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Statutory Cap on Medical Malpractice Noneconomic Damages Held Unconstitutional

Ferdon v. Wisconsin Patients Compensation Fund, 2005 WI 125
July 15, 2005

On July 14, 2005, the Wisconsin Supreme Court invalidated a statute capping noneconomic damages in medical malpractice cases. In a 4-3 decision, with the 104-page majority opinion authored by Chief Justice Abrahamson, the court struck down the $350,000 statutory cap holding that it violated the equal protection guarantees of the Wisconsin Constitution. Medical malpractice claims, therefore, are no longer subject to the statutory cap on noneconomic damages in sections 655.017 and 893.55(4)(d), Stats.

Case Background
The plaintiff, Matthew Ferdon, was injured during his birth, causing his right arm to be partially paralyzed and deformed. Through his guardian ad litem, Ferdon brought negligence claims against the doctor and the hospital. The Injured Patients and Families Compensation Fund (formerly known as the “Patients Compensation Fund”) also was named as a defendant.
A jury found the doctor negligent for Ferdon’s injuries and awarded: (1) $403,000 in future medical and hospital expenses; and (2) $700,000 in noneconomic damages. The jury also awarded Matthew’s parents $87,600 as compensation for the personal care they rendered Matthew until the age of 18. The trial court reduced the noneconomic damage award to the statutory limit of $410,322 (the $350,000 cap adjusted for inflation). Ferdon appealed, and the Wisconsin Court of Appeals affirmed the decision.

The Statutory Cap At Issue
While Chapter 655, as a whole, addresses medical malpractice cases, the Ferdon decision is limited only to the statutory cap on noneconomic damages in sections 655.017 and 893.55(4), Stats. Section 655.017 states in relevant part:

The amount of noneconomic damages recoverable by a claimant or plaintiff under this chapter for acts or omissions of a health care provider if the act or omission occurs on or after May 25, 1995, … is subject to the limits under s. 893.55(4)(d) and (f).
The corresponding financial limit in section 893.55(4)(d) states:
The limit on total noneconomic damages for each occurrence under par. (b) on or after May 25, 1995, shall be $350,000 and shall be adjusted by the director of state courts to reflect changes in the consumer price index for all urban consumers, U.S. city average, as determined by the U.S. department of labor, at least annually thereafter, with the adjustment limit to apply to awards subsequent to such adjustments.
The majority opinion makes clear that the decision does not affect any other statutes, including the statutory cap on noneconomic damages in wrongful death medical malpractice actions upheld by the court last year in Maurin v. Hall, 2004 WI 100, 274 Wis. 2d 28, 682 N.W.2d 866. “This court has not held that statutory limitations on damages are per se unconstitutional.” Ferdon, 2005 WI 125, ¶ 16. The court also reviewed other statutes that the parties and amici had argued may be affected, concluding that this decision does not “mean the end to caps in a variety of other contexts.” Id. at ¶ 177.

The Constitutional Equal Protection Analysis
While the plaintiff argued that the statutory cap on noneconomic damages in medical malpractice cases violates several constitutional principles, the majority opinion addressed only the equal protection argument.

The Level of Scrutiny
In an equal protection case, the first inquiry is what level of scrutiny the court should apply to the statute. Here, the court concludes that the lowest level scrutiny, rational basis, is appropriate because chapter 655 “does not deny any fundamental right and does not involve a suspect classification.” Id. at ¶ 65. Under the rational basis standard, “[a] statute will be upheld against an equal protection challenge if a plausible policy reason exists for the classification and the classification is not arbitrary in relation to the legislative goal.” Id. at ¶ 73. The majority opinion appears to elevate the rational basis test, however, by calling it “rational basis with teeth,” which “requires the court to conduct an inquiry to determine whether the legislation has more than a speculative tendency as the means for furthering a valid legislative purpose.” Id. at
¶ 78.

The Classifications
In an equal protection challenge, “[t]he court’s goal is to determine whether the classification scheme rationally advances the legislative objective.” Id. at ¶ 81. The statutory cap, the court said, implicates “[o]ne main classification…and one sub-classification.” Id. The main classification is that the statute “divides the universe of injured medical malpractice victims into a class of severely injured victims [more than $350,000 in noneconomic damages] and less severely injured victims [less than $350,000 in noneconomic damages].” Id. at ¶ 82. The main sub-classification at issue is created because “[a] single cap applies to all victims of a medical malpractice occurrence regardless of the number of victims/claimants.” Id. at ¶ 83.

No Rational Basis for the Legislative Objectives
In the majority opinion, the court identifies five legislative objectives of the statutory cap, but concludes that the statutory cap is not rationally related to achieving any of those objectives.

  • First, the court “explore[s] whether a rational relationship exists between the legislative objective of compensating victims fairly and the classification of medical malpractice victims into two groups—those who suffer noneconomic damages under $350,000 and those who suffer noneconomic damages over $350,000.” Id. at ¶ 97. The court emphasizes that, as structured, “the burden of the cap falls entirely on the most seriously injured victims of medical malpractice.” Id. at ¶ 98. Accordingly, “no rational basis exists for treating the most seriously injured patients of medical malpractice less favorably than those less seriously injured.” Id. at ¶ 102.

