Will a new law limiting medical damages in lawsuits create more balance in the justice system for defendants and insurers, or will it make it harder for victims to recover what they’re owed? It depends on who you ask.
Act 28 by Rep. Jon Eubanks, R-Paris, and Sen. Missy Irvin, R-Mountain View, added one sentence to Arkansas law: “Recovery of damages under subsection (a) of this section for past necessary medical care, past necessary medical treatment, or past necessary medical services received includes only those costs actually paid by or on behalf of the plaintiff or that remain unpaid and for which the plaintiff or any third party is legally responsible.”
In practical terms, the law means defendants will pay medical damages equal to what a medical provider was paid, rather than what the provider initially billed. Insurance companies often negotiate down the cost of a bill.
The law takes effect today (Aug. 5).
Some supporters of the change refer to payments based on a provider’s initial bill as “phantom damages.” Opponents say the larger payments are needed to help victims recover their losses.
Justin Allen, a lobbyist and attorney with Wright Lindsey Jennings, worked with the Arkansas State Chamber of Commerce and others to pass the bill. He expects the law to be challenged in court. He said opponents will say lawmakers improperly prescribed rules of court pleading, practice and procedure, a power the Arkansas Constitution gives the state Supreme Court.
He does not believe those arguments will prevail based on the Edwards v. Thomas case. In that case, the Arkansas Supreme Court affirmed in 2021 that the Legislature can pass laws that substantively regulate the rights, duties and powers of parties, as long as those laws don’t regulate court procedures.
Act 28 represented the most recent attempt by business interests to enact lawsuit reform. It was the first effort that succeeded, though barely. While it passed the House, 71-18, the Senate margin was 18-17. Eleven Republicans joined all six Democrats in voting no.
SUPPORT, OPPOSITION
Irvin told her colleagues when presenting the bill that damages should equal what the medical provider was paid. Customers who purchase a $100 sweater on sale for $50 don’t expect to receive $100 if they return it.
“The data and information that I can see and trust is, here’s the receipt, here’s what was paid, and so here is what you should be able to recover,” she said.
She said the one-page bill doesn’t limit other types of damages victims can receive. Those include lost wages, property damage, and non-economic damages such as pain and suffering.
Sen. Clarke Tucker, D-Little Rock, one of two attorneys in the Senate, opposed the bill. He said medical expenses serve as a baseline for other damages. He said there is no proof the bill would reduce insurance rates.
Several Republicans also spoke against the bill. Sen. Gary Stubblefield, R-Branch, said it would help insurers at the expense of “the little guy.” Sen. Clint Penzo, R-Springdale, called it an “insurance enrichment program.” Sen. John Payton, R-Wilburn, took issue with the bill’s three uses of the word “necessary” when describing covered medical expenses.
The state Republican Party sent a press release praising the bill’s passage despite the party split. It quoted Speaker of the House Brian Evans, R-Cabot; Senate President Pro Tempore Bart Hester, R-Cave Springs; and other elected officials along with the party’s chairman, Joseph Wood.
Two grassroots groups often allied with Republicans, Conduit For Action and the Family Council, opposed the bill. The Conduit News Facebook page raised the specter of challenging yes voters in party primaries. It’s a standard practice for other types of damages such as pain and suffering to be based on the medical damages — often with a multiplier of twice or triple the medical damages.
REDUCED SETTLEMENT VALUES
Tucker said the new law will reduce overall settlement values and limit how much a victim can recover.
“A tort by definition is when one person wrongfully injures another person, and this bill changed the balance of power in that scenario in favor of the perpetrator to the detriment of the victim,” he said.
Allen, the attorney and tort reform advocate, said that while the multipliers are standard practice, they are not required by law, and juries are not instructed to base their decisions upon them. Furthermore, juries are more rewarding in some geographic locations than they are in others. Allen said Act 28 ensures the plaintiff is entitled to what the health care provider accepted for final payment, not the initial bill.
“When it comes to things like past medical care and lost wages, that truly is pure math to say, ‘What should we pay this plaintiff to make him or her whole for past medical care?’” he said. “Well, what better number than what was actually paid and accepted as full and final payment?”
He acknowledged that plaintiffs often will recover less money as a result of Act 28. At the same time, costs will be reduced for small businesses, big businesses and insurance companies. They have been paying the costs of medical services that didn’t occur.
Tucker said insurers are protected from overpaying on a claim under Arkansas’ “made-whole” doctrine, which theoretically limits their responsibility to recovering the victim’s costs. But he said that to his knowledge no judge has ever applied the concept because victims are damaged in ways that can’t be compensated and also face litigation costs such as paying their lawyer.
“Right now, we know that plaintiffs are not compensated to the point where they’re made whole, and now we’re just reducing their ability to recover even further for, once again, injuries that are brought upon them by someone else’s fault,” Tucker said.
Allen said that because of the made-whole doctrine, plaintiffs often keep the settlement paid for medical damages rather than having to reimburse their insurance companies.
Tucker said Act 28 creates a disincentive for Arkansans to obtain health insurance because those who don’t have it often will receive a bigger settlement. Insurance companies negotiate down the price of hospital bills, which does not happen if someone doesn’t have insurance. Allen, however, said hospitals often write off an uninsured patient’s bill.
Tort reform supporters including the Arkansas State Chamber of Commerce, Arkansas Trucking Association, and state medical organizations have tried several times to pass tort reform. In October 2018, the Arkansas Supreme Court disallowed a ballot question referred to voters by the Legislature weeks before the election. Allen said this effort succeeded because it makes sense, it’s straightforward, it’s simple and it’s a matter of math. Numerous other states have adopted similar laws.
MORE REFORM EXPECTED
Now that tort reform supporters have finally gotten a win, will they try to do more? Tucker expects so.
“We know that the insurance companies are not going to stop just with this,” he said. “They’re not going to take this win and throw up their hands and declare victory. They’ll definitely be pushing for more, and it’ll hurt victims more.”
Allen said what happens next depends on the Arkansas State Chamber of Commerce and other leaders in business, industry and health care.
“Looking to 2027, we’ve started having some high-level discussions,” he said. “But it’s too soon to say what efforts will be there — whether it’s legislation, whether it’s an effort to get the General Assembly to refer a damage cap measure out to the people.”