oversight

Medical Malpractice: Federal Tort Claims Act Coverage Could Reduce Health Centers' Costs

Published by the Government Accountability Office on 1997-04-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to the Committee on the
                 Judiciary, U.S. Senate, and the
                 Committee on Commerce, House of
                 Representatives

April 1997
                 MEDICAL
                 MALPRACTICE
                 Federal Tort Claims
                 Act Coverage Could
                 Reduce Health Centers’
                 Costs




GAO/HEHS-97-57
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division

      B-272377

      April 14, 1997

      The Honorable Orrin G. Hatch, Chairman
      The Honorable Patrick J. Leahy, Ranking Minority Member
      Committee on the Judiciary
      United States Senate

      The Honorable Thomas J. Bliley, Jr., Chairman
      The Honorable John D. Dingell, Ranking Minority Member
      Committee on Commerce
      House of Representatives

      Federally funded community and migrant health centers, which provide
      health care to over 9 million people regardless of their ability to pay, are
      facing growing patient populations and increasing financial pressures. To
      help these 716 centers meet budgetary constraints, the Congress gave
      them the opportunity to reduce or eliminate their spending for private
      malpractice insurance, estimated at $50 million in 1994. In the past,
      centers have typically purchased comprehensive malpractice insurance to
      protect their physicians and other practitioners against claims. By offering
      Federal Tort Claims Act (FTCA) coverage to these centers, the federal
      government has agreed to assume responsibility for malpractice claims
      against covered centers and their practitioners, if certain conditions are
      met. The savings realized by centers may be used to expand health
      services. FTCA coverage was authorized in 1993 for 3 years referred to by
      the Department of Health and Human Services (HHS) as the demonstration
      period. This coverage was made permanent by the Federally Supported
      Health Centers Assistance Act of 1995 (P.L. 104-73).

      This act also directed us to review the implementation of FTCA coverage
      for community health centers. In response, we examined the centers’ use
      of FTCA coverage and determined the status of claims filed against
      FTCA-covered centers through March 21, 1997. In addition, we reviewed
      HHS’ management of FTCA for community and migrant health centers, and
      studied its efforts to reduce claims through risk management programs.1

      To develop our information, we interviewed officials at HHS, including its
      Health Resources and Services Administration (HRSA), which is charged
      with administering FTCA coverage for community health centers. We
      obtained FTCA claims data for covered centers and determined the status of

      1
       Risk management programs related to medical malpractice are intended to limit financial losses
      resulting from allegations of improper patient care. These programs typically include risk
      identification and assessment, risk prevention and control, and risk monitoring.



      Page 1                                     GAO/HEHS-97-57 FTCA Coverage for Health Centers
                   B-272377




                   these claims. We also interviewed officials from the Department of Justice,
                   35 community and migrant health centers, and 7 insurers offering
                   malpractice coverage to centers. In addition, we obtained the views of
                   other health care, malpractice, and risk management experts. More details
                   on our scope and methodology are in appendix I. A complete list of the
                   organizations we contacted is in appendix II. We performed our review
                   between March 1996 and March 1997 in accordance with generally
                   accepted government auditing standards.


                   The permanent authorization of FTCA coverage, the greater availability of
Results in Brief   supplemental policies to cover incidents not covered under FTCA, and the
                   reports of some centers already realizing substantial savings have
                   contributed to the willingness of many centers to now obtain FTCA
                   coverage. Although HRSA required centers to apply for FTCA coverage
                   during the demonstration period, centers were not compelled to cancel
                   their private comprehensive malpractice insurance. Although HRSA does
                   not have complete data on center participation during the 3-year
                   demonstration period, it appears that most centers retained their private
                   comprehensive malpractice insurance during this time. Because these
                   centers were covered by both FTCA and their private policies, they did not
                   reduce their insurance costs. Of the 716 centers eligible for FTCA coverage,
                   452 have elected this coverage and are now required to cancel their private
                   comprehensive malpractice insurance. Despite this level of participation, a
                   significant number of centers have not reapplied for FTCA coverage since
                   its recent extension. As of March 21, 1997, 264 of the 716 centers eligible
                   for FTCA coverage, or 37 percent, had not applied for it.

                   Since the demonstration period began in 1993, there have been 138 claims
                   filed against FTCA-covered centers alleging damages of more than
                   $414 million. However, the actual amount of the federal government’s
                   liability for these claims is unclear. As of March 21, 1997, only five claims
                   have been settled, with total payments of $355,250. Seven others have been
                   disallowed.

                   At the recommendation of HHS’ Office of Inspector General (OIG), HRSA
                   developed a legislative proposal that, if enacted, would limit the federal
                   government’s liability to $1 million for claims filed against FTCA-covered
                   centers. Unlike private insurance policies, which limit the insurer’s
                   liability, FTCA coverage does not have a monetary limitation. HRSA’s
                   proposal is currently under review by the Secretary of HHS. If adopted, this
                   cap would be consistent with the exposure assumed by private carriers



                   Page 2                           GAO/HEHS-97-57 FTCA Coverage for Health Centers
             B-272377




             insuring these centers. Of the 126 remaining claims, 59 are seeking
             payments in excess of $1 million.

