Clark County Medical Society

County Line

Newsletter XXVIII May 2002

Contents

2002-2003 Slate Finalized, Voting Underway

Effective Strategies for Asset Protection: Gifts, Exemptions, Limited Partnerships and Nevada and Offshore Asset Protection Trusts

President’s Message: The Malpractice Liability Coverage Saga Continues

CEO Editorial

Applicants To Go Before Credentialing Committee

New Members for April 2002

California's MICRA vs. Current Nevada Law

CME Calendar

Clark County Health District Disease Statistics

Classifieds

2002-2003 Slate Finalized, Voting Underway

By Deborah Barton, CCMS Public Relations Coordinator

You may have already received your Official Voting Ballot for the 2002-2003 Board of Trustees and Nominating Committee. These candidates were either placed on the ballot by the Nominating Committee or by write-in on the Nominating Slate, mailed to all members in March.

This year, the ballot includes the largest slate of candidates for the Board of Trustees in recent history. Following are the candidates (continued on page 2).

President Elect (One To Be Elected)

Edwin Kingsley, MD, Oncology, 3730 S. Eastern Ave., Las Vegas, NV 89109

Secretary (One To Be Elected)

Kevin Hyer, MD, Diagnostic Radiology, 2020 Palomino Ln. #100, Las Vegas, NV 89106

Delegate Chair (One To Be Elected)

Cyriac Chemplavil, MD, Pulmonology, 2121 E. Flamingo Rd. #108, Las Vegas, NV 89119

Trustees (Six of Nine To Be Elected)

Michael Colletti, MD, Rheumatology, 2470 E. Flamingo Rd. #D, Las Vegas, NV 89121

Dipak Desai, MD, Gastroenterology, 700 Shadow Ln. #165, Las Vegas, NV 89106

Michael Gross, MD, Nephrology, 1750 E. Desert Inn Rd. #200, Las Vegas, NV 89109

Jerry Jones, MD, Ob-Gyn, 400 Shadow Ln. #207, Las Vegas, NV 89106

Alexander Sparkuhl, MD, Urology, 700 Shadow Ln. #430, Las Vegas, NV 89106

Eugene Speck, MD, Infectious Disease, 3006 S. Maryland Pkwy. #780, Las Vegas, NV 89109

David Steinberg, MD, Radiology, P. O. Box 36900, Las Vegas, NV 89133

Annette Teijeiro, MD, Anesthesiology, P. O. Box 93953, Las Vegas, NV 89193

Arnold Wax, MD, Oncology, 3730 S. Eastern Ave., Las Vegas, NV 89109

Nominating Committee (Seven To Be Elected)

Richard Diskin, DO, Dermatology, 4845 S. Rainbow Blvd. #403, Las Vegas, NV 89103

Raj Chanderraj, MD, Cardiology, 4275 Burnham Ave. #370, Las Vegas, NV 89119

Howard Hoffman, Jr., MD, Pathology, 4230 Burnham Ave. #250, Las Vegas, NV 89119

Raul Meoz, MD, Radiation Oncology, 624 S. Tonopah, Las Vegas, NV 89106

Marietta Nelson, MD, Ophthalmology, 2020 Goldring Ave. #401, Las Vegas, NV 89106

Frank Nemec, MD, Gastroenterology, 3131 La Canada #216, Las Vegas, NV 89109

Ronald Slaughter, MD, Pathology, 3059 S. Maryland Pkwy. #100, Las Vegas, NV 89109

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Effective Strategies for Asset Protection: Gifts, Exemptions, Limited Partnerships and Nevada and Offshore Asset Protection Trusts

By R. Glen Woods, Woods Erickson Whitaker & Miles LLP

Professionals, investors and business owners are rightfully concerned about the costs of litigation in today’s society. Asset protection has become an accepted part of any estate plan. Estate planning has always been about minimizing risks. The risk of losing one’s assets in litigation has now been added to the traditional risks of death, disability and income and estate taxes. Any well designed estate plan must deal with each of these risks, and will include the following:

• Deter litigation by removing the incentives for plaintiffs and their lawyers to bring litigation;
• Encourage settlement, rather than litigation; the estate plan should encourage potential plaintiffs to accept whatever the insurance company can be persuaded to pay, rather than litigate;
• Simplicity; the well-designed estate plan avoids unnecessary complexity, and is not difficult to manage;
• Avoid loss of control; Successful asset protection planning need not result in loss of control of one’s assets.

Effective asset protection planning compliments existing liability insurance, and is most effective when undertaken before problems arise. Effective asset protection planning does not involve excessive complexity, and provides alternatives when problems arise. Often, asset protection planning makes use of more than one strategy.

Reliance on insurance has been a solution for many in the past. All of us are aware that things have changed. Professionals and business owners who previously depended on liability insurance are keenly aware that insurance is not the only answer. The cost of insurance continues to rise, and insurance coverage is not available for every kind of risk. Even where insurance is available, the insured cannot count on insurance always being available. Furthermore, insurance policies always contain limitations on coverage and exclusions from coverage. Punitive damages are often not insured at all. Another common exclusion is intentional acts. All insurance policies limit the insurer’s liability, so there is a real possibility that there may not be enough insurance to pay a covered claim.

Gifts of property to others, or holding one’s property in another person’s name, have often been used as a substitute for asset protection planning. All of us know people whose residences, businesses and investments are held in the names of parents, children or other family members. However, this does not really provide any asset protection at all. There is no protection if the family member becomes involved in litigation, goes through a divorce, encounters tax difficulties, or dies or becomes disabled. When this occurs, the owner is faced with potential loss of the property that the owner was trying to protect.

Exemptions can and should be a part of any estate plan. Most of us are familiar with the homestead exemption, which in Nevada protects from “involuntary” creditors up to $125,000 in equity in a personal residence. Nevada law also exempts from claims of creditors up to $500,000 in individual retirement account (IRA) assets. Exemptions vary from state to state, and are not effective against all creditors. Even the homestead exemption does not protect the residence from being involuntarily sold. Where one’s equity exceeds the amount of the homestead exemption, the residence can be sold at execution, and the homeowner receives money in the amount of the homestead exemption. The law provides other exemptions, as well; for example, a limited amount of life insurance is exempt from creditor claims under Nevada law. Most of the other exemptions are limited in amount.

