At doctor’s direct insurance, we are a staunch proponent of establishing fair damage caps on malpractice judgments. Having damage caps in place keeps rates lower, which makes it easier for physicians and insurers to do business, which lowers the price of healthcare substantially for consumers. In fact, some observers in the medical community worry that states in which damage caps have been struck down as unconstitutional could lead to doctor shortages in those states, which brings us to the rather interesting situation unfolding in Indiana.

In March 2016, Indiana Lawmakers approved Senate Bill 28, which would increases the damage caps on medical malpractice for the first time since 1998 when the cap was set at $1.25 million. The new bill would raise the limit on total damages potentially awarded to $1.65 million in 2017, and to $1.8 million in 2019. While this initially sounds like bad news for physicians, Senator Brent Steele, the bill’s main author, suggests that the legislature must keep pace with rising healthcare costs and inflation in order for the cap to remain constitutional.

“It was extremely important for the General Assembly to pass this legislation because the current cap hasn’t been updated in nearly 20 years, making our entire medical malpractice system vulnerable to a constitutional challenge,” Steele reported to Indiana radio station WBIW, “After dedicating more than 150 hours working on this legislation, I am pleased that all parties involved — including the Indiana State Medical Association, Indiana Hospital Association, Indiana Health Care Association, and Indiana Trial Lawyers Association — were able to reach an agreement so this important legislation can now move on to the governor’s desk.”

Governor Pence signed the bill into law shortly thereafter, according to severalwebsites.

Sen. Steele initially proposed increasing the damage caps every four years based on inflation, but that version of the bill met stiff opposition from the Indiana State Medical Association as there was no stated final monetary cap set. A more forgiving version of that bill proposed the cap be adjusted annually until a final monetary cap of $2.25 million by 2031, but IMSA lobbyists reported to the Indystar, “We didn’t like the series of increases, which took it all the way out to $2.25 million. So the fact that it goes one time after next year to $1.8 million, we did say that we would support that, and we do support that.”

Several states have had their damage caps struck down entirely as unconstitutional, which puts doctors and insurers in a perilous situation as malpractice coverage rates tend to increase with said uncertainty.

In fact, the Indiana Trial Lawyers Association argued that the state’s current damage limits makes the state attractive to bad doctors. Since there are damage caps in place, as well as the pooled resource of the Patient Compensation Fund, they argue that doctors with poor performance will gravitate to states where their exposure is the lower.

A representative from the Indiana Trial Lawyers Association reported to Indystarthat [Senate Bill 28] represents a compromise. “It represents a big step forward in addressing a pretty big deficiency that existed since the last [damage cap] increase 18 years ago,” said Dan Ladendorf, an Indianapolis attorney.

It will be interesting to see how this plays out. On the one hand, it may be tougher in the coming years for Indiana physicians to enjoy their relatively lower insurance premiums than in neighboring states. But on the other hand, there is no longer fear of the damage cap being struck down as unconstitutional, at least in the foreseeable future, which would remove damage caps entirely, and leave Indiana physicians in a worse position. According to severalwebsites, the nonpartisan group, Legislative Service Agency, does not believe that the new bill will increase current premiums, because most malpractice awards are taken from Indiana’s Patient Compensation Fund, which we discussed in this article.