             By extending FTCA coverage to centers, the federal government has
             assumed potential liabilities that need oversight and careful management.
             HHS could improve its administration of FTCA coverage for community and
             migrant health centers by strengthening data collection efforts and claims
             management practices. For example, HRSA has not obtained adequate
             information on the centers’ use of FTCA during the demonstration period
             nor has it gathered sufficient data on the centers’ expenditures for
             malpractice insurance. Without this information, HRSA cannot determine
             whether centers have reduced their malpractice insurance costs. HHS has 6
             months in which to either deny a claim or make a settlement offer before a
             claimant may file suit in federal court. In some cases, HHS did not contact
             claimants regarding their claims. For 22 of the 32 claims that have resulted
             in federal lawsuits, HHS had not attempted to respond to the claimants
             during this 6-month period.

             Risk management services can help centers minimize liability by reducing
             their financial exposure to claims. Although directed to oversee the
             implementation of FTCA coverage for eligible centers, HRSA is not required
             to provide centers with risk management services. Private insurers
             conduct risk management programs because they believe it helps reduce
             their exposure to claims and helps maintain an acceptable standard of
             care. While HRSA is making plans to provide centers with some services, it
             is not preparing to provide as many of these services as do some private
             insurers or other federal agencies with FTCA malpractice coverage.
             Furthermore, HRSA has not implemented a claims-tracking system
             comparable to those used by other federal agencies and insurers.


             Community and migrant health centers are financed in part with federal
Background   grants administered by HRSA.2 HHS awards grants to public and nonprofit
             entities to plan, develop, and operate health centers for medically
             underserved populations. To assist in providing health care to these
             groups, HHS awarded over $750 million in grant assistance in fiscal year
             1996.3

             2
              In fiscal year 1995, these grants constituted 30 percent of health centers’ revenue.
             3
              Centers may receive these grant funds under any of the following four sections of the Public Health
             Service Act: (1) section 329—migrant health centers, (2) section 330—community health centers,
             (3) section 340—health services for the homeless, and (4) section 340A—health services for residents
             of public housing. To be eligible for FTCA coverage, a center must receive grant funds from one of
             these four sources.



             Page 3                                        GAO/HEHS-97-57 FTCA Coverage for Health Centers
B-272377




Like all patients, those receiving care from community or migrant health
centers may seek compensation for medical malpractice if they believe the
treatment they receive does not meet an acceptable standard of care.
Patients may seek payment for economic losses such as medical bills,
rehabilitation costs, and lost income; and noneconomic losses such as
pain, suffering, and anguish. To obtain protection against malpractice
claims before FTCA coverage became available, most centers had
purchased private comprehensive malpractice insurance.

The Congress enacted the Federally Supported Health Centers Assistance
Act of 1992 (P.L. 102-501) to provide FTCA medical malpractice coverage to
community and migrant health centers. This law made FTCA coverage
available to grantees for a 3-year period beginning January 1, 1993, and
ending December 31, 1995. It provided centers an opportunity to reduce
their malpractice insurance expenditures. The Congress extended the
availability of permanent FTCA coverage to centers in December 1995. FTCA
coverage, which is provided at no cost to the centers, is an alternative to
private comprehensive malpractice insurance and gives centers a chance
to redirect their savings to the provision of health services. Centers opting
for FTCA coverage may decide to purchase a supplemental or “gap” policy
to cover events not covered by FTCA. Even with the purchase of a gap
policy, HRSA expects that centers will spend less on insurance than they
would if they continued to purchase comprehensive coverage.4

In a center not covered by FTCA, patients or their representatives would file
a malpractice claim with the private carrier insuring the provider. Insurers
are generally responsible for investigating claims, defending the provider,
and paying any successful claims, up to a stated policy limit. If not
resolved by the insurer, a claim could result in a lawsuit filed in state
court. In addition to insuring centers against instances of malpractice,
insurers may provide risk management services. Private carriers generally
view these services as a way to reduce the incidence of malpractice, and in
turn, reduce or minimize their liability.

Malpractice claims against FTCA-covered centers are resolved differently
from those filed against centers with private insurance. Patients of

4
 In 1993, on the basis of projected estimates, we reported that if all community health centers used
FTCA coverage instead of private insurance coverage for the 3 years authorized, the federal
government’s costs to resolve the centers’ FTCA malpractice claims could have been greater than the
amount the centers would have spent on insurance coverage. We found the unlimited coverage
provided by FTCA could add about 50 percent to the cost of settling claims. This projection was based
on actuarial assumptions that subject the results to a significant amount of uncertainty. See Medical
Malpractice: Estimated Savings and Costs of Federal Insurance at Health Centers (GAO/HRD-93-130,
Sept. 24, 1993).



