Tort reform proponents have successfully expanded the scope of medical malpractice reforms in several states over the past year, but one of the key tools in reducing liability costs-periodic compensation payments-is still underutilized, experts say. In large part, tort reformers have followed the model of the Medical Injury Compensation Reform Act of 1975 in California, which has four key requirements: a cap on non-economic damages; awards that must be reduced by collateral sources of recovery; a limit on plaintiffs attorneys' fees; and the use of periodic payments to fund judgments such as ongoing medical care costs.

While other states have been successful in implementing the non-economic damages reform, they have had less success in passing the other three MICRA reforms-and the failure to pass the periodic payment requirements, in particular, is often a block to significant cost savings, experts say.

"The point of periodic payments is to match the payments to the needs of the client," said Randy Dyer, executive vp of the Washington-based
National Structured Settlements Trade Assn. Many of the payments are funded through a structured settlement that requires the defendant to buy an annuity that guarantees a stream of payments to the claimant over his or her lifetime.

Periodic payments can also lead to more equitable settlements, said Jon Opelt, executive director of the Texas Alliance for Patient Access in Austin.

"The deliberative structured settlement process will also help jurors to more fairly compensate plaintiffs, rather than taking a hit- or-miss approach," he said.

Allowing for the periodic payment of future medical payments is "critical" to reducing the cost of claims but is "a piece that many people miss," said Daryl J. Douglas, hospital claims manager for GE Insurance Solutions in Overland Park, Kan. He is now handling the runoff of large claims following the sale of Medical Protective Corp. in July.

For example, Mr. Douglas said an annuity to cover $10 million to $15 million in lifetime medical expenses for a severely injured child could be purchased for $1 million to $3 million. Annuity providers base their charges on a combination of investment and life expectancy actuarial projections.

In addition to reducing costs, "structured settlements are a good tool to get cases settled," said Michael Shalhoub, the immediate past chair of the Defense Research Institute's Medical Liability Committee. He is an attorney with New York-based Heidell, Pittoni, Murphy & Bach L.L.P.

"Most states attempting tort reform get the caps on non-economic damages," but they do not get the other three MICRA reforms, said James D. Hinton, vp-risk and insurance for Nashville, Tenn.-based HCA Inc., a health care system consisting of 190 hospitals in 25 states.

Generally, the periodic payments measures have been successfully opposed by the trial bar, which has argued that the provisions lessen the accountability of defendants.

Some states have adopted the requirement, however. Texas, for example, adopted some periodic payment reform with its 2003 changes.

Texas' reform permits structured settlements if the present value of future medical expenses is at least $100,000, though it becomes mandatory if the defense requires it, said Mr. Opelt. "I do think that cost savings for periodic payment reform will be significant," although it is too soon to have data to evaluate that, he said.

Prior to 2003 in New York, there were problems with the application of the periodic payment statute, Mr. Shalhoub said.

For example, in one case a $50 million judgment for primarily future medical expenses was nearly tripled, after the courts strictly interpreted the statute. The New York Legislature changed the law in 2003, but it is too early to gauge the impact of those changes, Mr. Shalhoub said.

"The trial bar often actively opposes most medical malpractice tort reform, including periodic payment provisions for judgments," Mr. Dyer said. In some cases, they are justifiably concerned about the kind of security such legislative proposals provide to claimants, he said-for example, proposals that make a claimant dependent on the creditworthiness of a hospital that is guaranteeing the stream of payments.

"Generally speaking, use of periodic payments does not impact plaintiff's attorneys' fees," Mr. Dyer said.

A spokeswoman for the Washington-based Assn. of Trial Lawyers of America, which represents plaintiff's attorneys, said: "We don't support them unless plaintiffs do.... The use of structured settlements is a tactic for wrongdoers to use to escape accountability, boost their bottom line and make more money," she said.

Mr. Dyer would like to bring both sides together. "We think there is a way to construct a periodic payment element so both sides will stop fighting about it," he said.