The financial stability of the long term care sector requires sufficient revenue and managed costs, and legal liability is one of the largest cost threats facing long term care providers. The Iowa Legislature tackled this threat head-on when it passed HF 161, a bill that caps non-economic damages for health care providers, including nursing homes. Iowa Governor Kim Reynolds signed the bill into law Feb. 16, 2023.

"Everyone agrees that when mistakes happen Iowans deserve their compensation," said Governor Reynolds when signing the bill into law. “But arbitrary multimillion-dollar rewards do more than that. They act as a tax on all Iowans by raising the cost of care. Protecting our health care system from out-of-control verdicts promotes access to care in communities across our state and better positions us to recruit the best and brightest physicians to Iowa."

The new law caps non-economic damages—intangible damages such as pain, suffering, or inconvenience—at $1 million for Iowa nursing homes and other health care providers and $2 million for hospitals. Starting in 2028, the caps will increase by 2.1 percent to account for inflation.

The law became effective immediately upon the governor's signature, and the new limits will apply to any new medical error incidents. Existing lawsuits will be excluded. The law does not limit economic damages, such as money awarded for financial losses, or punitive damages in cases of "willful and wanton disregard" for a patient's safety.

“This has been a long-time coming," said Iowa Health Care Association's (IHCA) President and CEO Brent Willett. “Significant reform related to legal liability limits has been part of Iowa Health Care Association's legislative platform since 1998. This is a highly important victory for the long-term stability of the nursing home, assisted living, and home health care sectors in our state."

Medical Malpractice Threats
“The threat of legal action from aggressive trial attorneys seeking exorbitant malpractice judgements exacerbates other problems facing Iowa nursing homes—negative operating margins due to astronomical cost inflation, compounded by Medicaid funding shortfalls," added Willett. “Irresponsible claims by trial attorneys often result in exorbitant malpractice judgments, which until now has promoted a negative litigious environment that makes it difficult for providers to maintain operations and plan for the future."

“I'm grateful to the legislature for passing reasonable medical malpractice reform, allowing Iowa's health care industry to become stronger and more accessible," said Governor Reynolds.

Difficult Road to Passage
“Medical malpractice reform, while critical to the stability of the health care continuum, is a difficult topic to navigate politically, and is a highly sensitive and contentious issue," said Willett.

Over the past three years, IHCA and the Iowa health care provider community have worked on legislation that would set a hard cap on non-economic damages in medical malpractice suits. In 2021, bills were proposed in the Iowa House and Iowa Senate to set the cap at $1 million. Each year the proposed legislation fell short of the necessary 51 votes in the Iowa House of Representatives.

This year, Governor Reynolds called for medical malpractice reform to be a priority in her Condition of the State address to the Iowa Legislature upon opening for session in January 2023. After a long and heated debate, the Iowa House passed the bill 54-46 on Feb. 8, and the Iowa Senate passed the bill by a vote of 29-20.
 
Liability Insurance Among Cost Savings
From a cost-containment perspective, not only does the new cap protect providers from the threat of aggressive trial attorneys seeing exorbitant malpractice judgements, it also provides savings in the form of liability insurance rates.

“Data shows the costs for liability insurance was approximately $12.7 million in 2019, and approximately $15.2 million in 2021," said Jeff Steggerda of Brighton Consulting Group.

During the early 2000s, nursing homes saw a wave of liability insurance increases that tripled the cost of insurance. IHCA joined the American Health Care Association to study the impact extraordinary claims and settlements were having on the sector's liability insurance rates.

“The data found liability insurance costs approaching $2,000 per bed or more. The limit of $1 million set by the new law today may seem high, but it should stop or possibly reverse the trajectory of liability insurance premiums and possibly encourage additional companies to enter the market," added Steggerda.
 
Ryan Hanser is president at Hanser & Associates, a public relations firm.