Page 4                                     GAO/HEHS-97-57 FTCA Coverage for Health Centers
B-272377




FTCA-covered centers must file administrative claims with HHS. Claims must
be filed within 2 years after the patient has discovered or should have
discovered the injury and its cause. Under FTCA procedures, the claim is
filed against the federal government rather than against the provider. After
reviewing the claim, the HHS Office of General Counsel may attempt to
negotiate a financial settlement or, if it finds the case to be without merit,
it may disallow the claim.

Claimants dissatisfied with HHS’ determination have 6 months to file a
lawsuit against the federal government in federal district court. Claimants
may also file suit if HHS fails to respond to their claims within 6 months of
receipt. If a claim results in the filing of a medical malpractice suit, the
Attorney General, supported by the Department of Justice (DOJ),
represents the interest of the United States in either settling the case out
of court or in defending the case during the trial. If the claim continues to
trial, the case is heard in a federal district court without a jury; punitive
damages cannot be awarded.

Protection against malpractice claims through FTCA has been provided to
federally employed health care providers since 1946, when the government
waived its sovereign immunity for torts, including medical malpractice.
Prior to this date, individuals were prohibited from bringing a civil action
against the federal government for damages resulting from the negligent or
other wrongful acts or omissions of its employees acting within the scope
of their employment. Since then, the federal government defends
malpractice claims made against federal employees practicing medicine at
agencies such as the Department of Veterans Affairs, the Indian Health
Service, and the Department of Defense, so long as those practitioners
were providing care within the scope of their employment.

While FTCA coverage may reduce centers’ insurance costs, it imposes a
potentially significant liability on the federal government because FTCA
does not limit the amount for which the government can be held liable.
Private policies generally limit the amount that can be paid on a claim,
typically to $500,000 or $1 million. The total amount paid for all claims is
also usually limited. For example, a policy with coverage limits of
$1 million/$3 million will pay up to $1 million for each claim and no more
than $3 million for all claims annually. As FTCA does not specify a monetary




Page 5                           GAO/HEHS-97-57 FTCA Coverage for Health Centers
                        B-272377




                        limitation, payments could be substantially higher than the monetary limits
                        of private malpractice insurance policies.5


                        While most eligible centers did not rely on FTCA coverage during the
More Centers Plan to    demonstration period, centers now seem to be taking greater advantage of
Use FTCA Coverage       the opportunity to reduce their costs. The number of centers relying on
to Reduce Their Costs   FTCA coverage appears to have increased significantly. During the
                        demonstration period, all centers were required to apply for FTCA coverage
                        but did not necessarily cancel their private comprehensive malpractice
                        insurance. As a result, most centers incurred the cost of private insurance
                        during the demonstration period and were not relying on FTCA coverage.
                        As of March 21, 1997, 452 of 716 eligible centers have applied for FTCA
                        coverage. HRSA has told centers to cancel private comprehensive
                        malpractice insurance when they come under FTCA but remains uncertain,
                        as it was in the demonstration period, about which FTCA-covered centers
                        have actually terminated that insurance and are thus not paying for
                        duplicate coverage.

                        During the demonstration period, many centers were uncertain FTCA
                        coverage would be permanently extended and retained private insurance.
                        Centers feared that converting back to private comprehensive malpractice
                        insurance, if an extension was not enacted, would be both difficult and
                        costly. Others were concerned about the possibility that not all claims
                        would be covered by FTCA. While HRSA permits centers to combine gap
                        policies with FTCA coverage, the expense and difficulty associated with
                        obtaining gap coverage was an additional concern.

                        The permanent extension of FTCA and provisions in the new law appear to
                        have eased many of the centers’ concerns. Since the demonstration began,
                        private insurers have developed more gap policies to insure against
                        incidents not covered by FTCA. The new law made FTCA coverage optional
                        for centers. Centers that do not want FTCA coverage are no longer required
                        to apply for it. In addition, the new law addressed other concerns raised by
                        the centers during the demonstration period. For example, FTCA coverage
                        was expanded to include part-time practitioners in the fields of family
                        practice, general internal medicine, general pediatrics, and obstetrics and
                        gynecology. Centers were also given greater assurance that the federal
                        government would cover their claims. During the demonstration period,

                        5
                         Malpractice suits are generally tried under the law of the state where the alleged incident of
                        malpractice occurred. Some states limit the amount that can be recovered by claimants in malpractice
                        suits, and such a state-imposed cap on damages would apply to court decisions on FTCA claims as
                        well.



                        Page 6                                     GAO/HEHS-97-57 FTCA Coverage for Health Centers
                   B-272377




                   DOJ could invalidate HHS’ decision to grant a center FTCA coverage after a
                   claim was filed. Now, HHS’ decision is binding upon the Attorney General.

