GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1993

S	1 

SENATE BILL 41

Short Title:  Health Care Cost Control.	(Public)
─────────────────────────────────────── 
Sponsors: Senators Kincaid; and Carpenter.
─────────────────────────────────────── 
Referred to:  Children and Human Resources.
─────────────────────────────────────── 

February 3, 1993

A BILL TO BE ENTITLED
AN ACT TO PROVIDE FOR VOLUNTARY BINDING ARBITRATION IN MEDICAL MALPRACTICE CASES, TO ESTABLISH THE HEALTH CARE COST CONTROL OVERSIGHT COMMISSION, AND TO IMPLEMENT OTHER HEALTH CARE COST CONTROL MEASURES.
The General Assembly of North Carolina enacts:
Section 1.  Effective October 1, 1993, The title of Article 1B of Chapter 90 of the General Statutes reads as rewritten:
"ARTICLE 1B.
" Medical Malpractice Actions and Arbitration."
Sec. 2.  Effective October 1, 1993, G.S. 90-21.11 through G.S. 90-21.14 of Article 1B of Chapter 90 of the General Statutes are redesignated as "Part 1, 'Medical Malpractice Actions.'"
Sec. 3.  Article 1B of Chapter 90 of the General Statutes is amended by adding the following new Part to read:
"Part 2.  Arbitration of Medical Malpractice Action.
"§ 90-21.15.  Voluntary binding arbitration of medical malpractice actions authorized; settlement not precluded.
(a)	The parties to a civil action alleging medical malpractice may elect to have the matters in controversy submitted to an arbitration panel for determination of the merits of the action or the award of damages, or both.  Such election may be initiated by either party by serving upon the opposing party a request for voluntary binding arbitration.  Service of the request shall be made within 90 days after service upon the defendant that a civil action alleging medical malpractice has been filed by the claimant.
(b)	Upon receipt of a party's request for voluntary binding arbitration, the opposing party may accept the offer of arbitration within 30 days of such receipt.  However, in no event shall the defendant in the action be required to respond to the request for arbitration sooner than 90 days after service of the notice that a civil action alleging medical malpractice has been filed. Acceptance of the offer within the time period provided by this section shall constitute a binding commitment to comply with the decision of the arbitration panel.  The liability of any insurer shall be subject to applicable insurance policy limits.
(c)	Within 10 days of the execution of a binding commitment to arbitrate, the parties shall so notify the Office of Administrative Hearings.
(d)	This Part shall not preclude settlement at any time by mutual agreement of the parties.
"§ 90-21.16.  Arbitration panel; composition; independence; compensation; decisions; immunity.
(a)	Within 30 days of receipt of notice from the parties that a binding commitment to arbitrate has been executed under this Part, the Office of Administrative Hearings shall begin proceedings for the appointment of an arbitration panel to hear the issues to be arbitrated.
(b)	The arbitration panel shall be composed of three arbitrators.  One arbitrator shall be selected by the claimant, one shall be selected by the defendant, and one shall be an administrative law judge appointed by the Chief Administrative Law Judge of the Office of Administrative Hearings, who shall serve as the chief arbitrator.  In the event of multiple claimants or multiple defendants, the arbitrator selected by the side with multiple parties shall be the choice of those parties.  If the multiple parties cannot reach agreement as to their arbitrator, each of the multiple parties shall submit a nominee, and the Chief Administrative Law Judge of the Office of Administrative Hearings shall appoint the arbitrator from among the nominees.
(c)	The arbitrators shall be independent of all parties, witnesses, and legal counsel, and no officer, director, affiliate, subsidiary, or employee of a party, witness, or legal counsel may serve as an arbitrator in the proceeding.
(d)	The rate of compensation for medical malpractice action arbitrators, other than the administrative law judge serving as chief arbitrator, shall be set by the chief judge of the court in which the medical malpractice action was filed.  The chief judge shall set the compensation by schedule, taking into consideration the prevailing rates charged for the delivery of professional services in the community.
(e)	The hearing shall be conducted by all of the arbitrators, but a majority may determine any question of fact and render a final decision.  The chief arbitrator shall decide all evidentiary matters.
(f)	Arbitrators shall have the same immunity as judges from civil liability for their official conduct.
"§ 90-21.17.  Arbitration the exclusive remedy; limitation on damages.