Limited partnerships are an effective and valuable way to protect one’s assets. Limited partnerships have been used for years for a variety of purposes, such as reducing estate taxes, minimizing income taxes, and retaining control of one’s property. Limited partnerships are frequently an important component of an effective estate plan and asset protection plan. Investors, professionals and business owners should give careful consideration to using limited partnerships as a means to hold investment assets, without loss of control. However, limited partnerships are not suitable to hold all assets. Other strategies must be used for assets such as stock in S corporations, since partnerships cannot be stockholders of S corporations.

Limited partnerships can be drafted to meet a variety of needs and circumstances. The investor, professional or business owner, and the owner’s spouse, are frequently named the general partners, and are given the exclusive right to manage the assets of the partnership. A limited partnership that is drafted for asset protection purposes will contain a number of provisions. Such a partnership agreement will give to the general partners wide latitude and discretion in determining whether and when to make distributions to partners of partnership income or assets. Such a partnership will also provide that the general partners will remain in office for as long as they so choose, and will limit or foreclose entirely the ability of anyone other than the general partners to dissolve or liquidate the partnership. A limited partnership that is drafted for investment purposes will confer upon the general partners wide latitude to determine the investments that are appropriate for partnership assets.

Limited partnerships are effective for asset protection because, under Nevada partnership law, assets that are held in a limited partnership are not subject to attachment or execution by a partner’s creditors. A creditor must instead obtain a “charging order,” which entitles the creditor to receive the distributions from the partnership that would otherwise be made to the partner. The author’s experience is that many creditors do not actually seek charging orders, because the creditor who holds a charging order is taxable on all of the partner’s distributive shares, whether or not distributions are actually made. This acts as a substantial deterrent to those who might otherwise attempt to obtain charging orders.

Nevada asset protection trusts were made possible by legislation enacted in 1999. To establish a Nevada asset protection trust, the grantor irrevocably transfers assets to a trustee, who agrees in writing to hold them in trust, for the benefit of the beneficiaries of the trust. Frequently, the grantor and the grantor’s family are the beneficiaries of the trust. At least one of the trustees must be a Nevada resident or a bank or trust company that transacts business in Nevada. The trust must be irrevocable, and if the grantor is a beneficiary, the grantor’s interest in the trust must be “discretionary,” which means that the grantor must not be able to compel the trustee to make distributions to the grantor. If the trust meets all of the requirements of the law, the interests of the grantor and the other beneficiaries in the trust cannot be reached by creditors, until assets are actually distributed outside the trust. The principal limiting factor is that, at the time the trust is created, the transfer must not be a so-called “fraudulent transfer;” i.e., the trust must be created before legal problems arise.

Nevada asset protection trusts can be drafted to meet a variety of circumstances. Provisions can be incorporated into the trust for a protector, whose approval may be required before the trustee can take certain actions. Although such a trust must be irrevocable, a well-drafted Nevada asset protection trust will be adaptable to changing needs and family circumstances and to future changes in the law. A well drafted Nevada asset protection trust will also provide a means to change the trustee, if when it becomes advisable to do so. The selection of the trustee is also an important consideration. In the author’s opinion, the ideal trustee will be someone who is (i) a Nevada resident; (ii) is trusted by the grantor to act in the best interests of the grantor and the other beneficiaries; (iii) is capable of understanding the trust agreement and will not be apprehensive about doing so; and (iv) can be replaced if circumstances change.

Offshore asset protection trusts have been used for many years. The process of establishing an offshore asset protection trust is not much different than the process of establishing a trust in Nevada. The principal advantage of utilizing an offshore asset protection trust is that laws of some foreign countries provide for legal protections that are greater and more comprehensive than those available in Nevada. For example, under the laws of the Cook Islands, one seeking to pierce through a trust arrangement must litigate the matter in the courts of the Cook Islands; proceedings in other courts are not recognized. Contingency legal fee agreements are illegal under Cook Islands law, and the plaintiff must prove his case “beyond a reasonable doubt.” This is the standard of proof applied in criminal cases in the United States, and imposes a significantly higher standard of proof than the “preponderance of the evidence” standard that applies in civil cases in Nevada and elsewhere in the United States. An offshore asset protection trust also provides greater certainty in situations where the Nevada asset protection law has not yet been tested in the courts; for example, in matters involving federal law, or in situations such as family support obligations, where courts might be persuaded to find “implied” exceptions to Nevada’s law.

The offshore asset protection trust presents a more formidable barrier to a potential litigation plaintiff, particularly in the case of assets that are located outside Nevada. An offshore asset protection trust will usually have as its trustee a financial institution that is not subject to the jurisdiction of courts in the United States. Such a trustee would not be bound by an order of a United States court freezing the assets of a trust, or directing the trustee to turn over assets held in trust. The potential plaintiff who may be looking for assets will have to factor into the decision process the cost, expense and delay of litigation in a foreign country. Of course, the cost of establishing the offshore asset protection trust must also be considered. In addition to the expense of establishing the trust, the trustee’s fees must be paid each year.

Consider Combining Strategies

An effective estate plan will often include more than one asset protection strategy. For example, an investor, professional or business owner can take advantage of available homestead laws, the Nevada exemption for IRA assets, and other available exemptions. The investor, professional or business owner can also establish a Nevada limited partnership, and transfer to the partnership investment securities, cash and other assets. The partnership should not own directly any assets where ownership can give rise to liability, such as some real estate, and operating businesses. These can be owned by the partnership through limited liability companies. A limited liability company that is wholly owned by a partnership is not required to file a separate tax return, but such limited liability company must still be operated as a distinct entity, with its own bank account and its own, separately titled assets. The investor and the investor’s spouse can be the general partners of the partnership and the managers of the limited liability companies, and thereby retain control of the assets of the partnership and the limited liability companies. If assets or businesses are held as C corporations, the stock of the C corporations can be held by the limited partnership.

