• New York State’s New Medical Indemnity Fund
  • August 11, 2011 | Author: Daniel S. Ratner
  • Law Firm: Heidell, Pittoni, Murphy & Bach, LLP - New York Office
  • On March 31, 2011, the New York State Legislature created the New York State Medical Indemnity Fund.  The legislation, which is codified as Article 29-D of the Public Health Law, is intended to “provide a funding source for future health care costs associated with birth related neurological injuries.”  It is designed to reach $30 million the first year, $75 million in year two, and $100 million by the third year.

    The statute is effective immediately and applies to all actions for birth related neurological injury where no judgment had been entered or the parties had not entered into a settlement agreement before April 1, 2011.  The details about how the Fund will be administered will be determined by regulations to be enacted by the New York Superintendent of Financial Services in consultation with a consumer advisory committee.

    The Fund should reduce the monetary exposure of defendants and their insurers in obstetrical malpractice cases involving neurological injuries.  In practice and legal interpretation, only time will tell just how much money will be saved.

    The Fund Covers Neurological Injury During the Delivery Admission
    The law addresses injury "to the brain or spinal cord of a live infant caused by the deprivation of oxygen or mechanical injury occurring in the course of labor, delivery or resuscitation or by other medical services provided or not provided during delivery admission that rendered the infant with a permanent and substantial motor impairment or with a developmental disability . . . or both.” (emphasis added).  By its terms, the Fund does not provide compensation for neurological injuries from pre-natal or pediatric care outside of the "delivery admission,” a term which itself may be subject to challenge and interpretation.  Defendants remain liable for future medical expenses for such claims.  Will plaintiffs seek to avoid the Fund by asserting that negligent prenatal or post-natal care caused or contributed to the infant's neurological outcome?  Will defendants seek to have all such damages related to the delivery admission?  An expansive definition will focus on when the injury occurs, i.e. the deprivation of oxygen or mechanical injury during labor and delivery, even if the act of malpractice occurred before the delivery admission.

    It should be noted that the courts historically have deemed neurological injuries “indivisible” for purposes of allocating fault and determining joint and several liability.  See Ravo v. Rogatnick, 70 N.Y.2d 305 (1987).  Will the courts and/or the Fund attribute certain expenses to prenatal malpractice (outside the Fund) and others to malpractice during the “delivery admission” (paid by the Fund)?  Plaintiffs also may assert that certain types of labor and delivery injuries - Erb’s palsy comes to mind - do not fall within the statutory definition of injury to the “brain or spinal cord.”  These issues could impact to a small degree defendants’ liability for future medical expenses in neurologically-impaired infant cases.

    Who Qualifies
    A “Qualified Plaintiff” is a plaintiff or claimant who has been found by a jury or court to have sustained a birth-related neurological injury as the result of medical malpractice, or who has sustained such an injury and has settled his or her claim.  In other words, the Fund does not create a no-fault system.  Plaintiff must bring suit and either prevail at trial or reach a settlement with the defendant to be eligible to receive benefits from the Fund.  It remains to be seen whether  these claims will be defended more vigorously on their merits with defendants’ exposure for future medical expenses removed from the equation.

    Covered Costs and How They Are Reimbursed to Eligible Plaintiffs
    The Fund will cover “Qualifying health care costs" including “future medical, hospital, surgical, nursing, dental, rehabilitation, custodial, durable medical equipment, home modifications, assistive technology, vehicle modifications, prescription and nonprescription medications, and other health care costs actually incurred for services rendered to and supplies utilized by qualified plaintiffs, which are necessary to meet their health care needs as determined by their treating physicians, physician assistants, or nurse practitioners. . . .”  Perhaps the most controversial part of the legislation is how reimbursements will be calculated.  Services provided in private physician practices will be calculated “on the basis of one hundred percent of the usual and customary rates, as defined by the Commissioner in regulation.”  Payments with respect to all other services “shall be calculated on the basis of Medicaid rates of reimbursement, or where no such rates are available, as defined by the Commissioner in regulation.”  This provision has been criticized by the plaintiffs’ bar on the ground that it deprives their clients of optimal care and places too much discretion in the hands of the Fund’s administrator.  This raises the question whether during settlements or trial, plaintiff now will emphasize pain and suffering and other pecuniary damages (such as loss of earnings) that are not qualifying health care costs subject to the Fund.  Another concern is whether pain and suffering awards sustained by the courts (currently $3-$10 million) will begin to creep upward in an effort to offset the perceived impact of the Fund.