Arbitration pursuant to this Part shall preclude recourse to any other remedy by the claimant against any participating defendant, and shall be undertaken with the agreement and understanding that:
(1)	Net economic damages shall be awardable, including, but not limited to, past and future medical expenses and eighty percent (80%) of wage loss and loss of earning capacity, offset by any collateral source payments;
(2)	Noneconomic damages shall be limited to a maximum of two hundred fifty thousand dollars ($250,000) per incident, and shall be calculated on a percentage basis with respect to capacity to enjoy life, so that a finding that the claimant's injuries resulted in a fifty percent (50%) reduction in claimant's capacity to enjoy life would warrant an award of not more than one hundred twenty-five thousand dollars ($125,000) noneconomic damages;
(3)	Damages for future economic losses may be awarded to be paid in periodic payments, as established by the arbitration panel, and shall be offset by future collateral source payments; and
(4)	Punitive damages shall not be awarded.
"§ 90-21.18.  Defendant's liability for costs, fees, and interest on damages.
(a)	The defendant shall pay all costs of the arbitration proceeding and the fees of all the arbitrators other than the chief arbitrator.
(b)	The defendant shall pay the claimant's reasonable attorneys' fees and costs, as determined by the arbitration panel, but in no event more than fifteen percent (15%) of the award, reduced to present value.
(c)	The defendant shall be responsible for the payment of interest on all accrued damages with respect to which interest would be awarded at trial.
(d)	The defendant's obligation to pay the claimant's damages and costs shall be for the purposes of arbitration under this Part only.
"§ 90-21.19.  Evidence of arbitration not admissible; offer applies to all parties.
(a)	A defendant's or claimant's offer to arbitrate shall not be used in evidence or in argument during any subsequent litigation of the action following rejection of the offer to arbitrate.
(b)	The fact of making or accepting an offer to arbitrate shall not be admissible as evidence of liability in any collateral or subsequent proceeding in the action.
(c)	Any offer by a claimant to arbitrate must be made to each defendant against whom the claimant has made a claim.  Any offer by a defendant to arbitrate must be made to each claimant who has joined in the notice that a civil action alleging medical malpractice has been filed.  A defendant who rejects a claimant's offer to arbitrate shall be subject to G.S. 90-19C(c). A claimant who rejects a defendant's offer to arbitrate shall be subject to G.S. 90-19C(d).
"§ 90-21.19A.  Defense of action; rules by Office of Administrative Hearings; evidence.
(a)	Any issue between the defendant and the defendant's insurer or self-insurer as to who shall control the defense of the action and any responsibility for payment of an arbitration award shall  be determined under existing principles of law; however, the insurer or self-insurer shall not offer to arbitrate or accept a claimant's offer to arbitrate without the written consent of the defendant.
(b)	The Office of Administrative Hearings shall adopt rules to carry out the orderly and efficient processing of arbitration procedures under this Part.
(c)	The evidentiary standards for voluntary binding arbitration of medical malpractice actions shall be as provided in Article 3 of Chapter 150B of the General Statutes.
"§ 90-21.19B.  Arbitration of financial responsibility among multiple defendants.
(a)	This section shall apply when more than one defendant to an action has participated in voluntary binding arbitration pursuant to this Part.
(b)	Within 20 days after the determination of damages by the arbitration panel in the first arbitration proceeding, those defendants who have agreed to voluntary binding arbitration shall submit any dispute among them regarding the apportionment of financial responsibility to a separate binding arbitration proceeding.  Such proceeding shall be with an allocation panel of three arbitrators.  The chief arbitrator of the first arbitration proceeding shall serve as chief arbitrator on the allocation panel.  The other allocation panel members shall be two medical practitioners appointed by the defendants, except that if a hospital licensed under Article 5 of Chapter 131E of the General Statutes is involved in the arbitration proceeding, one arbitrator appointed by the defendants shall be a certified hospital risk manager.  In the event the defendants cannot agree on their selection of arbitrators within 20 days after the determination of damages by the arbitration panel in the first arbitration proceeding, a list of not more than five nominees shall be submitted by each defendant to the Chief Administrative Law Judge of the Office of Administrative Hearings, who shall select the other arbitrators but shall not select more than one from the list of nominees of any defendant.  Except for the chief arbitrator, an arbitrator who served on the panel in the first arbitration proceeding may not serve on the allocation panel.
(c)	Within 65 days after the determination of damages by the arbitration panel in the first arbitration proceeding, the chief arbitrator shall convene the allocation panel for the purpose of determining allocation of responsibility among multiple defendants.
