an exemption. [164] ś 133. To determine how much the assessments will be for a given year, an actuarial consultant analyzes the Fund's loss experience and financial position and submits a fee level recommendation to a committee that in turn makes the recommendation for use by the Board. [165] ś 134. The Fund estimates its loss liabilities . . . based on estimates of what [the Fund] may be required to pay for malpractice incidents that have occurred but may not yet have been settled or even reported. [166] That is to say, total loss liability equals the amount the Fund would have to pay if every possible malpractice incident in a given year resulted in a lawsuit that eventually produced a settlement or trial verdict and award in favor of the injured patient. ś 135. The Fund has assets. The assets include cash and investment balances. Investment income accounts for 33% of the Fund's balance growth, $410.8 million since the Fund was created in 1975. [167] ś 136. When the Fund's estimated loss liabilities exceed[] . . . cash and investments, the Fund runs an accounting deficit. [168] The accounting balance as of June 30, 2003 was $7.9 million and was estimated to be approximately $21.0 million as of June 30, 2004. [169] Conversely, if cash and investments are greater than the estimated loss liabilities, the Fund runs a positive accounting balance. ś 137. The Fund uses an accrual accounting method. [170] That means that health care providers are assessed fees based on estimates of what all claims would total over time for incidents that occurred in any given year, rather than on what the payout amount was for that year. [171] The accrual accounting method helps ensure that the Fund will have sufficient assets to pay all outstanding liabilities, including those not reported, if the Fund were to be discontinued. [172] The 1990s also saw the Fund's Board increase reserves to further ensure that it could pay any outstanding claims if the Fund was eliminated. [173] As of June 30, 2003, the Fund's cash and investment balances have grown to $658.9 million. [174] ś 138. The Fund has not always used the accrual accounting method. For the first five years of the Fund's existence starting in 1975, it operated on a cash basis. [175] That is, health care providers were charged assessments based on the actual payout for malpractice claims in a given year. [176] ś 139. Switching from the cash basis to accrual accounting was an attempt to improve the integrity of the Fund. The accrual accounting method brings with it a degree of uncertainty because predicting what claims might be filed and eventually result in payment by the Fund is highly uncertain, and the result has been that actual expenditures have been much lower than projected expenditures. [177] As a result, the Fund has historically paid out much less than its projected expenditures. [178] ś 140. Since fiscal year 1984-85, the loss liability estimates for the Fund have been reduced, both in years in which there was a cap and in years in which there was no cap. [179] The actuarial original losses for the last 20 years have been reduced over time by a net amount of $217.3 million, representing 13.9% of the original total losses estimated for those years. [180] ś 141. Predictions about jeopardy of the Fund's financial status as evidenced by oft-indicated deficits is unfounded, as the Fund actually ran surpluses in years both with and without a cap. ś 142. Simply put, the actuaries have consistently overestimated the amount of losses the Fund would incur in any given year. The overestimates of loss, sometimes nearly $200 million in a given fiscal year, are illustrated by the following chart: Fiscal Year Ending Published Surplus Hindsight Surplus (Deficit) (Deficit) No Cap in Place (1979 - 1985) 1979 ($728,759) ($15,648,947) 1980 ($1,919,872) ($34,664,878) 1981 ($7,016,326) ($45,144,847) 1982 ($8,954,431) ($62,817,470) 1983 ($19,826,057) ($72,514,141) 1984 ($49,623,089) ($81,211,029) 1985 ($79,624,322) ($58,580,371) In 1986, noneconomic damages were capped at $1,000,000. 1986 ($100,555,257) ($69,795,008) 1987 ($112,101,947) ($32,740,686) 1988 ($122,722,600) ($25,156,233) 1989 ($108,256,349) $14,292,005 1990 ($73,597,992) $57,623,296 1991 ($71,679,588) $94,005,693 The $1,000,000 cap ended due to its sunset provision. 1992 ($78,982,681) $110,252,749 1993 ($71,613,641) $126,753,323 1994 ($67,903,761) $120,337,198 1995 ($57,722,772) $135,133,860 Cap on noneconomic damages re-established at $350,000. 1996 ($41,795,496) $161,537,129 1997 ($44,094,214) $178,044,919 Providers required to carry $1,000,000 of insurance. 