New Mexico Makes Last-Minute Tweaks to New Medical Malpractice Act, Averts Medical Liability Insurance Crisis

New Mexico Gov. Michelle Lujan Grisham signed House Bill 11 late last year after a special legislative session that addressed ambiguities in the state’s recently overhauled Medical Malpractice Act (MMA). The last-minute fix averted a New Mexico medical liability insurance crisis that threatened to force some independent physicians and medical practices to stop seeing patients on Dec. 31, 2021.

The updated MMA was the result of a compromise between hospitals, healthcare providers and trial lawyers, and Grisham signed it on April 1, 2021, with an effective date of Jan. 1, 2022. The new legislation was intended to balance the need for affordable medical liability insurance with compensation for injured patients.

To achieve this goal, certain legislators wanted to remove hospitals from the MMA’s definition of “healthcare provider,” which would exclude them from accessing the state’s patient compensation fund (PCF). The PCF, which was carrying a $56 million deficit at the time, provides coverage in excess of a healthcare provider’s mandated $200,000/$600,000 primary occurrence policy up to the MMA’s $600,000 cap on non-medical damages. Proponents of excluding hospitals from the PCF argued that, as written, the MMA’s excess coverage was never intended for hospitals.

The New Mexico Hospital Association and Medical Society warned that changing the definition of “healthcare provider” to exclude hospitals from the PCF would also exclude hospitals from the MMA’s cap on medical liability damages, forcing a number of already-struggling hospitals to close.

Under the compromise MMA language, hospitals maintain healthcare provider status but relinquish access to the PCF as of Jan. 1, 2027, and operate under a $4 million cap on medical liability damages in 2022. The cap for hospitals will increase $500,000 annually to $6 million in 2027, after which it will be annually adjusted by the consumer price index. The MMA’s damage cap for independent physicians was increased to $750,000 for 2022, after which it will be annually adjusted by the consumer price index. Independent physicians are now required to carry $250,000/$750,000 in underlying occurrence coverage.

But soon after passage, medical professional liability insurers began raising questions about how to interpret some of the new definitions under the MMA. In the new legislative language, the law was ambiguous as to whether independent physicians who sometimes provide services to  hospitals should be subject to the higher cap as “agents” of the hospital. It also equated clinics and facilities owned by independent physicians with hospitals, making them subject to the higher $4 million cap.

“We spent months after the legislation was passed trying to figure a way to offer independent physicians who sometimes provide services to  a hospital, or who own an outpatient clinic, a $4 million policy, but there just wasn’t a prudent, fiscally responsible way to do so,” said Steve Freedman, senior vice president and regional operating officer for The Doctors Company’s Southwest Region. “When physicians realized there was no carrier willing to offer these $4 million policies, they realized that they would have to stop or curtail their practices without the needed coverage.”

House Bill 11 defines a physician “who is not an employee of a hospital or outpatient healthcare facility” as an independent provider subject to the $750,000 cap on medical liability damages. It also differentiates outpatient facilities owned by physicians from those owned by hospitals, at least initially, for damage cap purposes.

Hospital-owned facilities will operate under the $4 million hospital cap on medical liability damages in 2022, but outpatient facilities majority-owned by independent physicians will operate under a $750,000 cap for 2022 and 2023. After that, the cap escalates to $5 million per occurrence in 2024, increasing $500,000 annually to $6 million in 2027, after which it will be annually adjusted by the consumer price index.

“The legislative fix they came up with for the physician-owned outpatient facilities really just kicked the can down the road a year or two,” Freedman said. “They didn’t do a permanent fix. Rather than an uninsurable limit becoming effective Jan. 1, 2022, it becomes effective Jan. 1, 2024. There is a real question as to whether any carrier will be willing to offer $5 million limits two years from now when no carrier was willing to offer $4 million limits today.”