The limited partner of the limited partnership can be an asset protection trust, established either under Nevada law or the laws of a foreign country. The investor, professional or business owner and spouse can own a small percentage of the limited partnership, and the trustee of the asset protection trust can own the great majority (perhaps as high as 98 or 99 percent) of the limited partnership interests. This arrangement should be created at a time when there are no creditors whose claims might possibly go unpaid.

Once the arrangement is created, if legal difficulties arise, the professional has the benefit of the limited partnership. If for some reason the limited partnership is not providing the necessary degree of protection (for example, where a court in another state is not applying Nevada partnership law), and if the limited partnership is properly drafted, the professional can act to dissolve the partnership. If this occurs, each partner will receive a pro rata share of partnership assets. If the asset protection trust holds 98 or 99 percent of the assets, this percentage will be distributed to the trustee of the asset protection trust, to be held under the terms of the trust agreement and Nevada law. Note that until the partnership is dissolved, the trustee of the asset protection trust acted only as a limited partner in the partnership.

An asset protection trust, if created in Nevada, can also be drafted in such a way that management and administration of the trust can be “moved” offshore if the need arises. In this way, the trust can exist under Nevada law, avoiding the additional expense of a foreign trust, until the need arises. At that time, provided the Nevada asset trust is correctly drafted, the trustee can act to change the place of administration of the trust and the governing law of the trust to a more advantageous jurisdiction.

Conclusion

The principal purpose of an effective asset protection plan should be to deter litigation, and to encourage a potential plaintiff to accept whatever the liability insurer is willing to pay to resolve a claim, thereby avoiding for the professional, business owner or investor the expense and distraction that can come from litigation. An effective asset protection strategy will therefore often include more than one of the elements discussed above. Any asset protection strategy should therefore be simple, and avoid unnecessary complexity. In the opinion of the author, the professional, investor or business owner should never deprive herself of the control of her own assets. Strategies such as those outlined in this article should compliment other estate planning techniques, acting as a deterrent to anyone who might threaten to embroil the professional, investor or business owner in costly litigation. Of course, all strategies may or may not be appropriate in any individual case, depending upon the circumstances. The author encourages anyone who might be considering asset protection as part of an estate plan to seek appropriate legal advice, based upon individual needs and circumstances.

Woods Erickson Whitaker & Miles LLP

1349 Galleria Drive

Henderson, NV 89074

(702) 433-9696

RGWoods@wewmlaw.com

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President’s Message: The Malpractice Liability Coverage Saga Continues

By Raj Chanderraj, M.D., 2001-2002 CCMS President

There are several rumors floating around that the Governor’s plan is expensive and doesn’t really address our issues. People are being told that you need to pay a fee to apply and that, if the losses are excessive, the physicians would be liable.

Folks, we need to calm down, turn down the rhetoric and examine facts! There is a fee of $5,000 to apply. However, this is credited towards your premium if you are accepted. I am given to understand that would be refunded if you do not qualify. The company that is going to insure the physicians is a private corporation which, like any other company, will try to recover losses through premium rate increases but not by asking individual providers to chip in to cover their losses. Each individual physician will be given a quote depending on their claims history and some may be turned down for coverage. You will never know until you apply. (See page 5 for preliminary rate information and page 6 for classification codes, both released by CPON.)

At least for now, for the majority of us there seems to be some affordable coverage. However, in the long run we need to effect a civil justice reform. This will require more committed action from all of us - to influence public opinion and the opinion of legislators. Please don’t sit in the doctors’ lounge and be critical of your colleagues and blame one person or other - get up and contribute words of encouragement; in cooperative and constructive actions and by contributing to the task force. Stand up and be counted. Don’t be a freeloader!

NEVADA ESSENTIAL INSURANCE ASSOCIATION

Proposed Annual Base Rates*

Clark County, Nevada

$1,000,000/ $3,000,000 Claims Made Policy Limits

*Actual rates charged may vary due to the application of various rating factors including but not limited to schedule and experience rating modifications. It is likely that some rates may be up to 10% lower or up to 50% higher than these base rates depending on the specific circumstances of the risk. The rates and supplementary rating rules are subject to change and have not yet been approved by the Commissioner of Insurance. It is expected that final rates will be available after the Board of Directors meeting on April 22, 2002.

**No prior acts coverage will be offered so all physicians will initially be rated at 1.0 year.

RATING CLASSES

RATING CLASSES CLASSIFICATION CODES

1 80249, 80251, 80492

1A 80254, 80266, 80292

2 80230, 80234, 80236, 80240, 80244, 80247, 80256, 80258, 80283, 80265, 80268,

80270, 80277, 80282, 80285, 80269, 80291, 80294, 80424, 80469, 80475, 80482,

80483

2A 80240, 80423, 80443, 80484, 80487

3 80235, 80241, 80253, 80261, 80262, 80274, 80280, 80288, 80488

3A 80472

3B 80237, 80236, 80243, 80245, 80240, 80248, 80262, 80252, 80257, 80259, 80260,

80269, 80271, 80272, 80270, 80278, 80279, 80284, 80286, 80287, 80473, 80489

3C 80144, 80267, 80293

4 80101, 80103, 80105, 80107, 80108, 80268, 80281, 80470, 80502, 80503

4A 80106, 80151, 80158, 80160

4B 80263, 80491

4C 80471

5 80102, 80145, 80156

6 80186

7 80115, 80117, 80143, 80144, 80146, 80157, 80166, 80169, 80171, 80474

8 80154, 80170, 80501

9 80141, 80150, 80152, 80153, 80167, 80168, 80481

NEIA CLASSIFICATION and CODE NUMBERS

CLASSIFICATION: NO-SURGERY (NS), SURG-ASSIST (SA), ALL-SURGERY (AS)

Aerospace Medicine: 80230 (NS)

Allergy: 80254 (NS)

Anesthesiology: 80151 (AS)

Bronch-Esophagology: 80101 (AS)

Cardiovascular Diseases: 80255(NS), 80281(SA), 80150(AS)