                   The possibility of reducing center costs also influenced many of the center
                   officials with whom we spoke. For example, one center in New England
                   reported its malpractice insurance costs were reduced by almost $600,000
                   since 1993. A center official there told us that the savings have been used
                   to improve medical staff retention and will also be used to expand patient
                   programs. Another center in the Midwest reported savings of $350,000. Of
                   the center officials we spoke to who now intend to rely on FTCA coverage,
                   all reported the opportunity to reduce costs as the main factor in choosing
                   FTCA over private comprehensive malpractice insurance.


                   Although FTCA participation appears to have grown substantially since the
                   demonstration period, not all centers have opted for FTCA coverage. Of the
                   approximately 716 centers currently eligible for this coverage, 264 of the
                   eligible centers, or 37 percent of them, have not applied for it. FTCA is still a
                   relatively recent option for centers and some center personnel may be
                   questioning the desirability of this coverage for their facility. Uncertainty
                   about which practitioners and services are not covered by FTCA, the
                   availability of private policies to cover any gaps, and questions about the
                   FTCA claims resolution process may all contribute to a center’s decision to
                   retain private coverage. Center officials from two southern states told us
                   that their malpractice premiums were low enough that there was little
                   incentive to convert to FTCA coverage. Officials from other centers that do
                   not have FTCA coverage told us that resistance from the medical staff and
                   the loss of tailored risk management services are also contributing factors
                   in their decision to keep private insurance.


                   Few of the 138 FTCA claims filed against health centers since the beginning
Few FTCA Health    of FTCA coverage have been resolved. Although the number of FTCA claims
Center Claims      filed against centers has increased since the demonstration period began
Resolved to Date   in 1993, only five settlements have been made and all have been relatively
                   small. Table 1 shows the number of claims filed and compensation sought
                   and awarded by fiscal year.




                   Page 7                            GAO/HEHS-97-57 FTCA Coverage for Health Centers
                                       B-272377




Table 1: Number and Dollar Amount of
FTCA Claims Filed and Settled for                                   Number of
Community and Migrant Health           Fiscal year                     claims    Amount claimed Claims settleda               Amount paid
Centers                                1994                                4            $5,950,000                      1             $5,250
                                       1995                                18           66,327,000                      2            325,000
                                       1996                                76         252,467,470                       2             25,000
                                       1997b                               40           90,055,003                      0                    0
                                       Total                              138        $414,799,473                       5          $355,250
                                       a
                                        Claim settlement information is displayed according to the year the claim was filed. This is not
                                       necessarily the year in which the claim was actually settled.
                                       b
                                           Through Mar. 21, 1997.



                                       In addition to the five claims that have been settled, seven others have
                                       been disallowed by HHS. The total amount of compensation sought by the
                                       126 remaining claimants is in excess of $400 million. Thirty-two FTCA
                                       claims have resulted in lawsuits that have been filed in federal court. The
                                       94 remaining claims are pending in HHS.

                                       Current claims and settlement experience may not be an accurate
                                       indicator of future claims. Although claim payments to date have been
                                       relatively small, one large settlement or court award could dramatically
                                       increase the total.6 Other factors also make it difficult to predict future
                                       payments. There may be a time lag between alleged instances of
                                       malpractice and claim filings, as claimants have 2 years from the date of
                                       the alleged incident to file a claim. However, a prior analysis of claims
                                       reported by centers before the demonstration period showed that their
                                       claims experience was considered favorable by actuaries in relation to the
                                       insurance premiums they paid.7


HRSA Recommends                        HRSA  has drafted a legislative proposal limiting the federal government’s
Capping Payments Made                  liability for FTCA claims filed against migrant and community health
on Behalf of                           centers. This proposal, initially recommended by HHS’ OIG and currently
                                       under review by the Secretary of HHS, calls for capping the amount a
FTCA-Covered Centers to                claimant may seek in damages from an FTCA-covered center at $1 million.8
Limit Federal Liability
                                       6
                                        For HHS medical malpractice claims against federal employees and paid under FTCA in calendar
                                       years 1986 through 1996, the largest administrative settlement was $975,000 (paid in 1989), and the
                                       largest federal court case payment was $5.7 million (paid in 1986).
                                       7
                                        GAO/HRD-93-130, Sept. 24, 1993.
                                       8
                                        Department of Health and Human Services, Office of Inspector General, Cost to the Government for
                                       Providing Medical Malpractice Coverage to Community and Migrant Health Centers (Washington, D.C.:
                                       Mar. 25, 1996).



                                       Page 8                                      GAO/HEHS-97-57 FTCA Coverage for Health Centers
                         B-272377




                         This would be comparable with the $1 million cap per claim that private
                         insurance carriers typically place on malpractice policies, including those
                         sold to health centers. If enacted, this proposal would, for the first time,
                         limit the federal government’s liability under FTCA and would be an
                         exception for only federally funded health centers. According to HHS’ OIG
                         report, this cap could save the federal government as much as
                         $30.6 million over a 3-year period, if all health centers elected FTCA
                         coverage. Of the 126 unresolved FTCA claims, which include the 32 pending
                         lawsuits, 59 seek compensation in excess of $1 million.