(d)	The allocation panel shall allocate financial responsibility among all defendants named in the notice that a civil action alleging medical malpractice has been filed, regardless of whether the defendant has submitted to arbitration.  The defendants in the arbitration proceeding shall pay their proportionate share of the economic and noneconomic damages awarded by the arbitration panel. The determination of the percentage of fault of any defendant not in the arbitration case shall not be binding against that defendant, nor shall it be admissible in any subsequent legal proceeding.
(e)	Payment by the defendants of the damages awarded by the arbitration panel in the first arbitration proceeding shall extinguish those defendants' liability to the claimant and shall also extinguish those defendants' liability for contribution to any defendants who did not participate in arbitration.
(f)	Any defendant paying damages assessed pursuant to this section or to G.S. 90-21.15 shall have an action for contribution against any nonarbitrating person whose negligence contributed to the injury.
"§ 90-21.19C.  Effects of failure to offer or accept voluntary binding arbitration.
(a)	A proceeding for voluntary binding arbitration is an alternative to jury trial and shall not supersede the right of any party to a jury trial.
(b)	If neither party requests or agrees to voluntary binding arbitration, the action shall proceed to trial or to any available legal alternative such as offer of and demand for judgment, or offer of settlement.
(c)	If the defendant refuses a claimant's offer of voluntary binding arbitration, then:
(1)	The action shall proceed to trial without limitation on damages, and the claimant, upon proving medical negligence with respect to the standard of health care required under G.S. 90-21.12, shall be entitled to recover prejudgment interest, and reasonable attorneys' fees up to twenty-five percent (25%) of the award, reduced to present value.
(2)	The claimant's award at trial shall be reduced by any damages recovered by the claimant from arbitrating codefendants following arbitration.
(d)	If the claimant rejects a defendant's offer to enter voluntary binding arbitration, then:
(1)	The damages awardable at trial shall be limited to net economic damages, plus noneconomic damages not to exceed three hundred fifty thousand dollars ($350,000) per incident.  The General Assembly expressly finds that such conditional limit on noneconomic damages is warranted by the claimant's refusal to accept arbitration, and represents an appropriate balance between the interests of all patients who ultimately pay for medical malpractice losses and the interests of those patients who are injured as a result of medical malpractice.
(2)	Net economic damages reduced to present value shall be awardable, including, but not limited to, past and future medical expenses and eighty percent (80%) of wage loss and loss of earning capacity, offset by any collateral source payments.
(3)	Damages for future economic losses shall be awarded to be paid by periodic payments and shall be offset by future collateral source payments.
"§ 90-21.19D.  Misarbitration.
(a)	At any time during the course of voluntary binding arbitration of a medical malpractice action pursuant to this Part, the chief arbitrator on the arbitration panel, upon determining that agreement cannot be reached, may dissolve the arbitration panel and request the Chief Administrative Law Judge of the Office of Administrative Hearings to appoint two new arbitrators from lists of three to five names provided in a timely manner by each party to the arbitration.  Not more than one arbitrator may be appointed from the list provided by any party, unless only one list is filed.
(b)	Upon appointment of the new arbitrators, arbitration shall proceed at the direction of the chief arbitrator in accordance with the provisions of this Part.
(c)	At any time after the allocation arbitration hearing under G.S. 90-21.19B has concluded, the chief arbitrator on the allocation panel may, upon determining that agreement among the arbitrators cannot be reached, dissolve the allocation panel and declare the proceedings concluded.
"§ 90-21.19E.  Decision of arbitration panel.
Except as provided in G.S. 90-21.19D, within 20 days of the conclusion of the hearing of all issues in controversy, the arbitration panel shall render its decision in writing to the parties.
"§ 90-21.19F.  Payment of arbitration award; interest.
Within 20 days after the determination of damages by the arbitration panel pursuant to G.S. 90-21.15, the defendant shall:
(1)	Pay the arbitration award, including interest at the legal rate, to the claimant; or
(2)	Submit any dispute among multiple defendants to arbitration pursuant to G.S. 90-21.19B.
"§ 90-21.19G.  Appeal of arbitration awards and allocation of financial responsibility.
(a)	An arbitration award and an allocation of financial responsibility are final agency action for purposes of judicial review of the panel's decision.  Any person seeking review under this section must file, within 30 days of the final action, a petition in the superior court of the county in which the civil action that is the subject of the arbitration was filed, and shall be limited to review of the record. The amount of an arbitration award or an order allocating financial responsibility, the evidence in support of either, and the procedure by which either is determined are subject to judicial scrutiny only in a proceeding instituted pursuant to this section.
