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OLR Research Report


September 11, 2003

 

2003-R-0620

VIRGINIA AND FLORIDA CHILD BRAIN INJURY COMPENSATION FUNDS

 

By: Saul Spigel, Chief Analyst

You asked for information on programs in Virginia and Florida that compensate families whose babies are born with neurological impairment.

SUMMARY

In response to increasing costs of medical malpractice insurance and insurers withdrawing from the market in the late 1980s, Virginia and Florida both created funds to compensate families for the lifetime medical expenses they incur when their child is born severely impaired because of neurological injuries suffered during the birthing process. Infants were singled out because lawsuits associated with these cases have a relatively high success rate and successful cases tend to result in large monetary awards. The fund and claims process is an alternative to malpractice litigation. If a family is eligible for coverage, it cannot pursue a malpractice claim; if it is found ineligible for coverage, it can then litigate.

In both states the fund is capitalized by annual assessments from physicians and hospitals. In both, physicians who participate in the program pay $ 5,000 per year and hospitals pay $ 50 per live birth. Participation in both states is voluntary. Doctors and hospitals that

participate do not have to face malpractice suits if an infant is found eligible for compensation. All other physicians in the states pay $ 250. Virginia also assesses liability insurers. Florida initially capitalized the fund with a $ 20 million state appropriation.

If eligible, a family receives payment for all necessary and reasonable expenses for medical, hospital, rehabilitative, residential, and custodial care and services; special equipment or facilities; and related travel, except those expenses that have already been paid by a private insurance policy or a government program. The family is also compensated for the cost of filing the claim, including attorney’s fees. In Virginia, it is compensated for the child’s lost earnings, while in Florida parents receive an award of up to $ 100,000.

In Virginia, the Workers’ Compensation Commission determines whether a child is eligible; in Florida it is an administrative law judge from the State Management Department.

The funds must maintain actuarial soundness over a long period. Virginia’s fund is sound for the next 25 years but may face problems after that according to a 2002 study by the Joint Legislative Audit and Review Commission. That study determined that the program overall was beneficial for ob/gyns and hospitals and that eligible children fared better than they would have under the tort system with a malpractice award cap.

Florida’s fund has more assets than liabilities at this time. Its law also contains a mechanism for tapping an insurance trust fund, assessing insurers, or closing claims applications if the fund becomes unsound.

VIRGINIA (VA Stat. 38. 2-5000 to –5021)

The Virginia Birth-Related Neurological Injury Compensation Act was enacted in 1987 in response to malpractice insurance availability problems facing obstetricians. The program pays for the medical expenses, lost earnings, and attorneys’ fees of children whose birth resulted in severe neurological injuries.

The program is intended as an alternative to the traditional tort system for compensating injuries. The program was designed as a “no-fault” system; a finding of malpractice is not needed in order for a child to receive compensation.

Eligibility

To be eligible for compensation, (1) the infant must meet the law’s definition for a birth-related neurological injury and (2) must have been delivered by a participating physician or in a participating hospital. A child is eligible if oxygen deprivation or mechanical injury to his brain or spinal cord during labor, delivery, or resuscitation (1) permanently disables motor function, (2) leaves him developmentally or cognitively disabled, and (3) requires him permanently to need assistance in all activities of daily living (e. g. eating, bathing, toileting).

Doctors and hospitals participate in the program voluntarily; in return they do not have to face malpractice lawsuits arising from these situations. As a condition of participation (1) hospitals must agree to submit to state Health Department review of their obstetrical services and (2) doctors and hospitals were, when the law was first enacted, required to work with the department to develop a program for providing obstetric services to indigent women and then participating in that program’s implementation.

Program Benefits

The program pays:

Program Funding

The program is funded through assessments on participating physicians and hospitals, nonparticipating physicians, and liability insurers. Participating physicians pay $ 5,000 a year; participating hospitals pay $ 50 for each live birth there in the prior year (up to $ 150,000 per hospital), and nonparticipating physicians pay $ 250 a year.

Liability insurers pay an amount the State Corporation Commission determines is needed to keep the compensation fund actuarially sound. Each insurer is assessed based on its proportion of all liability premiums written in the state. An insurer’s assessment cannot be more than one-quarter percent of its direct premiums.

Program Administration

Several agencies have responsibilities for various aspects of the program. The Workers’ Compensation Commission (WCC) determines whether a claimant is eligible for compensation. It receives claims petitions, which the Health or Health Professions departments, or both, investigate depending on whether a hospital or physician is the subject of the claim. The WCC holds hearings, determines whether a child has a qualifying injury and whether a participating doctor or hospital was involved, and determines how much compensation an eligible child receives.

A Birth-Related Neurological Injury Compensation Fund board of directors administers the program and the fund. It develops an operating plan, invests the fund, and provides for claims payments and risk reinsurance. It can also acquire real and personal property and place it in trust for claimants. (The board purchased houses for some claimants’ lifetime use; this benefit was eliminated in 2000. )

The State Corporation Commission determines insurers’ fund assessments and approves the board’s operating plan.

An academic assessment of NICA’s first decade, published in 2000, indicates mixed results. NICA, it says, “appears to have delivered favorable results in a number of key areas. ” It distributed compensation relatively efficiently, equitably, and generously to nearly 100 infants. Malpractice claims relating to severe obstetrical injury decreased in frequency and average size, although the authors could not specify how much of this decrease could be attributed to NICA. They found the assessment level was sufficient to fund the plan and that a high proportion of Florida’s obstetricians were participating. They also found that NICA’s staff had gained considerable experience in helping and supporting beneficiaries’ families.

