by Mitchell J. Olejko

On May 15, 2014, Initiative 1606 qualified for the November ballot. If it passes, all purchasers of malpractice insurance would have increased costs, which would be passed on to purchasers of health care, whether it is to the government, to employers, or to individuals or groups who purchase exchange plans. The Legislative Analyst’s Office estimates that the costs to state and local governments would be  “likely at least in the low tens of millions of dollars annually, potentially ranging to over one hundred million dollars annually.” State and local governments have few choices to meet this increased cost: reduce expenditures in other government programs, increase taxes or shift the cost to the private sector.

The battle over Initiative 1606 will be the subject of ongoing campaigns that flood our mailboxes and dominate the media this fall. Not surprisingly, Initiative 1606 is supported by entities associated with the medical malpractice trial bar.

The essence of this proposal is to change a core decision made when California enacted the non-economic damages limit — that the cap not be increased for inflation. It has been over 35 years since California became a leader in healthcare reform, addressing the malpractice insurance crisis in a measured way. In 1975, the Medical Injury Compensation Reform Act (MICRA) capped non-economic damages at $250,000, and limited contingency fees that plaintiff’s attorneys could charge injured plaintiffs according to a sliding scale. No limits were placed on the amounts that an injured plaintiff could recover for medical care, lost earnings and other economic damages. The sliding scale provides for a limit of 40% of the first $50,000 recovered, 35% of the second $50,000, 25% of the next $500,000, and 15% of recoveries over $600,000. Attorneys’ fees on a $1 million recovery may not exceed $238,333, a decrease of $95,000 over the usual one-third contingency fee. The decrease in fees that can be charged benefits the injured plaintiff. Attempts to amend or repeal MICRA and to challenge it in the courts have occurred regularly since its enactment.

This decision was revisited several times, but was never changed because the late 1970s and early 1980s were periods of runaway inflation in the United States. The Initiative 1606 would not begin to adjust for inflation on its effective date, but would travel back in time and insert an inflation provision in MICRA as of its enactment — overruling the judgments made when it was enacted and those made by later legislatures. After the initial adjustment, the cap would be adjusted annually for inflation. This change would also apply retroactively to cases that are pending on the effective date of Initiative 1606. Because of the extraordinary inflation in the late 1970s and early1980s, the proposed cap would increase to about $1.1 million under the Initiative. The proposed cap would be about $560,000 if the increase in inflation was calculated beginning in 1985 when the California Supreme Court held that MICRA was constitutional.

There have been many studies of MICRA. A Rand Corporation study from 2004 concluded that MICRA reduced the amounts awarded to the injured plaintiff in cases that were resolved by a jury verdict by 15%, but also reduced attorney’s fees in those cases by 60%. Of the estimated savings from MICRA in those cases, savings from attorney’s fees accounted for two-thirds of all of the savings from MICRA.

Initiative 1606 is an example of the current trend in designing initiative measures. Rather than seeking an up or down vote on the core issue, measures are designed with messages or elements expected to resonate with the public and to draw focus away from the core of the proposal. For example, while the Initiative will increase attorney’s fees paid by injured plaintiffs, it adds an unneeded reference to the existing attorneys’ fee provision of MICRA. This would permit supporters to assert that the Initiative limits attorney fees when it has the opposite effect.

In addition, the increase in the amount that can be recovered for non-economic damages has been combined with a proposal to require drug testing of physicians while imposing the cost on physicians and hospitals. It would also require the use of the Controlled Substance Utilization Review and Evaluation System (CURES) prescription database before a physician can prescribe certain drugs to reduce or eliminate prescribing to patients seeking opiate prescriptions from multiple physicians. There are many undeniably tragic situations involving both of these issues and the issues are expected to resonate with the public.

But each of these issues has other solutions, such as a diversion program to avoid harm to the public and to permit recovery by the physician. Funding for these programs can also be increased with salutary results. These programs have suffered from budget cuts along with other important state funded programs in California. Similarly, the CURES database is underfunded, as a result, is not used or useful. While SB 809 has been adopted to begin to address this issue the changes will be implemented slowly.

The goal should be to protect patients from harm and compensate them when harm occurs in an efficient and fair manner. The promise of the future is to develop a system that efficiently compensates people injured during the course of medical care on a no-fault basis while taking steps to improve the system of care to reduce harm. Returning to 1975 is not the way to address either issue. q


Mitchell J. Olejko is a shareholder in the Health Care Practice Group in the San Francisco office. He can be reached at 415-227-3603 or