  • The second objective reviewed was whether there is a rational relationship between the statutory cap and “[p]roviding reasonably priced medical malpractice insurance for health care providers.” Id. at ¶ 106. The court notes that “[t]he legislature apparently concluded that reducing the size of medical malpractice awards would reduce medial malpractice insurance premiums.” Id. Relying on studies and a report by the Wisconsin Office of the Commissioner of Insurance, the court concludes that “medical malpractice insurance premiums are not affected by caps on noneconomic damages.” Id. at ¶ 123.

  • Third, the court “examine[s] whether the $350,000 cap on noneconomic damages is rationally related to the legislative objectives of keeping the Fund’s annual assessment to health care providers at a low rate and enabling the Fund to operate on a sound financial basis.” Id. at ¶ 130. After exploring the Fund’s assets, accounting method and charting the Fund’s financial status from 1979 through 2004, the court concludes “that the Fund has operated and been fiscally sound when there were no caps on noneconomic damages, when there was a $1,000,000 cap on noneconomic damages, and since 1995 when there has been a $350,000 cap on noneconomic damages.” Id. at ¶ 144. Accordingly, because “[t]he Fund has flourished both with and without a cap,” the court concludes that “the rational basis standard requires more to justify the $350,000 cap as rationally related to the Fund’s fiscal condition.” Id. at ¶ 158.

  • Fourth, the court considers whether the cap is rationally related to “lowering overall health care costs for consumers of health care.” Id. at ¶ 159. The court notes that the problem with this objective “is that even assuming that a $350,000 cap affects medical malpractice insurance premiums and the Fund’s assessments on health care providers, medical malpractice insurance premiums are an exceedingly small portion of overall health care costs.” Id. at ¶ 162. “Therefore, even if the $350,000 cap on noneconomic damages would reduce medical malpractice insurance premiums, this reduction would have no effect on a consumer’s health care costs.” Id. at ¶ 165.

  • Whether the statutory cap is rationally related to encouraging health care providers to practice in Wisconsin was the last objective the court reviewed. According to the court, “[s]tudies indicate that caps on noneconomic damages do not affect doctors’ migration.” Id. at ¶ 168. The court, therefore, “cannot conclude that [the cap] is rationally related to the objective of ensuring quality health care by creating an environment that health care providers are likely to move into, or less likely to move out of, in Wisconsin.” Id. at ¶ 171.

Concurrence and Dissents
Justice N. Patrick Crooks concurred in the majority opinion, but emphasized that a statutory cap “can be constitutional.” Crooks, J., concurring, ¶ 189. The concurrence, joined by Justice Louis B. Butler, also concludes that the $350,000 statutory cap was “set arbitrarily and unreasonably low” and, therefore, also violates the right to a jury trial and right to a remedy clauses in the Wisconsin Constitution. Id. at ¶ 195.

Justices David T. Prosser and Patience D. Roggensack each wrote separate dissents, joined by each other and Justice Jon P. Wilcox. Justice Prosser criticized the majority’s “rational basis with teeth standard,” and “strongly disagree[d] with the majority’s conclusion that the legislature did not have a rational basis to enact the cap on noneconomic damages in medical malpractice actions…” Prosser, J., dissenting, ¶¶ 215, 227.

In her dissent, Justice Roggensack concludes that the plaintiff “has not met his burden to prove that the cap required by Wis. Stat. § 655.017 is not rationally related to the legitimate legislative objectives of (1) reducing the size of medical malpractice judgments and settlements in order to tame the costs of medical malpractice insurance; and (2) to make the choice to continue as, or to become, a health care provider in Wisconsin desirable so that quality health care will continue to be readily available in Wisconsin.” Roggensack, J., dissenting, ¶ 320.

Conclusion
While the long-range impact of Ferdon ultimately will depend on the legislature’s response to the decision, in the short term one thing is certain: medical malpractice claims are no longer subject to the $350,000 statutory cap on noneconomic damages in sections 655.017 and 893.55(4)(d), Stats. Although the court specifically noted that “[t]he invalid cap can be severed from the remainder of chapter 655 without frustrating the legislature’s purpose in enacting chapter 655,” id. at ¶ 186, the impact of Ferdon on the rest of the medical malpractice liability system, as well as health care providers and consumers is not so easy to predict. To be sure, awards will be larger without the caps and that will affect health care providers and their costs.

In addition, insurers and the Fund will be assessing their risks in providing malpractice coverage to health care providers in Wisconsin after the removal of the cap on noneconomic damages, and whether they need to adjust their premiums to cover increased risks. Any adjustments to premiums will impact the insured providers who pay them, charges to those who consume and pay for health care, and perhaps Wisconsin’s ability to attract and retain physicians.

The court’s slip opinion can be accessed on the Wisconsin Supreme Court’s website at http://www.courts.state.wi.us/sc/opinion/DisplayDocument.pdf?content=pdf&seqNo=19014.

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