Cardiovascular-Major Invasive Procedures: 80503(NS), 80503(SA)

Dermatology: 80256(NS), 80282(SA), 80472(AS)

Diabetes: 80237(NS), 80271(SA)

Emergency Medicine: 80102(NS), 80157(AS)

Endocrinology: 80238(NS), 80272(SA), 80103(AS)

Family Practice Including Obstetrics: 80421(SA), 80117(AS)

Family Practice-No Obstetrics (but formerly Obstetricians): 80486(NS), 80487(SA)

Family Practice-NO Obstetrics (FPs formerly providing OB care): 80484(NS), 80485(SA)

Family Practice (No previous Obstetrics): 80420(NS), 80423(SA), 80117(AS)

Family Practice, No-OB, Major Invasive Procedures: 80422(NS), 80422(SA)

Family Practice, No-OB, Minor Invasive Procedures: 80443(NS), 80443(SA)

Forensic Medicine: 80240(NS)

Gastroenterology: 80241(NS), 80274(SA), 80104(AS)

Gastroenterology-Major Invasive: 80488(NS), 80488(SA)

General Preventive Medicine: 80231(NS)

Genetic Counseling: 80475(NS)

Geriatrics: 80243(NS), 80276(SA), 80105(AS)

Gynecology: 80244(NS), 80167(AS)

Gynecology-Former Obstetrics: 80483(NS), 80481(AS)

Gynecology, Former OB, still performing D&C under local: 80482(NS), 80481(AS)

Gynecology-Performing D&C under local: 80277(NS), 80167(AS)

Hematology: 80245(NS), 80278(SA)

Hypnosis: 80232(NS)

Infectious Diseases: 80246(NS), 80279(SA)

Intensive Care Medicine: 80283(NS)

Internal Medicine: 80257(NS), 80284(SA)

Internal Medicine-Major Invasive Procedures: 80489(NS), 80489(SA)

Laryngology: 80258(NS), 80285(SA), 80106(AS)

Legal Medicine: 80240(NS)

Neonatal: 80471(NS), 80474(AS)

Neoplastic Diseases: 80259(NS), 80286(SA), 80107(AS)

Nephrology: 80260(NS), 80287(SA), 80108(AS)

Neurology-Including Children: 80261(NS), 80288(SA), 80152(AS)

Nuclear Medicine: 80262(NS)

Nutrtion: 80248(NS)

Occupational Medicine: 80233(NS)

Oncology: 80473(NS)

Ophthalmology: 80263(NS), 80289(SA), 80114(AS)

Orthopedics-Including Closed Fractures: 80470(NS)

Orthopedics-No Surgery: 80469(NS)

Otology: 80264(NS), 80290(SA), 80158(AS)

Otorhinolaryngology: 80265(NS), 80291(SA), 80159(AS)

Pathology: 80266(NS), 80292(SA)

Pediatrics: 80267(NS), 80293(SA), 80474(AS)

Perinatology: 80168(AS)

Pharmacology: 80234(NS)

Physical Medicine and Rehabilitation: 80235(NS)

Psychiatry: 80235(NS)

Psychiatry-Including Children: 80249(NS)

Psychiatry-Including Shock Therapy: 80492(NS), 80492(SA)

Psychoanalysis: 80250(NS)

Psychosomatic Medicine: 80251(NS)

Public Health: 80236(NS)

Pulmonary Diseases: 80269(NS)

Radiology-No Invasive Procedures: 80253(NS)

Radiology-Major Invasive Procedures (Radiation Therapy Procedures): 80491(NS), 80491(SA)

Radiology-Minor Invasive Procedures (Angiography, ERCP, Needle Biopsy, Etc.): 80280(NS), 80280(SA)

Rheumatology: 80252(NS)

Rhinology: 80247(NS), 80270(SA), 80160(AS)

Surgery-Abdominal: 80166(AS)

Surgery-Cardiac: 80141(AS)

Surgery-Cardiovascular: 80150(AS

Surgery-Colon and Rectal: 80155(AS)

Surgery-General (FPs who perform surgery): 80143(AS)

Surgery-Hand: 80169 (AS)

Surgery-Head and Neck: 80170(AS)

Surgery-Other: 80402(AS)

Surgery-Obstetrics: 80168(AS)

Surgery-Obstetrics/Gynecology: 80153(AS)

Surgery-Orthopedics excluding Spine: 80501(AS)

Surgery-Orthopedic Including Spine: 80154(AS)

Surgery-Plastics: 80156(AS)

Surgery-Plastics-Otorhinolaryngology: 80155(AS)

Surgery-Thoracic: 80144(AS)

Surgery-Traumatic: 80171(AS)

Surgery-Urological: 80145(AS)

Surgery-Vascular: 80146 (AS)

Urgent Care Physicians: 80424(NS)

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CEO Editorial

By Weldon (Don) Havins, M.D., J.D., CCMS Executive Director/CEO and Special Counsel

Insurance Update

Dr. Chanderraj's article details information obtained from the Governor's "Nevada Essential Insurance Association," also known as the "Medical Liability Association of Nevada." The insurance premium quotes are "proposed" premiums submitted to the Insurance Commissioner by the Directors of the Medical Liability Association of Nevada. The Insurance Commissioner has not, at the time of writing this editorial, approved these premium rates. We are informed that the proposed rates, which are substantially lower than those mentioned by the Governor earlier, are subject to underwriting adjustments of up to 100%. Updates on the Governor's NEIA may be found on the Division of Insurance's excellent website: http://www.doi.state.nv.us

A non-profit physician-owned mutual insurance company has been approved by the Division of Insurance and granted a "Solicitation Permit." The Nevada Mutual Insurance Company reports that they are accepting applications and quoting premiums at the level of the current St. Paul Company approved rates, with discounts off those rates depending on claim history. Premiums are being quoted at the mature claims-made levels, which include prior acts coverage. Prior acts coverage substitutes for "tail coverage." These policies, once issued, will eliminate the need to purchase tail coverage from a former insurer. Of course, when the insured leaves the new company, or the new company (for whatever reason) ceases writing coverage for insureds, a tail coverage policy will need to be purchased. Representatives of the Nevada Mutual Insurance Company state they need to raise three million dollars before policies may be issued, with a target date of May 1st to reach this goal. Allan Stipe, CEO and Executive Director of Columbia Sunrise Hospitals, has committed financial support to the Nevada Mutual Insurance Company. Nevada Mutual Insurance Company representatives report they will seek the financial support of other area hospitals.

