Hawaii’s lawmakers continue to introduce reform schemes that focus on the uninsured population without instituting any provisions that would actually lower health care costs. Growth in managed care and regulations has resulted in the opposite of their intended effect. Market distortions in health care are reflected in greater administrative costs and declining physician reimbursement levels. Thus far, the state legislature has overlooked at least two key proposals for reform that would lower health care costs and increase access and quality of care in the state, namely medical tort reform and increasing physician reimbursement levels.
Medical Tort Reform
Medical malpractice lawsuits have been widely identified as a major source of increasing health care costs. The Government Accountability Office (GAO), the audit and investigative arm of Congress, has concluded that “losses on medical malpractice claims- which make up the largest part of insurers’ costs- appear to be the primary driver of rate increases in the long run”. Growing medical malpractice insurance premiums raise concerns among physicians that they will no longer be able to pay for malpractice insurance and will be driven to restrict or discontinue certain services. Medical liability reform would immediately lower health care expenses and protect the current supply of care at no additional cost to taxpayers.
Nationally, Hawaii ranks 14th highest in medical malpractice payouts. With an average $235,233 per claim, Hawaii’s medical malpractice insurers are shelling out more than double the amount of insurers in states like California that cap non-economic damages. Insurers in California, which has a $250,000 cap on noneconomic (i.e. pain and suffering) damages, pay out an average $110,781 per claim.
California has implemented a $250,000 cap on noneconomic damages since the passage of the Medical Injury Compensation Reform Act (MICRA) in 1975. In the thirty years since MICRA’s passage, California has experienced a sustained, stabilized medical malpractice market. On the other hand, Hawaii’s Insurance Commissioner J.P. Schmidt points to Hawaii’s lack of a cap as a cause of uncertainty in the insurance climate. Schmidt has identified the sheer volatility of the market as a problem for Hawaii physicians. The following table shows physician malpractice insurance premiums across various specialties have increased rapidly by as much as 75% in merely two years.
Physician Malpractice Insurance Premiums Specialty 2001-2002 2004-2005 Percent Increase
General Surgery $24,528 $37,012 50.9%
Neurosurgery $44,170 $77,104 74.6%
OB/GYN $40,662 $62,515 53.7%
Orthopedics $24,049 $34,881 45.0% 
Following California’s lead, Texas enacted similar legislation including a $250,000 cap on noneconomic damages in 2003, and has since experienced a decline in malpractice premiums in addition to an increase in the number of primary care physicians in the state. Following the cap, premium rates declined between 8 and 16.4 percent. Meanwhile, by 2006, the number of physicians increased by over 7,000, and a record 4,100 applications for new physician licenses were received that year. (Meanwhile, only about 2,500 applications were received per year in 2001 and 2002). In addition, according to the general counsel for the Texas Medical Association, the percentage of physicians subject to professional liability lawsuits also decreased from 20-25 percent to only 9 percent.
In Hawaii’s 2009 legislative session, the following bills which would cap noneconomic damages in medical tort cases were introduced.
HB575- Introduced by Representatives Chong, Ito, Magaoay, Say, and Oshiro, would require claimants who reject a medical claim conciliation panel’s award of damages and pursue litigation to pay the health care provider’s attorney’s fees, costs, and cost of provider’s time. On its second reading, Representatives Keith-Agaran and Rhoads in the Health Committee voted against the measure. The committee recommended that the measure be deferred.
HB499- Introduced by Representatives Marumoto, Ching, Finnegan, Pine, Thielen, and Ward, would limit noneconomic damages in medical tort actions contingent on compliance with premium rate caps by insurers providing professional liability insurance in Hawaii. The bill died in committee following its first reading
HB804- Introduced by Representatives Pine, Ching, and Finnegan, would permit plaintiffs in medical tort actions to recover full amount of economic loss, limit noneconomic damages, and provide guidelines for award of punitive damages. The bill did not move forward following its first reading.
SB796- Introduced by Senator Chun Oakland, would limit amount of noneconomic damages in medical tort actions and require insurers to make direct payments to healthcare providers making claims for payment of benefits. The bill failed to advance.
SB343- Introduced by Senators Slom and Green, would redefine noneconomic damages for purposes of tort actions and limit amount recoverable for noneconomic damages to $250,000. The bill died in committee following its first reading.
In Hawaii, both private and government plans are criticized for low reimbursement to participating physicians. Relative to other Medicaid programs, Hawaii’s caregiver compensation is fairly low. According to a study by the Medi-Cal Policy Institute comparing physician and dentist fees among Medicaid programs across the nation, Hawaii’s Medicaid program ranks 38th out of 51 programs in physician fees and 43rd in dental fees. Since 2001, the Medicaid fee schedule has not been adjusted.
Despite such low levels of reimbursement, the Annual Medicare Fee Schedule Update of January 1, 2007 called for a decrease in reimbursements even further by 5%.
Reimbursements in both private and public plans are low in Hawaii largely due to its unique insurance market. The Hawaii Medical Service Association (HMSA), by far the largest of the state’s insurance providers (covering over two-thirds of Hawaii’s population), has an estimated 90 percent of Hawaii’s doctors participating in its networks. With such market dominance, HMSA has little incentive to pay its participating providers well above the rate of public plans. In 2002, the Hawaii Medical Association filed a lawsuit against HMSA, alleging that HMSA used unfair and anti-competitive reimbursement practices. In 2007, a $128 million settlement was reached, although HMSA was only required to pay out less than two percent of that amount.