1998 ($19,383,934) $195,982,368 1999 $8,579,767 $194,099,916 2000 $27,210,974 $189,648,947 2001 $28,724,959 $165,777,386 2002 $4,888,065 $127,606,855 2003 $7,932,348 $82,655,325 2004 [181] $24,616,324 n/a [182] ś 143. According to the Legislative Fiscal Bureau's May 17, 2005 report to the Joint Committee on Finance, the Fund's balance sheet through fiscal year 2003-04 appears as follows: Fund Hindsight Restatement Financial Based on Statement Actuarial Studies 9/30/04 As Published Milliman [183] Aon [184] 1. Total Fund Assets 741,283,000 741,283,000 741,283,000 2. Fund Undiscounted Unpaid Claim Liabilities 880,445,000 786,030,000 493,625,000 [185] 3. Offset for Investment Income -213,948,000 -165,427,000 -105,638,000 4. Fund Discounted Unpaid Claim Liabilities (2 + 3) 666,497,000 620,603,000 387,987,000 5. Total Fund Liabilities 716,667,000 670,773,000 438,157,000 6. Fund Surplus (1 - 5) 24,616,000 70,510,000 303,126,000 ś 144. The above data illustrate that the Fund has operated and been fiscally sound when there were no caps on noneconomic damages, when there was a $1,000,000 cap on noneconomic damages, and since 1995 when there has been a $350,000 cap on noneconomic damages. The trend is likely to continue for the fiscal year ending in 2004: one actuary has projected the Fund's surplus for fiscal year 2003-04 as exceeding $303 million. [186] ś 145. The actuaries estimate that if the cap were vitiated effective May 1995, the Fund's undiscounted, unpaid claim liabilities might increase by as much as $144 million as of June 30, 2003. [187] But the Wisconsin Legislative Fiscal Bureau concluded that if up to $300 million were transferred out of the Fund, and if the assessment remained static at $31 million per year (the 2003-04 level) for the next ten years, the Fund would still be left with assets of $134.2 million in 2012, not including potential financial liquidation penalties. [188] The Fiscal Bureau concluded that the total assets in ten years could be sufficient to pay all claims, even with a static assessment of $31 million a year and a $300 million withdrawal. [189] ś 146. Even though as enacted in 1975, chapter 655 did not initially contain a cap on noneconomic damages in medical malpractice actions, [190] the Fund's fiscal position was a consideration in the 1975 enactment. Chapter 655 originally provided that if the Fund's cash flow were in jeopardy, there would be a $500,000 cap on certain damages. [191] The $500,000cash-flow-dependent cap was apparently never triggered. ś 147. The Fund's fiscal position was again a concern in the early 1980s during discussions about implementing a cap on damages in medical malpractice actions. In 1983, the Commissioner of Insurance sent a letter to the Governor expressing concern that the Fund may experience an accrual deficit in the future. [192] The Fund was not in danger of running a cash deficit. The drafting records for the 1986 legislation indicate that from 1978 to 1981, claims, and the severity of the claims, were increasing. The Governor responded that steps should be taken to ensure the Fund's financial position. [193] ś 148. The Legislative Council's Special Study Committee on Medical Malpractice grappled with the various issues in medical malpractice. In the May 1986 Special Session Assembly, the legislature adopted Bill 4, which capped noneconomic damages at $1,000,000. This legislation contained a sunset provision, that is, the $1,000,000 cap on noneconomic damages was set to expire in 1991 unless the legislature renewed it. The legislature did not renew the $1,000,000 cap on noneconomic damages, and therefore, from 1991 to 1994, noneconomic damages for medical malpractice claims were not capped. ś 149. It was not until 1995 that a cap on noneconomic damages in medical malpractice actions again came into effect. As originally drafted, the bill set the cap on noneconomic damages in medical malpractice at $250,000, consistent with a 1994 recommendation by the Special Committee created by the Fund's Board of Governors. ś 150. The Special Committee's 1994 report [194] analyzed the advantages and disadvantages of a $250,000 cap on noneconomic damages in medical malpractice actions. According to the report, the advantages were as follows: â If the cap were retroactive it would reduce the deficit without collecting fees in excess of the actuarially determined break-even level; [195] â The cap reduces the future anticipated payments of the Fund; and â The cap may allow for claims to be settled more expeditiously. [196] ś 151. The disadvantages of imposing a $250,000 cap on non-economic damages were, according to the report, as follows: â The cap limits a claimant's right to recovery for damages such as pain and suffering, loss of consortium, etc.; â The cap has the greatest impact on the most severely injured patients; and â The cap is subject to constitutional challenges. [197] ś 152. The prediction was that a cap would reduce the