For more information concerning the Nevada Mutual Insurance Company contact Richard Bray or Chip Wallace by phone at (702) 699-5623; fax (702) 796-5832.

Two other potential insurance companies have applications pending in the Division of Insurance.

Antitrust Considerations

Complicating the agony of the medical malpractice insurance availability and affordability crisis are progressively decreasing reimbursements for medical services rendered. Between now and 2005, Medicare reimbursements will decrease by 19%. This decrease is compounded by numerous managed care companies tagging their health care provider contracts to the Medicare schedule.

More than one physician group has inquired about the legality of utilizing some type of collective action for leverage in contract negotiations. Because physicians in private practice are not employees, they cannot organize to collectively bargain for reimbursements under the Taft-Hartley Act. According to the Sherman Act (15 USC § 1), any contract, combination, or conspiracy in the restraint of trade is a violation of federal law. So, the Sherman Act prohibits any agreement or conspiracy that unreasonably restrains competition. For an agreement to be proven, the government must show that the parties must have been legally capable for agreeing (or conspiring) and have actually agreed. Actions of a single legal entity cannot violate the Sherman Act because one cannot agree or conspire with oneself. Business entities such as medical practices wholly owned by more than one physician cannot be guilty of agreeing or conspiring among the physicians of that entity. However, among legally distinct parties, an agreement arises when the parties had a unity of purpose or a common design and understanding, or a meeting of the minds in an unlawful arrangement. Such an agreement can be inferred using circumstantial evidence.

If an agreement induces a particular action, the action will be subject to antitrust legal analysis to determine if the agreement unreasonably restrains competition. The analysis utilizes two standards to access the competitive effects: "per se" analysis and "rule of reason" analysis. Per se analysis applies to agreements which appear to have no procompetitive justification or lack any redeeming competitive virtue. These actions are "per se" illegal. Examples of such actions include group boycotts, price fixing, rigging competitive bidding processes, and tying arrangements where one product or service cannot be purchased unless another is as well. No actual anticompetitive effects of the agreement need be shown.

Rule of reason analysis requires the plaintiff or government prosecutor to first establish the relevant market and the relevant geographic area that effects competition. The plaintiff must establish that the defendants had "market power" or the ability to raise prices above the competitive level by restricting competition. The judge or jury then assesses the procompetitive and anticompetitive effects of the action to determine if a violation of the Sherman Act occurred.

Lawsuits contending violations of the Sherman Act may be brought by private parties (insurers), state attorneys general, the Federal Trade Commission, and the Department of Justice. Both civil and criminal penalties are available under the Sherman Act. Criminal violations must result in corporate fines of up to $10,000,000 or twice the pecuniary loss of the victims, and individual fines of up to $350,000, twice the pecuniary gain derived by the illegal activity, whichever is greatest, and imprisonment of up to three years. These penalties have been, and continue to be, applied against health care providers. Private parties must demonstrate violation of the Sherman Act, an injury to the plaintiff's business, and a causal relationship between the antitrust violation and the injury. Damages are three times actual damages plus attorney fees, and/or an injunction against the defendants.

Section 2 of the Sherman Act prohibits monopolization and attempted monopolization by an individual party with market power. Plaintiffs must demonstrate the relevant product (or service) geographic market, that the defendant has or had monopoly power and utilized that power, and the defendant's monopoly power was obtained or extended by predatory or unreasonably anticompetitive conduct. Monopoly power is the ability to exclude competition or to control price. Monopoly power may be inferred if the defendant has more than 65% of the market share and engaged in some activity to deter other potential competitors from entering the market. The same penalties apply to violations of Section 2 as do to Section 1 including the right of private parties to bring a lawsuit.

The Clayton Act prohibits business consolidations if the effect may be substantially to lessen competition, or tend to create a monopoly. Mergers within the health care field fall under this act. Criminal and civil penalties are the same as for violation of the Sherman Act.

The Federal Trade Commission Act specifically prohibits "unfair methods of competition." The broad language provides the FTC with power to prosecute actions outside the scope of the Sherman and Clayton Acts. Only the FTC and DOJ can prosecute actions under this act.

Exclusive Physician Network Joint Ventures

Physician network joint ventures have safety zones under which physician networks will not be challenged by the FTC or DOJ. For instance, in an exclusive IPA joint venture, the government will not prosecute when the physician participants share substantial financial risk and constitute 20% or less of the physicians in each physician specialty with active hospital staff privileges practicing in the relevant geographic market. In an exclusive joint venture, physician participants do not individually contract or affiliate with other network joint venture or health plans. Where there are fewer than five physicians in a particular specialty, and exclusive physicians network otherwise qualifying for this antitrust safety zone may include one physician from that specialty on a nonexclusive basis, even though this inclusion would result in the venture having greater than 20% of the physicians in that specialty.

Non-Exclusive Physician Network Joint Ventures

The FTC and DOJ will not challenge a non-exclusive physician network whose physician-participants share substantial financial risk and constitute 30% or less of the physicians in each physician specialty with active hospital staff privileges who practice in the relevant geographic market. Participating physicians do or can affiliate with other networks or contract individually with health plans. In markets with fewer than four physicians in a particular specialty, one may be a member of the joint venture. The non-exclusivity must be true, not merely based on the contractual agreement. Indicia of nonexclusivity are:

1. Viable competing networks or managed care plans with adequate physician participation existing in the market.

2. Physicians in the network actually contract with other managed care plans or other networks.

3. Physicians in the network earn substantial revenue from individual contracts with managed care plans or from other networks.

4. The absence of evidence of coordination among network physicians regarding price or terms of participation in other networks or managed care plans.