                         HRSA’s  collection of FTCA participation data has been limited. This
Management of FTCA       information is necessary to determine whether FTCA coverage is reducing
Coverage Could Be        health centers’ costs and is also critical to the agency’s ability to provide
Improved                 risk management. Although HRSA has attempted to collect data related to
                         centers’ use and savings under FTCA, these attempts have not been
                         effective. HHS has also failed to respond to claimants in a timely manner,
                         which gives them the opportunity to file lawsuits in federal court. While
                         HRSA intends to provide centers with some risk management services, it
                         has not developed a comprehensive risk management plan and presently
                         does not intend to provide some of the important risk management
                         activities currently provided by private insurers and other federal
                         agencies.


HRSA’s Data Collection   HRSA cannot accurately report the amount centers spent on comprehensive
and Claims Management    private malpractice insurance during the FTCA demonstration period, nor
Are Ineffective          can the agency report with certainty the total cost reductions realized by
                         FTCA-covered centers during that period. HRSA officials were unable to
                         identify those centers that canceled these comprehensive policies during
                         the demonstration period and relied on FTCA coverage. Although HRSA
                         collected data from centers regarding their insurance costs and savings
                         under FTCA, we found that these data were not reliable for determining
                         whether centers canceled their private comprehensive malpractice
                         insurance and reduced their costs. The form HRSA provided to centers was
                         not accompanied by instructions. In addition, the form did not provide
                         centers with a means of reporting and identifying all of their malpractice
                         insurance expenditures. Consequently, centers may have supplied
                         inappropriate data or reported expenditures inaccurately while other
                         information, critical to determining actual cost reductions, was not
                         obtained. Without reliable information on centers’ reliance on FTCA it will
                         be difficult for HRSA to target its limited risk management services on



                         Page 9                            GAO/HEHS-97-57 FTCA Coverage for Health Centers
                          B-272377




                          FTCA-covered centers. Similarly, without sound data on cost reductions,
                          HRSAwill be unable to determine if coverage under FTCA saves centers
                          money.

                          HRSA is now taking steps to end dual coverage, which has hampered HRSA’s
                          data collection efforts and oversight of FTCA. While HRSA advised centers in
                          April 1996 that they must choose between FTCA coverage and private
                          comprehensive malpractice insurance, it did not establish a date after
                          which duplicate insurance will no longer be an allowable charge to the
                          grant at centers with FTCA coverage. We spoke with officials at 27 centers
                          with FTCA coverage. Of those 27 centers, 6 were also covered by private
                          comprehensive malpractice insurance. We subsequently advised HRSA that
                          a deadline was needed to ensure that health centers reduce their costs by
                          terminating duplicate coverage. HRSA officials agreed and recently issued a
                          directive to FTCA-covered centers to cancel their private comprehensive
                          malpractice insurance by March 31, 1997.

                          In many cases, HHS has not contacted claimants regarding their claims, and
                          some claimants have filed suit in federal court. Claimants are precluded
                          from filing suit for 6 months unless HHS has denied the claim. For 22 of the
                          32 claims involving FTCA-covered centers that have resulted in federal
                          lawsuits, HHS had not responded to the claimants or contacted them to
                          discuss a settlement during the 6-month period. HHS officials told us that in
                          many cases they had been unable to obtain documentation and medical
                          reviews needed to assess the merits of these claims and were therefore not
                          prepared to either settle or deny them. DOJ is now responsible for
                          representing the government in these lawsuits. If HHS had achieved a
                          settlement in any of these cases, some of the costs of FTCA administration
                          associated with involving another federal agency, preparing for trial, and
                          defending the case in court might have been avoided.


HRSA Planning to Offer    Risk management provides an opportunity to limit financial losses
Limited Risk Management   resulting from allegations of improper patient care. It also offers providers
Services                  a way to improve service to patients, avoid patient injuries, and reduce the
                          frequency of malpractice claims. The health care experts we spoke with
                          consistently promoted risk management as a tool to simultaneously
                          minimize loss and improve the quality of patient care. Although the law
                          extending FTCA coverage to centers does not direct HRSA to provide risk
                          management, HRSA officials acknowledge both the need to minimize the
                          federal government’s potential liability and provide risk management
                          services to centers. HRSA has begun to provide centers with some of these



                          Page 10                          GAO/HEHS-97-57 FTCA Coverage for Health Centers
B-272377




services. However, HRSA is not planning as extensive a risk management
program as some private insurance carriers or other federal agencies with
FTCA malpractice coverage, such as the Department of Defense and the
Indian Health Service. (App. III provides more details on the purpose and
potential benefits of risk management for health care facilities.)