assessments charged by the Fund. To use the Special Committee's and Commissioner of Insurance's terminology, the Fund's break-even funding level would be reduced with a $250,000 cap. The break-even funding level is an estimate of assessment charges that would be needed to cover estimated losses for the year. [198] Over a five-year period beginning on June 30, 1994, if noneconomic damages were capped at $250,000, it was estimated that the Fund would have to take in approximately $67.8 million less in assessments on health care providers in order to break even. [199] ś 153. The contention that assessments would be reduced if the cap were adopted is consistent with other reports to the legislature. For example, a memorandum from Peter Farrow, the executive assistant to the Commissioner of Insurance, to Representative Sheryl Albers, Chair of the Assembly Committee on Insurance, Securities, and Corporate Policy, indicated a $350,000 cap would mean the Fund would have to take in $46 million less in assessments from health care providers. [200] If the cap were $1,000,000, the Fund would have to take in $32.3 million less in assessments over that five-year period. [201] ś 154. Fund assessments have been decreasing over the years. [202] In five reports from the Commissioner of Insurance, for 2005, 2003, 2001, 1999, and 1997, the Commissioner indicated that the only discernible impact of the $350,000 cap on health care providers has been a reduction in Fund assessments collected. [203] In any event, as we explain below, a reduction in the assessments is not necessarily germane to the legislative objectives of lowering health costs to consumers or ensuring the availability of doctors in the state. ś 155. The goal of lowering health care provider assessments motivated raising the minimum amount of malpractice insurance health care providers are required to carry from $400,000 per occurrence and $1,000,000 per year to $1,000,000 per occurrence and $3,000,000 per year. [204] Testimony by Peter Farrow of the Office of the Commissioner of Insurance to the Assembly Committee on Judiciary offered the following observation regarding raising the minimum amount of malpractice insurance health care providers would have to carry: The actuaries for the Fund and the Plan have estimated that increasing the threshold [to $1,000,000/$3,000,000] will result in a reduction in fees providers pay to the Fund of 21 percent, and an increase to Plan policyholders ranging from 19 to 32 percent, depending on provider class. [205] In effect, the Office of the Commissioner is saying that while Fund assessments on health care providers may go down, there will be a corresponding increase for health care providers in their malpractice insurance premiums. In fact, for some health care providers the increase in malpractice insurance premiums may be greater than the reduction in Fund assessments. [206] Any reduction in Fund assessments as a result of raising the required level of insurance must be viewed with an understanding that costs of medical malpractice insurance will rise as a result because private insurers will be liable for increased amounts. ś 156. So while Fund assessments may go down, it cannot be said that health care providers necessarily benefit from the reduction as a result of 1997 Wis. Act 11's requiring health care providers to shoulder more of the burden for private malpractice insurance. ś 157. The Fund has also played an important role in contributing to Wisconsin's reputation as a desirable place for health care providers to practice. [207] Since the Fund was created in 1975, only 609 out of 4,944 total claims have resulted in payment by the Fund. [208] Not only has the Fund not had to pay out in over 87% of medical malpractice claims naming the Fund, [209] but Wisconsin has not seen the huge jury verdicts that have been reported in other states, although verdicts here occasionally range as high as three to eight million dollars. [210] The nature of jury verdicts in Wisconsin has been attributed to Midwesterners' sensibility. [211] For example, Wisconsin settlements and jury verdicts worked out to be $1,711 per 1,000 people in the state in 2001, while in Pennsylvania, payouts came to $27,268 per 1,000 people. [212] ś 158. The Fund has flourished both with and without a cap. If the amount of the cap did not impact the Fund's fiscal stability and cash flow in any appreciable manner when no caps existed or when a $1,000,000 cap existed, then the rational basis standard requires more to justify the $350,000 cap as rationally related to the Fund's fiscal condition.