Sharing Risk

The FTC and DOJ consider risk sharing to be a reliable indicator of sufficient integration of the physician network providing incentives for physicians to cooperate in controlling costs and improving quality of medical care. Examples of substantial risk sharing are:

1. Agreement by the venture to provide capitated services.

2. Agreement to provide service to a health plan on a percentage of premium or percentage of revenue basis.

3. Use of financial incentives to achieve specified cost-containment goals such that physicians are subject to financial rewards or penalties based on group performance.

4. Use of global fee or all-inclusive case rate arrangements.

Physician networks containing both risk and non-risk sharing arrangements do not fall into the FTC and DOJ safety zones. However, within the network, different risk sharing arrangements are acceptable, such as capitation for primary care physicians and specialty care provided on a reduced fee and withhold basis.

Joint Ventures not falling within these safety zone criteria will be analyzed using the rule of reason analysis to determine if the network's procompetitive effects are greater than the network's anticompetitive effect.

Messenger Model (IPA) arrangements

Messenger model networks use an agent or third party to convey to purchasers information obtained individually from providers about prices or price-related information which providers are willing to accept. The messenger agent usually conveys to providers all contract offers made by purchasers, with each provider making an independent, unilateral decision to accept or reject the contract offer. In some cases the messenger agent may have authority from individual providers to accept contract offers on their behalf. The messenger agent may also help providers understand the contracts offered by providing objective information regarding the terms of an offer in comparison to other contracts agreed to by network participants.

The messenger model arrangements must avoid facilitating an agreement among competitors on prices or price-related terms, which would thereby make the arrangement illegal. The messenger agent must facilitate only independent, unilateral decisions by participating network physicians. A messenger agent who coordinated provider responses to a proposal, expresses an opinion on the terms offered, collectively negotiates for the providers, or determines whether or not to convey an offer based on the agent's judgment about the attractiveness of the prices or price-related terms of the offer engages in illegal price fixing which constitutes a per se violation of the Sherman Act.

Two messenger model IPAs are functioning in Reno and one operates in Carson City. Each of these IPAs contains a majority of physicians in the relevant market area. Messenger model IPAs, unlike the exclusive and non-exclusive IPA physician networks, are not numerically restricted to a specified percentage of providers.

An excellent seminar on the formation, operation, and marketing of IPAs was presented by Kelly Testolin, Esq. of Hale, Lane, Denison, etc., recently at CCMS. With sufficient expressed interest we may be able to coerce Mr. Testolin to repeat the seminar. Mr. Testolin resides and works primarily in Reno, Nevada and is familiar with the successful messenger model IPAs in Northern Nevada.

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Applicants To Go Before Credentialing Committee

If you have any pertinent information about the following membership candidates, please contact:

Clark County Medical Society, 2590 E. Russell Rd., Las Vegas, NV 89120

Yvonne Barry, MD, Family Practice

Said T. Daneshmand, MD, Reproductive Endocrinology & Infertility

Eric A. Gerson, MD, Radiology

Deborah A. Kuhls, MD, Trauma Surgery

David T. Kuo, DO, Vascular/Diagnostic Radiology

R. Garn Mabey, Jr., MD, Ob-Gyn

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New Members for April 2002

Congratulations and Welcome to the Clark County Medical Society

Active Members

Cornell Clark, MD, Family Practice, 4415 W. Flamingo Road, Las Vegas, NV 89103

Tammy Kelly-Layton, MD, Ob-Gyn, 1707 W. Charleston Blvd. #120, Las Vegas, NV 89102

Gary Mayman, MD, Pediatric Cardiology, 3006 S. Maryland Pkwy. #690, Las Vegas, NV 89109

Active Limited Member

Kenneth Osgood, MD, Pediatrics, 8213 Point View Court, Las Vegas, NV 89128

Associate Member

Mona Sinno, MD, Family Practice, 4700 Las Vegas Blvd. North, Nellis AFB, NV 89191

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CALIFORNIA'S MICRA vs. CURRENT NEVADA LAW

By Weldon (Don) Havins, M.D., Esq., CEO and Special Counsel, Clark County Medical Society

The Nevada Medical Liability Physician Task Force has declared its goal of seeking medical liability reform patterned after the MICRA (Medical Injury Compensation Reform Act of 1975) law of California. While Clark County suffers from a crisis of an unavailability of affordable medical malpractice insurance in many specialties, medical malpractice insurance in California remains affordable, available and stable.

MICRA's main provisions affecting medical malpractice actions against health care providers are as follows: a limitation on non-economic damages; the admissibility of collateral source benefits; a shortened statute of limitations; a sliding-scale limitation on attorney contingency fees; a provision for periodic payment of future damages; a ninety-day notice of intention to sue; and, a provision for binding arbitration agreements.

Juries frequently are asked to divide or apportion personal injury awards into six categories: past medical damages; past lost wages; past pain and suffering; future medical damages; future lost wages; and future pain and suffering. Plaintiff attorneys ask for this breakdown, in part, because awards for lost wages are taxable as income whereas awards for medical damages and for pain and suffering are not taxable as income. Without such apportionment, the IRS is likely to contend a larger portion of the award was for lost wages and demand income tax payment on that amount. In my experience observing personal injury cases as a law clerk intern, the largest portion of jury awards were apportioned for pain and suffering.

Limitation on Non-economic Damages

California's MICRA limits recovery of non-economic damages in medical malpractice cases to $250,000, regardless of the number of health care providers sued in that case. The California Supreme Court determined this provision to be constitutional in 1985, some ten years after the passage of MICRA. Colorado has a $250,000 limit on non-economic damages (with some judicial discretion allowed upon a finding of unfairness). Florida law limits non-economic damages to $250,000 when the claimant agrees to binding arbitration, $350,000 if the claimant refuses to arbitrate. Montana has a $250,000 cap on non-economic damages. Utah limits non-economic damages to $250,000 but has indexed this amount to inflation since 1986. This information, obtained from the AMA website, is contained in a February 2002 chart of state laws depicting non-economic damage limitation as well as state laws relating to the abolition of Joint and Several Liability, permitting collateral source disclosure to juries, providing for attorney fee limitations and providing for periodic payment provisions. This chart may be viewed online at: www.clarkcountymedical.org under the "Legislative Information" button.