(b)	No appeal shall operate to stay an arbitration award; nor shall any arbitration panel, arbitration panel member, or court stay an arbitration award.  The superior court may order a stay to prevent manifest injustice, but no court shall abrogate the provisions of G.S. 90-21.19F.
(c)	Any party to an arbitration proceeding may enforce an arbitration award or an allocation of financial responsibility by filing a petition in the superior court in the county in which the civil action that is the subject of arbitration was filed.  A petition may not be granted unless the time for appeal has expired.  If an appeal has been taken, a petition may not be granted with respect to an arbitration award or an allocation of financial responsibility that has been stayed.
(d)	If the petitioner establishes the authenticity of the arbitration award or of the allocation of financial responsibility, shows that the time for appeal has expired, and demonstrates that no stay is in place, the court shall enter such orders and judgments as are required to carry out the terms of the arbitration award or allocation of financial responsibility.  Such orders are enforceable by the contempt powers of the court; and execution will issue, upon the request of a party, for such judgments."
Sec. 4.  Effective October 1, 1993, G.S. 1-567.2 reads as rewritten:
"§ 1-567.2.  Arbitration agreements made valid, irrevocable and enforceable; scope.
(a)	Two or more parties may agree in writing to submit to arbitration any controversy existing between them at the time of the agreement, or they may include in a written contract a provision for the settlement by arbitration of any controversy thereafter arising between them relating to such contract or the failure or refusal to perform the whole or any part thereof. Such agreement or provision shall be valid, enforceable, and irrevocable except with the consent of all the parties, without regard to the justiciable character of the controversy.
(b)	This Article shall not apply to:
(1)	Any agreement or provision to arbitrate in which it is stipulated that this Article shall not apply or to any arbitration or award thereunder;
(2)	Arbitration agreements between employers and employees or between their respective representatives, unless the agreement provides that this Article shall apply.
(3)	Agreements to voluntary binding arbitration of medical malpractice actions executed pursuant to the provisions of Part 2 of Article 1B of Chapter 90 of the General Statutes."
Sec. 5.  Chapter 143 of the General Statutes is amended by adding the following new Article to read:
"ARTICLE 64.
"Health Care Cost Control Oversight Commission.
"§ 143-595.  Commission established; purpose; members; terms; compensation; administrative support.
(a)	There is established a Health Care Cost Control Oversight Commission.  The purpose of the Commission is to maintain regular oversight and review of the health care system in North Carolina and to make recommendations to the Governor and the General Assembly on ways to make the system more cost efficient, effective, and suitable to the needs of the citizens of North Carolina.
(b)	The Commission shall be comprised of seven members.  Four of the members shall be public members appointed by the General Assembly, two upon recommendation of the Speaker of the House of Representatives, and two upon recommendation of the President Pro Tempore of the Senate.  Of the remaining members, one shall be the Commissioner of Insurance, one shall be the Secretary of Human Resources, and one shall be a representative of the health insurance industry appointed by the Governor upon the recommendation of the North Carolina Life Underwriters Association.  The four members appointed initially by the General Assembly shall each serve a three-year initial term.  The member appointed initially by the Governor shall serve a two-year initial term.  Thereafter, all appointments shall be for two-year terms.  Appointments to fill unexpired terms shall be made by the authority that made the initial appointment.
(c)	Members of the Commission shall not receive a salary for service on the Commission, but shall receive per diem and necessary travel and subsistence expenses incurred in the course of conducting the Commission's business, and in accordance with G.S. 138-5.
(d)	The Commission shall be a commission within the Department of Insurance for organizational, budgetary, and administrative purposes only.  The Department of Insurance shall provide office space, furniture, stationery, staff support, and other supplies necessary for the Commission to  carry out its duties.
(e)	The expenses of the Commission shall be audited and paid out of the State treasury, in the manner prescribed for similar expenses in other departments or branches of State service.  To defray such expenses, a sufficient appropriation shall be made under the Current Operations Appropriations Act in the same manner as made to other departments, commissions, and agencies of State government.
"§ 143-596.  Powers and Duties of the Commission.