ś 159. Next we turn to the legislature's fourth objective, lowering overall health care costs for the consumers of health care. ś 160. The question we must answer is whether there is a conceivable set of facts from which the legislature could conclude that a $350,000 cap on noneconomic damages furthers the state's interest in controlling medical malpractice insurance costs for health care providers, thereby controlling health care costs for the people of the state. [213] ś 161. As we have explained previously, a $350,000 cap on noneconomic damages appears, at first blush, to be related to the legislative objective of keeping overall health care costs down. The central theory underlying the cap is that large payouts by insurance companies (because of large judgments and settlements) raise malpractice insurance premiums. Therefore, the theory goes, a limitation on damages means insurance companies pay out less. Because insurance companies are paying out less, they will be able to reduce the premiums they charge health care providers. If insurance premiums decrease, health care providers should be able to charge less, thereby lowering health care costs for patients. ś 162. The problem with this logic is that even assuming that a $350,000 cap affects medical malpractice insurance premiums and the Fund's assessments on health care providers, medical malpractice insurance premiums are an exceedingly small portion of overall health care costs. [214] ś 163. Overall health care costs in the United States are in excess of $1 trillion annually, [215] and are expected to reach $2 trillion by 2006. [216] The direct cost of medical malpractice insurance is less than one percent of total health care costs. For example, in 1992, doctors paid five to six billion dollars in premiums, while the overall cost of health care nationwide reached $840 billion. [217] This is consistent with the findings of several commentators who conclude that medical malpractice insurance-related costs range from 0.56% to 2% of overall health care costs. [218] The non-partisan Congressional Budget Office recently found that even large savings in premiums can have only a small direct impact on health care spendingâ private or governmentalâ because malpractice costs account for less than 2 percent of that spending. [219] ś 164. The figures are similar in Wisconsin. Of every $100 spent on health care in Wisconsin between 1987 and 2002, less than one dollar can be traced to medical malpractice related costs. [220] ś 165. Therefore, even if the $350,000 cap on noneconomic damages would reduce medical malpractice insurance premiums, this reduction would have no effect on a consumer's health care costs. Accordingly, there is no objectively reasonable basis to conclude that the $350,000 cap justifies placing such a harsh burden on the most severely injured medical malpractice victims, many of whom are children. ś 166. We agree with those courts that have determined that the correlation between caps on noneconomic damages and the reduction of medical malpractice premiums or overall health care costs is at best indirect, weak, and remote. [221]
ś 167. To ensure quality health care in Wisconsin, the state has to attract and retain health care providers. The availability of health care providers is dependent on the availability of reasonably priced medical malpractice insurance, according to the 1975 legislative findings. [222] The legislature declared that [t]he cost and the difficulty in obtaining insurance for health care providers discourages and has discouraged young physicians from entering into the practice of medicine in this state .... [223] ś 168. Studies indicate that caps on noneconomic damages do not affect doctors' migration. The non-partisan U.S. General Accounting Office concluded that doctors do not appear to leave or enter states to practice based on caps on noneconomic damages in medical malpractice actions. [224] The General Accounting Office found that despite extensive media coverage of physician departures from states, the numbers of physician departures reported were sometimes inaccurate and were actually relatively low. [225] The General Accounting Office further reported that the problems it was able to confirm about shortages of doctors were limited to scattered instances, often in rural locations. The Office found that in most cases, providers identified long-standing factors in addition to malpractice pressures that affected the availability of services. [226] ś 169. The conclusions reached by the General Accounting Office are supported by other reports and studies. [227] ś 170. The Wisconsin Office of the Commissioner of Insurance's biennial reports on the impact of 1995 Wis. Act 10 examine the Act's impact on the number of health care providers in Wisconsin. The Commissioner's 2003 report shows a slight decrease in the number of providers. The Commissioner's 2005, 2001, and 1999 reports show a slight increase in the