The Centers for Medicare and Medicaid Services use the Geographic Practice Cost Index (GPCI) as part of a resource-based relative value scale method to reimburse physicians. The GPCI is made up of three components: the physician work GPCI, the practice expense GPCI, and the malpractice insurance GPCI.[i] The value for each locality in the nation has been adjusted to a national index value so that a GPCI of 1.0 is equivalent to the national average.
Hawaii’s GPCI fails to reflect the true cost of living and practice expenses for physicians practicing in the state. While the GPCI for practice expense, at 1.161, is higher than average, it would be higher upon inclusion of overlooked factors. Hawaii shares the same classification with Guam despite having significantly different costs of living and doing business. In California, for example, separate GPCIs are assigned for the localities of Anaheim, Berkley, San Mateo, Ventura, Santa Clara, Marin, and several others. Adjusting the GPCI to more accurately reflect regional costs (with Hawaii’s GPCI separate from Guam’s) would increase Medicare reimbursement rates.
In the 2009 legislative session, the following measures were introduced to rectify Hawaii’s outdated GPCI:
Senate Concurrent Resolution (S.C.R.) No. 29requests that the US Congress raise the Medicare fee schedule payment amounts for physicians rendering services in Hawaii. S.C.R. 29 recognizes that the geographic practice cost indices for Hawaii are unreasonably low, and thereby limit Medicare and Medicaid recipients’ access to health care.
Legislators must be informed of the crucial need to pass medical tort reform, amend the geographic practice costs indices for Hawaii, and ensure that HMSA rectifies poor business practices. The number of primary care providers in the state is at a critical shortage. Without addressing the high cost of malpractice insurance and dwindling reimbursement from the state’s insurers, doctors will continue to leave the islands, close their practices, or retire early. Patients will be left with fewer choices, longer waiting times for appointments, and delayed care.
Special thanks to Dr. John Corboy, President of the Hawaiian Eye Foundation, Dr. Roger Stark, Health Care Analyst at the Washington Policy Center, and Lloyd Lim, Health Branch Administrator at the Hawaii Department of Commerce and Consumer Affairs, for their valuable input.
[i] The three GPCIs are summarized into the Geographic Adjustment Factor (GAF) which weighs the physician work component at 52 percent, the practice expense component at 44 percent, and the malpractice component at 4 percent.
 GAO-03-702 Medical Malpractice Insurance: Multiple Factors Have Contributed to Increased Premium Rates. General Accounting Office, June 2003. http://www.gao.gov/new.items/d03702.pdf  The Hawaii Uninsured Project for the Insurance Division, Department of Commerce and Consumer Affairs. Report of the Hawaii Health Care Task Force to the Hawaii State Legislature, Regular Session of 2006. December 2005.
 Lauer, Nancy Cook. Medical Malpractice in Hawaii. Stephens Media Capitol Bureau. 2/3/2008.
 Schmidt, J. P. Testimony on House Bill No. 1992, H.D. 1- Relating to Medical Liability. 2/6/2008.
 Data gleaned from Hawaii Medical Association-Medical Insurance Exchange of California, Report of the Physician On-Call Crisis Task Force. Insurance Division, Department of Commerce and Consumer Affairs, State of Hawaii. 12/2006. http://hawaii.gov/dcca/areas/ins/main/reports/
 Wiles, Greg. HMA Pushes for Medical Tort Reform. Honolulu Advertiser. 2/27/2008. advertiser/tortreform
 Schmidt, J. P. Testimony on House Bill No. 1992, H.D. 1- Relating to Medical Liability. 2/6/2008.
 A Miracle in the Making, How Texas Became a Model for Medical Liability Reform.
 Texas Medical Board Statistics, Fiscal Years 2001-2008. Texas Medical Board. Protect Patients Now. www.protectpatientsnow.orghttp://www.tmb.state.tx.us/reportsandstats.php
A Miracle in the Making, How Texas Became a Model for Medical Liability Reform. Protect Patients Now. www.protectpatientsnow.org
 Menges, Joel, Park, Chris, Babcock, Jennifer, Chimento, Lisa, Haught and Silver Ho. Comparing Physician and Dentist Fees Among Medicaid Programs. Prepared for the Medi-Cal Policy Institute by The Lewin Group. 6/2001.
 Report of the Physician On-Call Crisis Task Force. Insurance Division, Department of Commerce and Consumer Affairs, State of Hawaii. 12/2006.http://hawaii.gov/dcca/areas/ins/main/reports/  Barayuga, Debra. Doctors Accuse HMSA of Deceptive Practices. Star Bulletin. 8/9/2002.
 Gomes, Andrew. Doctors Sue HMSA Over Reimbursement Practices. 8/8/2002.http://the.honoluluadvertiser.com/article/2002/Aug/08/bz/bz02a.html  Altonn, Helen. HMSA Joins Settlement of Unfair-Payment Suit. Star Bulletin. 5/5/2007.http://archives.starbulletin.com/2007/05/05/news/story05.html
 O’Brien-Strain, Margaret, et al. Review of Alternative GPCI Payment Locality Structures. 7/28/2008.http://www.cms.hhs.gov/physicianfeesched/downloads/ReviewOfAltGPCIs.pdf
 Geographic Practice Cost Indices (GCPIs) 2009
 Senate Concurrent Resolution No. 29. The Senate, Twenty-fifth Legislature, 2009, State of Hawaii.
 House Concurrent Resolution No. 55. House of Representatives, Twenty-fifth Legislature, 2009, State of Hawaii.
 Aguiar, Eloise. Doctor Shortage at Critical Point. Honolulu Advertiser. 2/27/2008. article