A wide range of risk management services was offered to health facilities
and practitioners by the insurance companies and federal agencies we
interviewed. While some provided extensive services—including site
inspections, periodic risk reassessments, and telephone hotlines to
respond to center concerns—others offered these services on request or to
larger facilities. The more commonly offered services included claims
tracking, analysis, and feedback on specific incidents, educational
seminars, risk management publications, and the opportunity to obtain
specific guidance on center concerns.

Most of the health center officials we spoke with valued their insurer’s risk
management services. Many regarded the opportunity to discuss a new
procedure or a potential malpractice claim with a risk manager as the
most important feature of their insurer’s risk management plan. Several
officials said they were reluctant to cancel private comprehensive
malpractice coverage in favor of FTCA because they would then lose the
risk management services they have come to rely upon. In contrast, other
centers find risk management services are still available from their private
insurer if they purchase a supplemental policy to cover gaps in FTCA
coverage. Additionally, HRSA has advised centers that the purchase of
private risk management services by centers will be an allowable charge to
their grant.

Recently, HRSA has begun to take steps to provide centers with risk
management. HRSA has contracted with the National Association of
Community Health Centers (NACHC) to provide telephone consultations
with centers regarding FTCA and risk management issues. NACHC may also
provide a limited number of special risk management seminars to centers
through HRSA-sponsored training. HRSA officials told us that they will obtain
a subscription for all FTCA-covered centers to the Armed Forces Institute of
Pathology’s annual publication, Open File, which is exclusively devoted to
risk management issues. Individually tailored risk management
assessments may also be offered to centers through HRSA’s Technical
Assistance Program. This assistance would supplement the agency’s
periodic site inspections of centers, already a routine component of its
grant management process.



Page 11                          GAO/HEHS-97-57 FTCA Coverage for Health Centers
                  B-272377




                  While HRSA has taken important steps in providing centers with some risk
                  management services, some critical risk management
                  activities—performed by other insurers, including other federal
                  agencies—have been excluded from its efforts. For example, it has not
                  established a policy for providing centers with specific feedback based on
                  their claims experience nor has it instituted a useful claims tracking
                  system, widely regarded by risk management experts as an essential
                  component of managing risk. The experts we spoke to told us that a
                  tracking system provides a way of identifying problem practitioners as
                  well as patterns among practitioners and facilities. While HRSA officials
                  agreed with the importance of these risk management activities, they told
                  us that the initial activities related to the implementation of FTCA for health
                  centers necessarily took priority over the development of a comprehensive
                  risk management plan.


                  Community and migrant health centers are being challenged by increasing
Conclusions       financial pressures, jeopardizing their service to large medically needy
                  populations. By opting for FTCA coverage, centers can reduce their
                  malpractice insurance expenditures and redirect these funds to providing
                  needed services to their communities.

                  Malpractice coverage provided by FTCA differs in many ways from that
                  provided by private malpractice insurance coverage. One of the significant
                  differences is the lack of a monetary limitation on liability coverage, which
                  could play a signiftcantant role in determining the federal government’s
                  ultimate cost of providing FTCA coverage to community and migrant health
                  centers and which heightens the importance of a sound risk management
                  plan.

                  As more centers rely on FTCA for malpractice coverage, the federal
                  government’s potential liability will increase as will the need for risk
                  management. Insurers and other federal agencies have employed a variety
                  of risk management practices to limit liability and improve clinical
                  practices. The growth in FTCA coverage offers both the challenge of a
                  greater federal liability to manage and a new opportunity to help
                  community and migrant health centers improve the quality of their care.


                  We recommend that the Secretary of Health and Human Services direct
Recommendations   the Administrator of HRSA to develop a comprehensive risk management




                  Page 12                           GAO/HEHS-97-57 FTCA Coverage for Health Centers
                  B-272377




                  plan, including procedures to capture claims information and to identify
                  problem-prone clinical procedures, practitioners, and centers.


                  We provided HHS an opportunity to comment on a draft of this report, but
Agency Comments   it did not provide comments in time for inclusion in the final report.
                  However, program officials provided us with updated claims information
                  and also offered several technical comments based on their review of the
                  draft report, which we have incorporated as appropriate. In addition, we
                  also discussed the findings presented in this report with program officials
                  who generally agreed with the facts we presented and with our evaluation
                  of HRSA’s management of FTCA coverage for community health centers.


                  We are sending copies of this report to the Director of the Office of
                  Management and Budget, the Secretary of Health and Human Services, and
                  interested congressional committees. We will make copies available to
                  others upon request. Major contributors include Paul Alcocer, Geraldine
                  Redican, Barbara Mulliken, and Betty Kirksey. Please call me at
                  (312) 220-7767 if you or your staff have any questions concerning this
                  report.




