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Med mal damage cap violates constitution

The Wisconsin Supreme Court on July 14 held the state’s cap on noneconomic damages in medical malpractice actions unconstitutional.

Matthew Ferdon was born partially paralyzed and has a deformed right arm. At trial for medical malpractice, the jury awarded $700,000 in noneconomic damages, $403,000 for future medical expenses, nothing for loss of future earning capacity, and $87,000 to his parents for personal care they will render until he turns 18.

After the verdict, the Wisconsin Patients Compensation Fund moved to reduce the noneconomic damages pursuant to the damage cap in secs. 655.017 and 893.55(4)(d). Brown County Circuit Court Judge Peter J. Naze granted the motion, reducing the noneconomic damage award to $410,322, and Ferdon appealed.

The Wisconsin Court of Appeals affirmed in a summary order. The Supreme Court granted review, and reversed in a decision by Chief Justice Shirley S. Abrahamson. Justice N. Patrick Crooks wrote a concurrence joined by Justice Louis B. Butler, Jr. Justices David T. Prosser Jr. and Patience Drake Roggensack both wrote dissents, joined by each other, and Justice Jon P. Wilcox.

The majority held that the $350,000 cap (adjusted for inflation) violates the equal protection clause, without addressing the other constitutional challenges.

The court first concluded that rational basis was the appropriate level of scrutiny to apply — the statute will be upheld unless it is shown to have no rational relationship to a legitimate government interest — but the court discussed a standard it called "rational basis with teeth." Nevertheless, the court equated the two, and held the statute unconstitutional.

The court found the statute unfairly distinguished between those victims who suffer more than $350,000 in noneconomic damages and those who suffer less.

Reviewing the legislative findings to support the cap, the court wrote, "the legislature found that malpractice lawsuits raise the cost of medical malpractice insurance for providers. According to the legislature, higher medical malpractice insurance costs, in turn, harm the public because they result in increased medical costs for the public and because health care providers might leave Wisconsin. The legislature also found that health care providers were practicing defensive medicine because of the rising number of claims and that they might refuse to enter the Wisconsin health care market. These legislative findings are not binding on the court but carry great weight."

The court added that the primary objective was no ensure the quality of health care.

Rejecting the rationale, the court concluded, "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."

The court noted that, because private insurers’ liability is already capped at $1 million per occurrence and $3 million per year, they do not face the possibility of unlimited economic damages.

The court found, "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.

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. For example, Minnesota, which has no caps on damages, has relatively low growth in premium rates and claims payments."

The court further found that another reason for large malpractice premiums is that insurers may incur significant expense in defending non-meritorious claims, and that "The cap does nothing to eliminate the large number of meritless claims that are ultimately dismissed or dropped without any payments to the plaintiffs." The court noted that, of 23 medical malpractice verdicts in 2004, only four were in favor of the plaintiffs.

What the court held

Case: Ferdon v. Wisconsin Patients Compensation Fund, No. 2003AP988.

Issue: Is the $350,000 (adjusted for inflation) cap on noneconomic damages in medical malpractice actions constitutional?

Holding: No. The statute violates the equal protection clause of the Wisconsin Constitution.

Counsel: For plaintiffs, Vincent R. Petrucelli, Marie A. Stanton, Merrick R. Domnitz; For defendant, Steven P. Means, Christine Cooney Mansour, Roisin H. Bell.

The court thus concluded, "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. 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],’ 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 . . . .’"

The court also included a chart showing that the Wisconsin Patients Compensation Fund has managed to run surpluses in years both with and without a damage cap, and concluded, "The Fund has flourished both with and witho
ut 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."

In addition, the court found that, of every $100 spent on health care in Wisconsin, less than $1 can be traced to malpractice-related costs, and determined, "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."

The court concluded, "While we adhere to the concept of judicial restraint that cautions against substituting judicial opinion for the will of the legislature, we do not abdicate judicial responsibility. To hold that a rational basis exists for the $350,000 statutory cap on noneconomic damages in medical malpractice cases would amount to applying a judicial rubber stamp to an unconstitutional statute."

Accordingly, the court reversed.

Justice Crooks wrote separately to emphasize that damage caps on noneconomic damages, and damage caps in general, can be constitutional, and to add that the cap is so unreasonably low as to deny the constitutional right to remedy.

Justice Prosser dissented.

Prosser concluded that, while purporting to apply rational basis scrutiny, the court actually applied review closer to intermediate level scrutiny Citing constitutional law scholar Laurence Tribe, Prosser wrote, "The ‘unaccountability’ Professor Tribe warns of is simple to perceive. In future cases, the majority will be able to rely on ‘rational basis with teeth’ to invalidate legislation that does not suit the majority’s fancy.

"Professor Tribe further cautions that ‘with no articulated principle guiding the use of this more searching inquiry, even routine economic regulations may from time to time succumb to a form of review reminiscent of the Lochner era.’ Today, the majority inaugurates the ‘Ferdon era.’"

Prosser added, "The majority equates ‘rational basis’ and ‘rational basis with teeth’ as if the choice between them is unimportant. In fact the opposite is true: when process is respected, the level of scrutiny is often outcome-determinative. The majority’s result-oriented focus made it necessary to disguise the level of scrutiny in an attempt to justify its result."

Prosser also objected to the breadth of the decision. Noting that the object of a damage cap will always be to undercompensate those who suffer the greatest damages, Prosser found the decision will be difficult to distinguish whenever a damage cap is challenged.

Finally, Prosser objected to the majority’s conclusion that rational basis did not support the Legislature’s decision.

Prosser wrote, "It would seem to be a simple, mathematical certainty that the cap on noneconomic damages reduces the size of some malpractice claims. However, the majority finds a way to disagree even with this unremarkable proposition."

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Citing recent malpractice verdicts of $40 million, $55 million, and $79 million in states without caps, Prosser found that the Fund could be liable, in a single case, for more than its current annual expenditures.

Roggensack also wrote a dissent, concluding, "the majority opinion does not subject the cap on noneconomic damages to the five-part test used by all Wisconsin courts for more than 30 years. Instead, it conducts a mini-trial, to find facts that it then uses to say that the reasons the legislature set out when it enacted chapter 655 are not borne out by the evidence it has examined. It conducts its trial without the benefit of witnesses, without giving each of the parties an opportunity to submit relevant evidence of their choosing. It conveniently ducks evidence that does not fit with its conclusion. For example, the majority opinion notes the ‘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.’ It then avoids consideration of this reduction by saying it is not possible to tell whether the caps actually were a factor in the reductions."

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David Ziemer can be reached by email.

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