But, the authors determined NICA’s role in compensating medical injuries was, “at best, a modest one. ” Almost the same number of severe birth-related injuries received malpractice payments of $ 250,000 or more in the 10 years under study, as was the case before NICA was enacted. They attributed this assessment to provisions in the NICA law that make NICA the exclusive remedy for claims only if the injury meets its narrow eligibility criteria. For NICA’s first 10 years, this feature led to questions over whether a family could pursue both NICA and malpractice claims simultaneously, a Supreme Court decision that essentially permitted simultaneous claims, and finally, legislative action in 1998 requiring an administrative law judge to first determine NICA eligibility before a malpractice claim could be filed.

Program Evaluation

The legislature’s Joint Legislative Audit and Review Commission (JLARC) evaluated the program in November 2002. It determined that the program overall was beneficial for ob/gyns and hospitals and that children in the program fared better than they would have under the tort system with a malpractice award cap.

As of October 2002, 75 children had been found eligible for benefits. JLARC found that their annual compensation exceeded the tort system’s annual awards and expenses for severe birth injury cases, which it estimated at $ 10. 8 million. Program beneficiaries had received $ 25. 3 million since 1992 when the first distribution was made, an average of $ 62,000 per year per participant. But mothers who were injured during delivery were unable to receive compensation.

As of July 2002, 500 physicians and 27 hospitals were participating in the program. They paid in about $ 15. 2 million a year. But JLARC found that the fund was not actuarially sound. While its December 31, 2002 balance was $ 84. 7 million, it had more than $ 88 million in unfunded liability. Actuarial projections could not guarantee lifetime support for all current claimants.

JLARC reported that the program’s effects on insurance availability and obstetric services were mixed. In 1987, the law had an immediate impact on malpractice insurance availability—one of the state’s major

liability insurers lifted its moratorium on new ob/gyn policies soon after the program was created. And liability rates for ob/gyns since were lower than in other states, which benefited both participating and nonparticipating physicians.

But insurers still did not provide obstetric coverage in some rural areas of the state, which meant those services were not readily available there. And, while the 1987 law required the Health Department, doctors, and hospitals to develop and implement plans to ensure poor women had access to obstetric services, JLARC found no indication that these plans were in effect. It did find a generally increasing level of Medicaid coverage for poor women, but it could not attribute this increase to the compensation program.

A summary of the JLARC report is available at http: //jlarc. state. va. us/Summary/Rpt284/BirthInj. HTM, and the complete report is at http: //jlarc. state. va. us/Reports/Rpt284. pdf

FLORIDA (FL Stat. Ann. 766. 302 to 316)

The Florida legislature created the Birth-Related Neurological Injury Compensation Association (NICA) in 1988 following the recommendation by a task force examining malpractice insurance and tort reform. NICA is modeled on Virginia’s program.

Eligibility

Like Virginia, NICA covers children who were brain-damaged during a birthing process by oxygen deprivation or a mechanical injury. An infant must be permanently and substantially mentally and physically impaired. Children suffering from genetic or congenital abnormalities are not eligible. A participating doctor in a participating hospital must have delivered the infant.

Benefits

NICA pays for necessary and reasonable care, services, drugs, equipment, facilities, and travel, except for those covered by private insurance or government programs. It also pays the child’s parents a one-time cash award of up $ 100,000; a death benefit up to $ 10,000; and reasonable expenses for filing the claim, including attorney’s fees.

Program Funding

The compensation fund was initially capitalized with a $ 20 million appropriation from the legislature. It is maintained by annual assessments on participating physicians ($ 5,000) and nurse midwives ($ 2,500), all other physicians ($ 250) and hospitals ($ 50 per live birth). Kenney Shipley, NICA’s executive director, reports that nonparticipating physicians vocally oppose their assessment.

If these assessments are insufficient to maintain the fund, NICA can tap $ 20 million from an Insurance Regulatory Trust Fund. It has not had to do this, although it maintains this amount on its books as an asset. If the fund becomes actuarially unsound, NICA can also assess casualty insurers based on their proportion of premiums to the states’ total. It has not had to do this either; Shipley asserts that doing so would be politically unpalatable.

The law permits NICA to cut off applications for new claims if its liability for existing claims reaches 80% of its available assets.

Administration

An administrative law judge in the Department of Management Services’ Division of Administrative Hearings determines whether a claimant is eligible for NICA compensation.

Evaluation

Shipley reports that 161 claims have been accepted as of June 30, 2002. The fund’s balance sheet on that date shows NICA with $ 299 million in reserve against those claims (about $ 1. 85 million per claim) and approximately $ 320 in assets. Shipley notes that changes in technology and the level of care eligible children receive leads to longer life expectancies and, consequently, higher lifetime costs. If those 161 claims were successfully litigated with average awards of $ 3 million, Shipley contends insurers’ aggregate liability would have been in the half-billion dollar range. Attorneys she, notes would have received one-third to one-half that amount, while attorney’s fees represent only 7% of NICA’s pay outs.

Florida’s recent tort reform law requires the legislature to study eligibility requirements for NICA coverage and report by January 1, 2004.

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