Medical Malpractice: Federal Tort Claims Act Coverage Could Reduce Health
Centers' Costs (Letter Report, 04/14/97, GAO/HEHS-97-57).

Pursuant to a legislative requirement, GAO reviewed the implementation
of Federal Tort Claims Act (FTCA) coverage for community health centers,
focusing on the: (1) health centers' use of FTCA coverage; (2) status of
claims filed against FTCA-covered centers through March 21, 1997; and
(3) Department of Health and Human Services' (HHS) management of FTCA
for community and migrant health centers, and its efforts to reduce
claims through risk management programs.

GAO noted that: (1) the permanent authorization of FTCA coverage, the
greater availability of 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; (2) although the Health Resources and
Services Administration (HRSA) required centers to apply for FTCA
coverage during the demonstration period, centers were not compelled to
cancel their private comprehensive malpractice insurance; (3) 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; (4)
because these centers were covered by both FTCA and their private
policies, they did not reduce their insurance costs; (5) of the 716
centers eligible for FTCA coverage, 452 have elected this coverage and
are now required to cancel their private comprehensive malpractice
insurance; (6) despite this level of participation, a significant number
of centers have not reapplied for FTCA coverage since its recent
extension; (7) as of March 21, 1997, 264 of the 716 centers eligible for
FTCA coverage, or 37 percent, had not applied for it; (8) since the
demonstration period began in 1993, there have been 138 claims filed
against FTCA-covered centers alleging damages of more than $414 million;
(9) however, the actual amount of the federal government's liability for
these claims is unclear; (10) as of March 21, 1997, only five claims
have been settled, with total payments of $355,250; (11) at the
recommendation of HHS' Office of Inspector General, 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; (12) by extending FTCA coverage to centers, the
federal government has assumed potential liabilities that need oversight
and careful management; (13) HHS could improve its administration of
FTCA coverage for community and migrant health centers by strengthening
data collection efforts and claims management practices; (14) 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; (15) for 22 of the 32 claims
that have resulted in federal lawsuits, HHS had not attempted to respon*

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-97-57
     TITLE:  Medical Malpractice: Federal Tort Claims Act Coverage Could 
             Reduce Health Centers' Costs
      DATE:  04/14/97
   SUBJECT:  Malpractice (medical)
             Damage claims
             Health centers
             Community health services
             Insurance cost control
             Claims settlement
             Government liability (legal)
             Liability insurance

             
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Cover
================================================================ COVER


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

FTCA Coverage for Health Centers

(108271)


Abbreviations
=============================================================== ABBREV

  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

Letter
=============================================================== LETTER


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 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. 


--------------------
\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. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

The permanent authorization of FTCA coverage, the greater
availability of 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 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. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Community and migrant health centers are financed in part with
federal 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

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


--------------------
\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. 

\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). 

\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. 


   MORE CENTERS PLAN TO USE FTCA
   COVERAGE TO REDUCE THEIR COSTS
------------------------------------------------------------ Letter :3

While most eligible centers did not rely on FTCA coverage during the
demonstration period, centers now seem to be taking greater advantage
of the opportunity to reduce their costs.  The number of centers
relying on 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, 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 FTCA HEALTH CENTER CLAIMS
   RESOLVED TO DATE
------------------------------------------------------------ Letter :4

Few of the 138 FTCA claims filed against health centers since the
beginning of FTCA coverage have been resolved.  Although the number
of FTCA claims filed against centers has increased since the
demonstration period began 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. 



                          Table 1
          
          Number and Dollar Amount of FTCA Claims
            Filed and Settled for Community and
                   Migrant Health Centers

Fiscal     Number of        Amount      Claims      Amount
year          claims       claimed   settled\a        paid
--------  ----------  ------------  ----------  ----------
1994               4    $5,950,000           1      $5,250
1995              18    66,327,000           2     325,000
1996              76   252,467,470           2      25,000
1997\b            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


--------------------
\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. 


      HRSA RECOMMENDS CAPPING
      PAYMENTS MADE ON BEHALF OF
      FTCA-COVERED CENTERS TO
      LIMIT FEDERAL LIABILITY
---------------------------------------------------------- Letter :4.1

HRSA has drafted a legislative proposal limiting the federal
government's liability for FTCA claims filed against migrant and
community health centers.  This proposal, initially recommended by
HHS' OIG and currently under review by the Secretary of HHS, calls
for capping the amount a claimant may seek in damages from an
FTCA-covered center at $1 million.\8 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. 


--------------------
\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). 


   MANAGEMENT OF FTCA COVERAGE
   COULD BE IMPROVED
------------------------------------------------------------ Letter :5

HRSA's collection of FTCA participation data has been limited.  This
information is necessary to determine whether FTCA coverage is
reducing health centers' costs and is also critical to the agency's
ability to provide 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 AND
      CLAIMS MANAGEMENT ARE
      INEFFECTIVE
---------------------------------------------------------- Letter :5.1

HRSA cannot accurately report the amount centers spent on
comprehensive private malpractice insurance during the FTCA
demonstration period, nor 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 FTCA-covered centers.  Similarly,
without sound data on cost reductions, HRSA will 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
      LIMITED RISK MANAGEMENT
      SERVICES
---------------------------------------------------------- Letter :5.2

Risk management provides an opportunity to limit financial losses
resulting from allegations of improper patient care.  It also offers
providers 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 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. 

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. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

Community and migrant health centers are being challenged by
increasing 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. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :7

We recommend that the Secretary of Health and Human Services direct
the Administrator of HRSA to develop a comprehensive risk management
plan, including procedures to capture claims information and to
identify problem-prone clinical procedures, practitioners, and
centers. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

We provided HHS an opportunity to comment on a draft of this report,
but 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. 


---------------------------------------------------------- Letter :8.1

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


SCOPE AND METHODOLOGY
=========================================================== Appendix I

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. 


ORGANIZATIONS CONTACTED
========================================================== Appendix II

RISK MANAGEMENT EXPERTS AND
CONSULTANTS

Accreditation Association for Ambulatory Health Care, Inc.
American Society for Healthcare Risk Management
American Medical Association
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

MALPRACTICE INSURERS

Clinic Mutual Insurance Co.
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

GOVERNMENT AGENCIES

Armed Forces Institute of Pathology
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

COMMUNITY HEALTH CENTERS

Alcona Citizens for Health, Inc.  (MI)
Barnes-Kasson County Hospital (PA)
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)
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)

COMMUNITY HEALTH CENTER
ORGANIZATIONS

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


RISK MANAGEMENT IS INTENDED TO
MINIMIZE FINANCIAL LOSSES AND
IMPROVE CARE
========================================================= Appendix III

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. 

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. 


*** End of document. ***