Nevada has no limitation on non-economic damages.

Attorney Contingency Fee Limits

The only significant amendment to MICRA since its inception occurred in 1987 when the maximum attorney contingency fee contract limits were increased. Now plaintiff attorneys may recover 40% of the first $50,000 recovered, 33 and 1/3% of the next $50,000, 25% of the next $500,000, and 15% of an excess over $600,000. These limits apply whether the recovery is by settlement, judgment, or arbitration. Health care providers' conduct outside the scope of medical malpractice does not limit the recovery percentage. There have recently been large awards against physicians under the theories (reason for suing) of conspiracy and for elder abuse, rather than for medical malpractice.

Nevada has no limits on attorney contingency fees.

Elimination of Joint and Several Liability

MICRA eliminated "Joint and Several" liability in medical malpractice cases. Joint and several liability is commonly known as "deep pocket" liability wherein a defendant determined to be responsible for only a small portion of the fault in the case may be required to pay the entire award. In California, health care providers are only responsible for the portion (percentage) of fault determined by the jury. The California Supreme Court upheld the constitutionality of this provision in MICRA in 1985, some ten years after the legislative adoption of the MICRA laws.

Nevada has a similar law. In 1995, the legislature passed a law stating that if in the answer to the complaint the defendant pleads (contends) that the plaintiff is partially at fault for his or her injuries (comparatively negligent), health care providers are only liable for their apportioned share of the fault, as determined by the jury. While on its face this law appears constitutional, the Nevada Supreme Court has not yet addressed a case in which this law has been challenged.

Periodic Payment of Future Damages

MICRA provides that, upon request by either party, the court must order periodic payment for future damages of $50,000 or more. Future damages include future medical damages (expenses), future lost wages, and future pain and suffering. This provision of MICRA was held constitutional by the California Supreme Court nine years after the adoption of MICRA.

The Nevada legislature provided for the periodic payment of future economic damages upon request by the claimant (plaintiff). Future economic damages may be paid in lump sum or by the purchase of an annuity providing the claimant with a steady stream of income in the future. Why, in Nevada, are not all future damages subject to the periodic payment provisions? One consideration may be that the plaintiff attorneys' fees and costs may not be sufficiently covered by past damages. Plaintiff attorneys may want their money (commonly 40% of the award plus costs plus 40% of the prejudgment interest) up front rather than in the form of periodic future payments. The future pain and suffering award may well render immediate payment possible. [Lest physicians be too critical of this, many an attorney has noted signs in physicians' offices declaring that "Payment is expected at the time services are rendered."]

Collateral Source Benefit Admissibility

Collateral source benefits are payments made to the plaintiff by health insurance, disability insurance, accident insurance, or workers compensation. MICRA law provides that the health care provider defendant may introduce evidence of collateral source benefits (except those from Medicare and other federally funded collateral source benefits, and those from ERISA self-funded plans). If the defendant provides evidence of collateral source benefits, the plaintiff may introduce evidence of the costs of these benefits. When this occurs, the providers of these benefits are precluded from recovering payments made to the plaintiff (the insurance providers have no right of "subrogation"). In effect, this imposes some of the costs of medical malpractice onto the collateral benefit providers rather than upon the negligent health care provider. The California Supreme Court held this provision of MICRA constitutional in 1985, some ten years after its adoption by the legislature.

In Nevada, the defendant health care provider may not mention evidence of the plaintiff's collateral source benefits. However, since 1995, Nevada District Court judges must subtract from a jury award the amount of collateral source benefits received by the successful plaintiff. A jury may not be informed of this before the jury deliberates.

Statute of Limitations in Medical Malpractice Actions

MICRA law provides that the plaintiff must bring the cause of action for medical malpractice within one year of the date of the injury or one year from the time the plaintiff discovers, or should have reasonably discovered, the injury, but in no event more than three years after the injury unless there is fraud, intentional concealment, or the presence in the body of a non-therapeutic foreign body. In 1982, the California Supreme Court decided that the three year period accrues (begins) when an appreciable harm is first apparent. For fraud and intentional concealment, the statute of limitations is tolled (extended) indefinitely. For a non-therapeutic foreign body, the statute is tolled for one year after the discovery of the foreign body. Actions by a minor shall be filed within three years of the negligence act except if the minor is less than six years of age, the action must commence within three years of the minor's eighth birthday.

Nevada law provides that the statute of limitation on medical malpractice is two years from the date of injury or from the time the plaintiff should have reasonably discovered the injury to a maximum of four years excepting for brain injuries of children (ten years of age) and discovery of sterility by the minor (eighteen years plus two, equals twenty years statute of limitations).

Ninety-Day Notice of Intention to Sue

MICRA provides that the plaintiff shall give the health care provider at least a ninety-day notice of intention to sue. If the notice is given within ninety days of the statute of limitations, the statute of limitations is extended to accommodate the ninety-day notice. Failure to comply has no effect on the right to sue for medical malpractice but does subject the attorney to a disciplinary action by the California state bar. Since 1993, the plaintiff's attorney must send the notice of intent to file a medical malpractice suit to the Medical Board of California at the same time as sending the notice to the health care provider.

Nevada has no such requirement of notice to sue for medical malpractice.

Compulsory Arbitration Agreements

MICRA authorizes compulsory (binding) arbitration agreements in medical service contracts. The agreement must be in the first article of the contract and must use specific language. Immediately before the signature line other specific language must appear in bold type of at least 10 point type. Once signed, the agreement binds the parties to arbitrate disputes regarding the provision of medical services unless the agreement is rescinded within thirty days of signing. The constitutionality of compulsive arbitration agreements has not been challenged primarily because courts have recognized the strong public policy favoring arbitration as a means of resolving disputes.