(a)	The Commission shall have the following powers and duties:
(1)	Not less frequently than once every two years, review the deductibles required under health and accident insurance policies to determine if they are adequate to achieve cost efficiency;
(2)	Study rates charged by hospitals and determine if such rates are charged on the basis of whether and to what extent the service is covered by the patient's health or accident insurance;
(3)	Study pricing practices of pharmaceutical manufacturing companies doing business in North Carolina to determine if such companies charge lower prices to the overseas market than to the North Carolina market;
(4)	Study hospital and insurance company administrative costs to determine whether such costs are excessive under the circumstances;
(5)	Study the feasibility of coordination of benefits under health, automobile, and accident insurance to avoid duplication of reimbursements for the same service;
(6)	Other issues identified by the Commission to be relevant to health care access and cost control.
"§ 143-597.  Commission reporting.
Not later than May 1 of each calendar year the Commission shall report to the Governor, the General Assembly, and the Fiscal Research Division of the Legislative Services Office, its findings and recommendations pertaining to its duties and to the overall effectiveness and efficiency of the health care system in North Carolina."
Sec. 6.  The Health Care Cost Control Oversight Commission shall make its first report to the Governor, the General Assembly, and the Fiscal Research Division of the Legislative Services Office not later than May 1, 1994.
Sec. 7.  There is appropriated from the General Fund to the Department of Insurance the sum of fifteen thousand dollars ($15,000) for the 1993-94 fiscal year and the sum of fifteen thousand dollars ($15,000) for the 1994-95 fiscal year for allocation to the Health Care Cost Control Oversight Commission to carry out the purposes of the Commission established under Section 5 of this act.
Sec. 8.  Chapter 90 of the General Statutes is amended by adding the following new Article to read:
"ARTICLE 28.
"Health Care Provider Disclosure of Self-Referrals.
"§ 90-405.  Definition.
As used in this Article, a health care provider is any person who, pursuant to this Chapter, is licensed, or is otherwise registered or certified to engage in the practice of any of the following: medicine, surgery, dentistry, osteopathy, podiatry, chiropractic, anesthesiology, psychiatry; or any person acting at the direction or under the supervision of a health care provider.
"§ 90-406.  Duty to disclose ownership interest.
(a)	Health care providers are free to enter lawful contractual relationships, including the acquisition of ownership interests in health facilities or equipment or pharmaceuticals, but such ownership can create potential conflicts of interest.  The potential conflict of interest shall be addressed by the following:
(1)	The health care provider has a duty to disclose to  the patient or referring colleagues the provider's ownership interest in the facility or therapy at the time of referral and prior to utilization;
(2)	The health care provider shall not exploit the patient in any way, as by inappropriate or unnecessary utilization of treatments or procedures;
(3)	The health care provider's activities shall be in strict conformity with the law;
(4)	The patient shall have free choice either to use the provider's proprietary facility or therapy or to seek the needed medical services elsewhere; and
(5)	When a health care provider's commercial interest conflicts so greatly with the patient's interest as to be incompatible, the provider shall make alternative arrangements for the care of the patient.
(b)	The State-established licensing board that has authority over the license or certificate of health care providers covered under this section may adopt rules to carry out the provisions of this Article.
"§ 90-406.  Sanctions.
Violation of G.S. 90-405 shall be grounds for the State-established licensing board that has authority over the license or certificate of the offending health care provider to suspend, revoke, or refuse to renew the provider's license or certificate, or to take any other disciplinary action authorized by law."
Sec. 9.  G.S. 58-50-10 reads as rewritten:
"§ 58-50-10.  Claim forms.
The Commissioner shall prescribe, and all insurers providing any type of accident or health policy in this State shall accept, a standard form for claims, for applications, and for endorsements.  To the extent possible, each form shall be a single-page form and shall be designed to provide all of the information necessary for the appropriate action to be taken by the insurer as soon as possible upon receipt of the completed form.  Information requested under an accident or health policy that is in addition to that contained on the standard form shall be subject to rules adopted by the Department.  This section applies to the submission of applications, claims, and endorsements in writing and by electronic means."
Sec. 10.  Section 3 of this act becomes effective October 1, 1993, and applies to civil actions filed on or after that date.  Sections 5, 6, and 7 of this act become effective July 1, 1993.  Section 8 of this act becomes effective October 1, 1993, and applies to referrals made on or after that date.  Section 9 of this act becomes effective October 1, 1993, and applies to applications, claims, and endorsements filed on or after that date.  The remainder of this act is effective upon ratification.