number of health care providers. [228] The Commissioner's reports do not attribute either the increases or decreases in the number of health care providers to 1995 Wis. Act 10, much less to the $350,000 noneconomic damages cap. [229] ś 171. Based on the available evidence, we cannot conclude that a $350,000 cap on noneconomic damages is rationally related to the objective of ensuring quality health care by creating an environment that health care providers are likely to move into, or less likely to move out of, in Wisconsin. The available evidence indicates that health care providers do not decide to practice in a particular state based on the state's cap on noneconomic damages. ś 172. Closely related to concerns about access is the practice of defensive medicine. [230] Among the legislature's findings were that as a result of medical malpractice actions, health care providers are often required, for their own protection, to employ extensive diagnostic procedures for their patients, thereby increasing the cost of patient care. [231] Defensive medicine, the argument goes, drives up the cost of health care because health care providers will order expensive and unnecessary tests to ensure that if they have to defend themselves against a claim, they can say they did everything possible for the health of the patient. ś 173. There is anecdotal support for the assertion that doctors practice defensive medicine, [232] although an accurate measurement of the extent of this phenomenon is virtually impossible. [233] The Wisconsin Legislative Council Study Committee bill file contains a number of letters from doctors who assert they have practiced defensive medicine. Similarly, the General Accounting Office recently found anecdotal evidence of the practice of defensive medicine by health care providers. [234] ś 174. Three independent, non-partisan governmental agencies have found that defensive medicine cannot be measured accurately and does not contribute significantly to the cost of health care. [235] The General Accounting Office study found that the overall prevalence and costs of [defensive medicine] have not been reliably measured. [236] Findings about defensive medicine must be based on surveys of health care providers, and those surveys typically ask [health care providers] if or how they have practiced defensive medicine but not the extent of such practices. In addition, very few physicians tend to respond to these surveys, raising doubt about how accurately their responses reflect the practices of all [health care providers]. [The results] cannot be generalized more broadly [beyond anecdotal evidence]. [237] Other studies have concluded that defensive medicine does not significantly affect the cost of medicine [238] and that `some so-called defensive medicine may be motivated less by liability concerns than by the income it generates for physicians or by the positive (albeit small) benefits to patients .... [The Congressional Budget Office] believes that savings from reducing defensive medicine would be very small.' [239] ś 175. The evidence does not suggest that a $350,000 cap on noneconomic damages is rationally related to the objective of ensuring quality health care by preventing doctors from practicing defensive medicine. We agree with the non-partisan Congressional Budget Office's finding that evidence of the effects of defensive medicine was weak or inconclusive. [240] ś 176. The North Dakota Supreme Court, reaching the same result we reach in this case in invalidating North Dakota's cap on medical malpractice economic and noneconomic damages, summarized its holding well, as follows: At the beginning of this opinion we quoted the preamble of the statute, containing its legislative purposes. These include assurance of availability of competent medical and hospital services at reasonable cost, elimination of the expense involved in nonmeritorious malpractice claims, provision of adequate compensation to patients with meritorious claims, and the encouragement of physicians to enter into practice in North Dakota and remain in such practice so long as they are qualified to do so. Does the limitation of recovery of seriously damaged or injured victims of medical negligence promote these aims? We hold that it does not and that it violates the Equal Protection Clause of the State Constitution. Certainly the limitation of recovery does not provide adequate compensation to patients with meritorious claims; on the contrary, it does just the opposite for the most seriously injured claimants. It does nothing toward the elimination of nonmeritorious claims. Restrictions on recovery may encourage physicians to enter into practice and remain in practice, but do so only at the expense of claimants with meritorious claims. [241]