    Private Medical Insurers
    The Fund will not relieve private medical insurers of their obligations.  They will be the payer of first resort, as payments from the Fund will be reduced by collateral source payments as defined by CPLR §4545(a).  Such payments “shall not constitute a qualifying health care cost and shall not be paid from the fund.”  Moreover, health insurers will not have a lien against the Fund or any person or entity.

    Defendants Have No Obligation For Future Medical Expenses For Birth-Related Neurological Injuries

    Settlements and judgments involving the payment of future medical expenses “shall provide that in the event the administrator of the fund determines that the plaintiff or claimant is a qualified plaintiff, all payments for future medical expenses shall be paid in accordance with this title, in lieu of that portion of the settlement agreement that provides for payment of such expenses.”  If the parties fail to include this provision in a settlement agreement, “the court shall direct the modification of the agreement to include such term as a condition of court approval.”  Where a court or jury has made an award for future medical expenses, any party to the action “may make application to the court that the judgment reflect that, in lieu of that portion of the award that provides for payment of such expenses, and upon a determination by the fund administrator that the plaintiff is a qualified plaintiff, the future medical expenses of the plaintiff shall be paid out of the fund in accordance with this title.  Upon a finding by the court that the applicant has made a prima facie showing that the plaintiff is a qualified plaintiff, the court shall ensure that the judgment so provides.”  Not stated is whether settlement agreements must itemize amounts for pain and suffering and medical expenses.

    In effect, therefore, future medical expenses arising from a settlement or awarded by a jury become a nullity from the perspective of the defendant; qualifying health care costs will be determined by the Fund and paid by the Fund.  At the same time, itemization of future medical expenses and pain and suffering damages in court-approved settlement documents and judgments may lead to more intense negotiation and litigation.

    Attorney Fees
    Attorney fees still will be borne by defendants and their insurers based on the gross judgment or settlement.  Future medical expenses will be included in calculating the plaintiff’s attorney’s fee, which “shall be based upon the entire sum awarded by the jury . . . or the full sum of the settlement, as the case may be.”  This seems inconsistent with CPLR Article 50-A, which requires the fee be calculated after the jury awards for future damages are reduced to present value.  The attorney’s fee will be paid in a lump sum but “the portion of the attorney fee that is allocated to the non-fund elements of damages shall be deducted from the non-fund portion of the award in a proportional manner.”

    Potential Financial Impact on Defendants and Their Insurers
    Accordingly, while the payment of future medical expenses from the Fund should result in significant savings for defendants and their insurers, the plaintiff’s attorney will continue to receive a fee based on the amount of the future medical expenses, as well as the non-fund elements of damages.  Here is a basic illustration based on a hypothetical $20 million judgment in which 50% of the damages are for future medical expenses and 50% are for “non-Fund” items of damages:


     NEW LAW

     OLD LAW

    Pain and Suffering



    Past Medical Expenses



    Future Medical Expenses

    Paid By Fund


    Lost Earnings



    Plaintiff’s Attorney Fee
    (Judiciary Law §474-a)

    (50% Paid To Attorney By Plaintiff Out of Non-Fund Portion of Award;
    50% Paid to Attorney By Defendant)


    Total Liability of Defendant

    (Plaintiff Receives Total of $8,925,000)


    Eligibility for the Fund Depends on the Fund’s Balance Sheet
    Finally, if the Fund’s estimated liabilities equals or exceed 80% of its assets, the Fund will not accept any new enrollments, at which point judgments and settlements - including future medical expenses - will be satisfied under the law as it stood prior to the enactment of Public Health Law Article 29-D.  In setting reserves, and while negotiating settlements and litigating claims, the financial health of the New York State Medical Indemnity Fund must be monitored closely from year to year so that parties to obstetrical malpractice cases are aware of which set of rules apply and who would ultimately bear the cost of medical expenses.