                  Leslie G. Aronovitz
                  Associate Director, Health Financing
                    and Systems Issues




                  Page 13                         GAO/HEHS-97-57 FTCA Coverage for Health Centers
Contents



Letter                                                                                           1


Appendix I                                                                                      16

Scope and
Methodology
Appendix II                                                                                     17

Organizations
Contacted
Appendix III                                                                                    19

Risk Management Is
Intended to Minimize
Financial Losses and
Improve Care
Table                  Table 1: Number and Dollar Amount of FTCA Claims Filed and                8
                         Settled for Community and Migrant Health Centers




                       Abbreviations

                       AFIP      Armed Forces Institute of Pathology
                       DOJ       Department of Justice
                       FTCA      Federal Tort Claims Act
                       HHS       Department of Health and Human Services
                       HRSA      Health Resources and Services Administration
                       IHS       Indian Health Service
                       NACHC     National Association of Community Health Centers
                       OIG       Office of Inspector General
                       PIAA      Physician Insurers Association of America


                       Page 14                      GAO/HEHS-97-57 FTCA Coverage for Health Centers
Page 15   GAO/HEHS-97-57 FTCA Coverage for Health Centers
Appendix I

Scope and Methodology


             To review HHS’ implementation of FTCA coverage for community health
             centers, we spoke with officials from HRSA’s Bureau of Primary Health
             Care in Bethesda, Maryland, as well as the agency’s regional FTCA
             coordinators. To assess the FTCA claims resolution process and to
             determine the status of claims filed, we met with and obtained data from
             the Public Health Service Claims Office, HHS’ Office of General Counsel,
             and DOJ. However, we did not independently verify the status of these
             claims. To obtain information on why community health centers do and do
             not participate in the FTCA program, we interviewed officials from the
             National Association of Community Health Centers (NACHC) and three state
             primary care associations. We also interviewed officials from 35
             community health centers, including 27 centers with FTCA coverage and 8
             centers that were not participating in the FTCA program.

             To determine the types of risk management services provided to
             community health centers, we interviewed representatives of seven
             insurers and three risk management consulting firms providing these
             services. We also discussed these services with some of the community
             health center officials we interviewed. We identified the insurance carriers
             through discussions with HRSA officials in both headquarters and regional
             offices, community health centers, NACHC, and others knowledgeable about
             the malpractice market. We selected carriers selling malpractice insurance
             in a variety of geographic areas, including both coasts, the midwest, and
             the south. We also selected carriers with significant experience insuring
             community health centers. We estimate that collectively, these carriers
             have insured over 300 community health centers against malpractice
             claims. We also discussed the unique risk management needs of
             community health care centers with a variety of health care experts. In
             addition, we contacted the Armed Forces Institute of Pathology and the
             Indian Health Service to discuss their risk management programs.




             Page 16                         GAO/HEHS-97-57 FTCA Coverage for Health Centers
Appendix II

Organizations Contacted


                       Accreditation Association for Ambulatory Health Care, Inc.
Risk Management        American Society for Healthcare Risk Management
Experts and            American Medical Association
Consultants            Illinois Risk Management Services
                       Joint Commission on Accreditation of Healthcare Organizations
                       MMI Companies, Inc.
                       Physician Insurers Association of America
                       QA/RM Consultants
                       S. A. Gross & Associates


                       Clinic Mutual Insurance Co.
Malpractice Insurers   Frontier Insurance Group, Inc.
                       Healthcare Underwriters Mutual Insurance Company
                       PICOM Insurance Company
                       Risk Management Foundation of the Harvard Medical Institutions, Inc.
                       The St. Paul Companies, Inc.
                       Washington Casualty Company


                       Armed Forces Institute of Pathology
Government Agencies    Department of Health and Human Services
                         Health Resources and Services Administration
                         Indian Health Service
                         Office of the General Counsel
                         Office of Inspector General
                         Public Health Service
                       Department of Justice


                       Alcona Citizens for Health, Inc. (MI)
Community Health       Barnes-Kasson County Hospital (PA)
Centers                Brownsville Community Health Center (TX)
                       Citizens of Lake County for Health Care, Inc. (TN)
                       Columbia Valley Community Health Services (WA)
                       Country Doctor Community Clinic (WA)
                       Crusaders Central Clinic Association (IL)
                       Detroit Community Health Connection, Inc. (MI)
                       East Arkansas Family Health Center, Inc. (AR)
                       El Rio Santa Cruz Neighborhood Health Center, Inc. (AZ)
                       Erie Family Health Center, Inc. (IL)
                       Grace Hill Neighborhood Health Center (MO)



                       Page 17                        GAO/HEHS-97-57 FTCA Coverage for Health Centers
                       Appendix II
                       Organizations Contacted