Nevada has adopted the "Uniform Arbitration Act" which provides for the enforceability of arbitration agreements. Your CCMS has an exemplar "Mandatory Binding Arbitration Agreement" patterned after the provisions in California law and consistent with the Uniform Arbitration Act. The exemplar CCMS arbitration agreement utilizes the thirty day right to rescind the contract to reduce the chance of a Nevada court declaring the agreement invalid due to coercion, signing under duress, or to an unconscionable difference in the parties' bargaining power. The CCMS exemplar utilizes the rules of the American Arbitration Association. Physicians contemplating using this contract should consult with their attorney for the full implications, advantages and disadvantages of utilizing arbitration and of utilizing this contract in particular.

Summary

Reviewing the above, one could conclude that arbitration contracts do not, at this point, significantly differ in Nevada as compared to California. At least, in the California experience, arbitration agreements, while providing an arguably more efficient forum [sans jury] for resolving medmal disputes, are not responsible for the stability and availability of affordable medical malpractice insurance.

The ninety-day notice of intention to sue seems insignificant. You know you are going to be sued for medical malpractice thirty days before you are served the summons and complaint. There is no joy in the anticipation.

The statute of limitations provision may be slightly more restrictive in California, but this is tempered by the California Supreme Court holding that the three year maximum statute of limitations commences when the injury is reasonably apparent. The Nevada Supreme Court thus far has sustained the firm limits in Nevada law.

The main difference between the Nevada and California version of the collateral source benefit rule is that in California the jury may receive evidence of the payment by collateral sources; in Nevada, the jury may not know of such payments. In California, insurers/payors lose the right of subrogation (get their money back) from the jury award; in Nevada, they do not. A 1994 study by the Office of Technology Assessment stated that jury knowledge of collateral sources and limits on non-economic damages were the two most significant factors correlating with medmal insurance availability and affordability.

The periodic payment of future damages in California includes all future damages and any party may request periodic payments when the award is over $50,000; in Nevada, only the claimant (successful plaintiff) may request periodic payments and these may only be for future economic (future lost wages and future medical expenses awarded) damages.

California's joint and several liability rule elimination applies whether or not the defendant pleads comparative negligence in the answer to the complaint. Nevada law was amended in 1995 to provide for elimination of joint and several liability in health care provider negligence cases. However, there has been no appreciable, apparent reliance on this law in the medical care business arena. Hospital CEOs routinely speak of their concern of becoming the "deep pocket" if they reduce malpractice coverage limit requirements for staff privileges. Physicians consulting on patients treated by UMC employees, full-time faculty of the medical school, or UMC Quick Care doctors often complain about the "deep pocket" risk they are incurring. All that is required of a co-defendant to invoke this favorable law is to contend in the answer that the plaintiff was partly responsible for his or her injury.

With Nevada physicians' incomes dropping due to decreasing reimbursements, and overhead increasing due primarily to inordinate malpractice premium raises, physicians may feel that limiting attorney contingency fees is only fair. However, there is no credible evidence from other States correlating limitation of attorney contingency fees with medical malpractice insurance availability or affordability.

The one factor mentioned again and again by insurers at the Nevada Insurance Commissioner's March 4th meeting was the imperative of establishing a limitation on non-economic damages in Nevada to stabilize the medical professional liability (MPLI) market. Those insurance business professionals, some of whose companies have ceased selling MPLI in Nevada, contend that without a limitation on non-economic damages, MPLI instability in Clark County will continue to force an exodus of insurers who can move to the more stable markets.

There are some in the plaintiff's bar who state that any limitation on non-economic damages will destroy Nevadans' rights to their day in court. There are physicians in Clark County who are quoted in the press as warning that half the Clark County physicians will be gone by the end of this summer if "tort reform" is not passed by a special session of the legislature. One statement is as absurd and disingenuous as the other.

The medical malpractice plaintiffs' bar professes no interest in discussing the possibility of any limitation on non-economic damages. The plaintiffs' bar adamantly declares there is no correlation between MPLI premium rates and States with and without non-economic damages caps. This may be true when "all" States are considered. However, many States have ridiculously high limits on non-economic damage caps (such as West Virginia with a cap of $1,000,000). States with non-economic damages caps below $400,000 (such as California, Utah, and Colorado) do have stable MPLI markets and readily available, affordable malpractice insurance. Upon this apparently crucial issue of limiting non-economic damages, there appears to be no compromise possible between Nevada physicians and the medical malpractice plaintiff’s trial bar.

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CME CALENDAR

Cardiovascular Consultants 691-9154

Clark County Medical Society 739-9989

Southwest Medical Associates 242-7347

Some courses also approved for nursing CEUs.

5/9 - “Latest Clinical Standards and Interventions: Providing Optimal Diabetes Care,” 7:30 a.m., 1 hour

Sunrise Hospital 731-8210

UMC 383-2604

5/18 - “Respiratory Symposia,” Palace Station Hotel & Casino, 8 a.m., 8 hours

Valley Hospital 388-4847

5/14 - “Hodgkins Disease: An Overview,” noon

5/28 - “Venous Thromboembolic Disorders,” noon

6/11 - “The Use of Intravenous PPI’s,” noon

6/25 - “Update on Asthma,” noon

7/9 - “Vaginal Births After Cesarean Sections (V-Bacs),” noon

7/23 - “Making the Valley Hospital Web site Work For You and Your Patients,” noon

*Special Note: CCMS members can receive free CME courses on the internet with World Medical Leaders.

To have your CME courses listed on our calendar, please contact Deborah Barton at 739-9989 prior to the deadline of the 12th of each month.

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CLARK COUNTY HEALTH DISTRICT DISEASE STATISTICS*

MARCH 2002

DISEASE	CASES REPORTED		YEAR TO DATE
	Mar. 2001	Mar. 2002	2001	2002
VACCINE PREVENTABLE DISEASES
DIPTHERIA	0	0	0	0
HAEMOPHILUS INFLUENZA (invasive)	1	2	1	3
HEPATITIS A	8	3	28	9
HEPATITIS B	5	4	9	7
INFLUENZA	4	27	28	51
MEASLES	0	0	0	0
MUMPS