                       Greater New Bedford Community Health Center, Inc. (MA)
                       Indian Health Board of Minneapolis, Inc. (MN)
                       Kitsap Community Clinic (WA)
                       La Clinica de Familia, Inc. (NM)
                       La Clinica del Pueblo de Rio Arriba (NM)
                       Lamprey Health Care, Inc. (NH)
                       Laurel Fork-Clear Fork Health Centers, Inc. (TN)
                       Lawndale Christian Health Center (IL)
                       Manet Community Health Center, Inc. (MA)
                       Memphis Health Center, Inc. (TN)
                       Missoula City/County Health Department (MT)
                       Model Cities Health Center, Inc. (MN)
                       Ossining Open Door Health Center (NY)
                       Perry County Medical Center, Inc. (TN)
                       Presbyterian Medical Services (NM)
                       Providence Ambulatory Health Care Foundation, Inc. (RI)
                       Sea Mar Community Health Center (WA)
                       Shawnee Health Service Development Corporation (IL)
                       Southern Ohio Health Services Network (OH)
                       South Plains Health Provider Organization, Inc. (TX)
                       Southwest Community Health Center, Inc. (CT)
                       The Clinic in Altgeld (IL)
                       Westside Health Services, Inc. (NY)


                       Illinois Primary Health Care Association
Community Health       National Association of Community Health Centers, Inc.
Center Organizations   Massachusetts League of Community Health Centers
                       Michigan Primary Care Association




                       Page 18                        GAO/HEHS-97-57 FTCA Coverage for Health Centers
Appendix III

Risk Management Is Intended to Minimize
Financial Losses and Improve Care

               Risk management offers physicians and other health care practitioners
               and facilities a means of improving patient services, avoiding patient
               injuries, and reducing the frequency of malpractice claims. Organizations
               such as the American Medical Association, the American Hospital
               Association, the Joint Commission on the Accreditation of Healthcare
               Organizations, and the Physician Insurers Association of America (PIAA)
               recognize risk management as an effective tool for minimizing liability and
               enhancing quality care. The insurers and health care experts we spoke
               with concurred that risk management provides the underwriter or, in the
               case of FTCA coverage, the federal government, the possibility of
               preventing instances of malpractice from occurring and thereby reducing
               financial liability. They also told us that risk management can help educate
               physicians and other medical personnel while improving their
               performance. Many of the center officials we spoke with also valued risk
               management services.

               The insurance industry and federal officials we spoke with consistently
               underscored claims tracking and analysis as one of risk management’s
               most critical components. Claims tracking and analysis provides a way of
               identifying patterns in the types of malpractice claims filed against
               providers. This information may be used to identify facilities or
               practitioners that pose risks and problem-prone clinical practices. It can
               also be key to implementing corrective actions, such as selecting a
               practitioner or an entire facility for other risk management services.

               Aggregating and analyzing claims data and sharing results with health care
               providers may reduce the number of claims by bringing to light factors
               that lead to claims. Analyzing claims made and settled is done by
               individual insurers, organizations representing groups of insurers, such as
               PIAA, and federal agencies administering health programs FTCA covers for
               malpractice claims.

               Many insurers collect medical malpractice data. Data collected may relate
               to the cause of claims and their severity, the amounts requested and paid
               by type of injury, and demographic features of claimants and providers.
               For example, PIAA, which represents physician-owned or -directed
               professional liability insurance companies, routinely collects and analyzes
               data from 21 of its member companies. PIAA has issued special reports on
               topics such as lung cancer, medication errors, and orthopedic surgical
               procedures. This information can alert providers to situations that may put
               them at greater risk for a malpractice claim and increase their awareness
               of new or continuing problem areas.



               Page 19                         GAO/HEHS-97-57 FTCA Coverage for Health Centers
           Appendix III
           Risk Management Is Intended to Minimize
           Financial Losses and Improve Care




           The federal government also recognizes the value of analyzing claims data
           as both a risk management tool and a means of improving quality care. The
           Armed Forces Institute of Pathology (AFIP) performs detailed claims
           analysis for all branches of the military and other federal agencies, such as
           the Department of Veterans Affairs, that are covered by FTCA. In addition
           to conducting studies, AFIP also provides direct feedback and responds to
           queries from facilities seeking to improve performance and minimize risk.
           The Indian Health Service (IHS) provides health care services at both
           hospitals and outpatient facilities. IHS performs its own analysis of claims,
           although on a smaller scale than AFIP. IHS has tracked claims for 10 years
           and provides routine feedback to all facilities and practitioners after a
           claim has been resolved. It has also created a database of all filed claims
           and has issued reports of its analysis to IHS facilities.




(108271)   Page 20                             GAO/HEHS-97-57 FTCA Coverage for Health Centers
Ordering Information

The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent of Documents, when
necessary. VISA and MasterCard credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address
are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office
P.O. Box 6015
Gaithersburg, MD 20884-6015

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any
list from the past 30 days, please call (202) 512-6000 using a
touchtone phone. A recorded menu will provide information on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov




PRINTED ON    RECYCLED PAPER
United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                 Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested