HB2754.DOC

SECTION 1. The increasing cost of malpractice insurance and escalating monetary awards in medical malpractice lawsuits are major factors in the current physician shortage experienced by the State of Hawaii and the neighbor islands in particular. Malpractice insurance premiums have skyrocketed for Hawaii physicians, with physicians in high-risk specialties such as surgery and obstetrics, experiencing the highest increase. Monetary awards in malpractice lawsuits are escalating, especially with respect to awards for non-economic damages.

As a result of the malpractice situation, many physicians are choosing to retire early, limit their practice, or refrain from practicing in Hawaii. Medical students are avoiding medical specialties that have a high risk of medical malpractice exposure. Defensive medicine may also be practiced, where a physician orders tests and procedures to protect themselves from malpractice liability. Diminishing access to health care is of particular concern in rural areas, such as the neighbor islands, where relatively few doctors and fewer specialists and sub-specialists continue to practice.

The legislature finds that to address this critical situation, a patient's right to recover non-economic damages for injuries suffered as a result of health care negligence must be balanced against the State's interest in ensuring access to health care services.

The legislature also finds that medical savings accounts represent a proven method for reducing health care costs through personal responsibility. In addition to controlling costs, medical savings accounts offer advantages to the consumer as well, including complete portability, increased access to healthcare by removing third-party gatekeepers (i.e., insurers that will not pay for best case service or treatment due to cost, and ability to pay for long-term care costs not covered by Medicare.

The purpose of this Act is: (1) to place a cap on the amount of non-economic damages that may be recovered in medical malpractice actions in Hawaii, which is contingent on the compliance of all insurers providing professional liability insurance in Hawaii with the premium rate limitations set by this Act, and (2) to authorize and implement medical savings accounts.

PART I.

SECTION 2. Chapter 671, Hawaii Revised Statutes, is amended by adding four new sections to be appropriately designated and to read as follows:

"§671-A Limitation on noneconomic damages. Notwithstanding section 663-8.7, noneconomic damages as defined in section 663-8.5 shall be limited in medical tort actions to a maximum award of $500,000.

§671-B Assessing percentage of negligence. Upon request of any nonsettling healthcare provider against whom a plaintiff alleges a medical tort causing injury, the trier of fact shall consider, in assessing any percentage of negligence or other fault, the negligence or other fault of all alleged parties, including the negligence or other fault of any person or entity who has entered into a settlement with the plaintiff for the claimed damages, even when the settlement has been determined to have been made in good faith, pursuant to section 663-15.5.

§671-C Proportionate allocation of economic damages. The amount of economic damages allocated to a healthcare provider in a medical tort action shall be based upon the healthcare provider's proportionate percentage of negligence or other fault.

§671-D Noneconomic damages. (a) If the trier of fact renders a verdict for the plaintiff in a medical tort action, the court shall enter judgment of liability against each defendant healthcare provider in accordance with the percentage of negligence or other fault for compensatory damages that is attributed to the healthcare provider by the trier of fact.

(b) Where a healthcare provider's degree of negligence is less than twenty-five per cent, then the amount recoverable against that healthcare provider for noneconomic damages shall be in direct proportion to the degree of the negligence assigned.

(c) Judgment shall not be entered against any healthcare provider who has not been named a party or has been released, dismissed, or otherwise discharged as a party pursuant to section 663-15.5."

SECTION 3. Section 663-11, Hawaii Revised Statutes, is amended to read as follows:

"§663-11 Joint tortfeasors defined. For the purpose of this part, the term "joint tortfeasors" means two or more persons jointly or severally liable in tort for the same injury to person or property, whether or not judgment has been recovered against all or some of them[.], except as provided for healthcare providers in chapter 671."

SECTION 4. Section 671-1, Hawaii Revised Statutes, is amended to read as follows:

"§671-1 Definitions. As used in this chapter:

[~~(1)~~] "Health care provider" or "healthcare provider" means a physician or surgeon licensed under chapter 453, a physician and surgeon licensed under chapter 460, a podiatrist licensed under chapter 463E, a health care facility as defined in section 323D-2, a chiropractor licensed under chapter 442, a dentist licensed under chapter 448, a dental hygienist licensed under chapter 447, an acupuncture practitioner licensed under chapter 436E, a massage therapist licensed under chapter 452, a nurse licensed under chapter 457, an occupational therapist licensed under chapter 457G, an optometrist licensed under chapter 459, a pharmacist licensed under chapter 461, a physical therapist licensed under chapter 461J, a psychologist licensed under chapter 465, a marriage and family therapist licensed under chapter 451J, a dietitian licensed under chapter 448B, a radiologic technologist licensed under chapter 466J, a speech pathologist or audiologist licensed under chapter 468E, a veterinarian licensed under chapter 471, and the employees and legal representatives of any of them. Health care provider shall not mean any nursing institution or nursing service conducted by and for those who rely upon treatment by spiritual means through prayer alone, or employees of such institution or service.

[~~(2)~~] "Medical tort" means [professional negligence, the rendering of professional service without informed consent, or an error or omission in professional practice, by a health care provider, which proximately causes death, injury, or other damage to a patient.] a negligent act or omission to act by a healthcare provider in the rendering of professional services, or the rendering of professional service by a healthcare provider without informed consent, which act or omission or rendering of service without informed consent is the proximate cause of a personal injury or wrongful death; provided that such services are within the scope of services for which the provider is licensed and which are not within any restriction imposed by the licensing agency or licensed hospital."

PART II

SECTION 5. Section 235-2.4, Hawaii Revised Statutes, is amended to read as follows:

"§235-2.4 Operation of certain Internal Revenue Code provisions; sections 63 to 530. (a) Section 63 (with respect to taxable income defined) of the Internal Revenue Code shall be operative for the purposes of this chapter, subject to the following:

(1) Sections 63(c)(1)(B) (relating to the additional standard deduction), 63(c)(1)(C) (relating to the real property tax deduction), 63(c)(1)(D) (relating to the disaster loss deduction), 63(c)(4) (relating to inflation adjustments), 63(c)(7) (defining the real property tax deduction), 63(c)(8) (defining the disaster loss deduction), and 63(f) (relating to additional amounts for the aged or blind) of the Internal Revenue Code shall not be operative for purposes of this chapter;

(2) [Paragraph effective until December 31, 2010. For paragraph effective January 1, 2011, see below.] Section 63(c)(2) (relating to the basic standard deduction) of the Internal Revenue Code shall be operative, except that the standard deduction amounts provided therein shall instead mean:

(A) $4,000 in the case of:

(i) A joint return as provided by section 235-93; or

(ii) A surviving spouse (as defined in section 2(a) of the Internal Revenue Code);

(B) $2,920 in the case of a head of household (as defined in section 2(b) of the Internal Revenue Code);

(D) $2,000 in the case of a married individual filing a separate return;

(2) [Paragraph effective January 1, 2011. For paragraph effective until December 31, 2010, see above. Repeal and reenactment on December 31, 2015. L 2009, c 60, §6(3).] Section 63(c)(2) (relating to the basic standard deduction) of the Internal Revenue Code shall be operative, except that the standard deduction amounts provided therein shall instead mean:

(A) $4,400 in the case of:

(i) A joint return as provided by section 235-93; or

(ii) A surviving spouse (as defined in section 2(a) of the Internal Revenue Code);

(B) $3,212 in the case of a head of household (as defined in section 2(b) of the Internal Revenue Code);

(D) $2,200 in the case of a married individual filing a separate return;

(3) Section 63(c)(5) (limiting the basic standard deduction in the case of certain dependents) of the Internal Revenue Code shall be operative, except that the limitation shall be the greater of $500 or such individual's earned income; and

(4) The standard deduction amount for nonresidents shall be calculated pursuant to section 235-5.

(b) Section 72 (with respect to annuities; certain proceeds of endowment and life insurance contracts) of the Internal Revenue Code shall be operative for purposes of this chapter and be interpreted with due regard to section 235-7(a), except that the ten per cent additional tax on early distributions from retirement plans in section 72(t) shall not be operative for purposes of this chapter.

(c) Section 121 (with respect to exclusion of gain from sale of principal residence) of the Internal Revenue Code shall be operative for purposes of this chapter, except that for the election under section 121(f), a reference to section 1034 treatment means a reference to section 235-2.4(n) in effect for taxable year 1997.

(d) Section 163 (with respect to interest) of the Internal Revenue Code shall be operative for the purposes of this chapter, except that provisions in section 163(d)(4)(B) (defining net investment income to exclude dividends) shall not be operative for the purposes of this chapter.

(e) Section 165 (with respect to losses) of the Internal Revenue Code shall be operative for purposes of this chapter, except that the amount prescribed by section 165(h)(1) (relating to the limitation per casualty) of the Internal Revenue Code shall be a $100 limitation per casualty, and section 165(d) (with respect to wagering losses) [and] sections 165(h)(3)(A) and 165(h)(3)(B) (both of which relate to special rules for personal casualty gains and losses in federally declared disasters) of the Internal Revenue Code shall not be operative for the purposes of this chapter. Section 165 as operative for this chapter shall also apply to losses sustained from the sale of stocks or other interests issued through the exercise of the stock options or warrants granted by a qualified high technology business as defined in section 235-7.3.

(f) Section 168 (with respect to the accelerated cost recovery system) of the Internal Revenue Code shall be operative for purposes of this chapter, except that sections 168(j) (relating to property on Indian reservations), 168(k) (relating to the special allowance for certain property acquired during the period specified therein), 168(m) (relating to the special allowance for certain reuse and recycling property), and 168(n) (relating to the special allowance for qualified disaster assistance property) of the Internal Revenue Code shall not be operative for purposes of this chapter.

(g) Section 172 (with respect to net operating loss deductions) of the Internal Revenue Code shall be operative for purposes of this chapter, as further provided in section 235-7(d), except that sections 172(b)(1)(J) and 172(j) (both of which relate to qualified disaster losses) of the Internal Revenue Code shall not be operative for purposes of this chapter.

(h) Section 179 (with respect to the election to expense certain depreciable business assets) of the Internal Revenue Code shall be operative for purposes of this chapter, except that provisions relating to:

(1) The increase of the maximum deduction to $100,000 for taxable years beginning after 2002 and before 2008, and the increase of the maximum deduction to $125,000 for taxable years beginning after 2006 and before 2011, in section 179(b)(1);

(2) The increase of the qualifying investment amount to $400,000 for taxable years beginning after 2002 and before 2008, and the increase of the qualifying investment amount to $500,000 for taxable years beginning after 2006 and before 2011, in section 179(b)(2);

(3) The increase of the maximum deduction to $250,000 and the increase of the qualifying investment amount to $800,000 for taxable years beginning in 2008, in section 179(b)(7);

(4) Defining section 179 property to include computer software in section 179(d)(1);

(5) Inflation adjustments in section 179(b)(5);

(6) Irrevocable election in section 179(c)(2); and

(7) Special rules for qualified disaster assistance property in section 179(e),

shall not be operative for the purposes of this chapter.

(i) Section 198A (with respect to the expensing of qualified disaster assistances expenses) of the Internal Revenue Code shall not be operative for purposes of this chapter.

(j) Section 219 (with respect to retirement savings) of the Internal Revenue Code shall be operative for the purpose of this chapter. For the purpose of computing the limitation on the deduction for active participants in certain pension plans for state income tax purposes, adjusted gross income as used in section 219 as operative for this chapter means federal adjusted gross income.

(k) Section 220 (with respect to medical savings accounts) of the Internal Revenue Code shall be operative for the purpose of this chapter, but only with respect to medical services accounts that have been approved by the Secretary of the Treasury of the United States.

(l) Section 223 (with respect to health savings accounts) of the Internal Revenue Code shall be operative for the purpose of this chapter.

[(l)] (m) Section 265 (with respect to expenses and interest relating to tax-exempt income) of the Internal Revenue Code shall be operative for purposes of this chapter; except that it shall not apply to expenses for royalties and other income derived from any patents, copyrights, and trade secrets by an individual or a qualified high technology business as defined in section 235-7.3. Such expenses shall be deductible.

[(m)] (n) Section 408A (with respect to Roth Individual Retirement Accounts) of the Internal Revenue Code shall be operative for the purposes of this chapter. For the purposes of determining the aggregate amount of contributions to a Roth Individual Retirement Account or qualified rollover contribution to a Roth Individual Retirement Account from an individual retirement plan other than a Roth Individual Retirement Account, adjusted gross income as used in section 408A as operative for this chapter means federal adjusted gross income.

[(n)] (o) In administering the provisions of sections 410 to 417 (with respect to special rules relating to pensions, profit sharing, stock bonus plans, etc.), sections 418 to 418E (with respect to special rules for multiemployer plans), and sections 419 and 419A (with respect to treatment of welfare benefit funds) of the Internal Revenue Code, the department of taxation shall adopt rules under chapter 91 relating to the specific requirements under such sections and to such other administrative requirements under those sections as may be necessary for the efficient administration of sections 410 to 419A.

In administering sections 401 to 419A (with respect to deferred compensation) of the Internal Revenue Code, Public Law 93-406, section 1017(i), shall be operative for the purposes of this chapter.

In administering section 402 (with respect to the taxability of beneficiary of employees' trust) of the Internal Revenue Code, the tax imposed on lump sum distributions by section 402(e) of the Internal Revenue Code shall be operative for the purposes of this chapter and the tax imposed therein is hereby imposed by this chapter at the rate determined under this chapter.

[(o)] (p) In administering section 403 (with respect to taxation of employee annuities) of the Internal Revenue Code, any funds that represent pre-tax employee deferrals or contributions that are distributed from the annuity and used solely to obtain retirement credits under the state [employees'] retirement system shall not be treated as a rollover for purposes of section 403(b)(8)(A) of the Internal Revenue Code, and such funds shall be subject to income tax under this chapter.

[(p)] (q) Section 451 (which provides general rules for taxable year of inclusion) of the Internal Revenue Code shall be operative, except that the provisions of sections 451(i)(3) and 451(i)(6), as they relate to a qualified electric utility, shall not be operative for purposes of this chapter.

[(q)] (r) In administering section 457 (with respect to compensation plans of state and local governments and tax-exempt organizations) of the Internal Revenue Code, any funds that represent pre-tax employee deferrals or contributions that are distributed from the deferred compensation plan and used solely to obtain retirement credits under the state [employees'] retirement system shall not be treated as a rollover for purposes of section 457(e)(16)(A) of the Internal Revenue Code and such funds shall be subject to income tax under this chapter.

[(r)] (s) Section 468B (with respect to special rules for designated settlement funds) of the Internal Revenue Code shall be operative for the purposes of this chapter and the tax imposed therein is hereby imposed by this chapter at a rate equal to the maximum rate in effect for the taxable year imposed on estates and trusts under section 235-51.

[(s)] (t) Section 469 (with respect to passive activities and credits limited) of the Internal Revenue Code shall be operative for the purposes of this chapter. For the purpose of computing the offset for rental real estate activities for state income tax purposes, adjusted gross income as used in section 469 as operative for this chapter means federal adjusted gross income.

[(t)] (u) Sections 512 to 514 (with respect to taxation of business income of certain exempt organizations) of the Internal Revenue Code shall be operative for the purposes of this chapter as provided in this subsection.

"Unrelated business taxable income" means the same as in the Internal Revenue Code, except that in the computation thereof sections 235-3 to 235-5, and 235-7 (except subsection (c)), shall apply, and in the determination of the net operating loss deduction there shall not be taken into account any amount of income or deduction that is excluded in computing the unrelated business taxable income. Unrelated business taxable income shall not include any income from a prepaid legal service plan.

For a person described in section 401 or 501 of the Internal Revenue Code, as modified by section 235-2.3, the tax imposed by section 235-51 or 235-71 shall be imposed upon the person's unrelated business taxable income.

[(u)] (v) Section 521 (with respect to cooperatives) and Subchapter T (Sections 1381 to 1388, with respect to cooperatives and their patrons) of the Internal Revenue Code shall be operative for the purposes of this chapter as to any cooperative fully meeting the requirements of section 421-23, except that Internal Revenue Code section 521 cooperatives need not be organized in Hawaii.

[(v)] (w) Sections 527 (with respect to political organizations) and 528 (with respect to certain homeowners associations) of the Internal Revenue Code shall be operative for the purposes of this chapter and the taxes imposed in each section are hereby imposed by this chapter at the rates determined under section 235-71.

[(w)](x) Section 529 (with respect to qualified tuition programs) shall be operative for the purposes of this chapter, except that section 529(c)(6) shall not be operative.

[(x)] (y) Section 530 (with respect to education individual retirement accounts) of the Internal Revenue Code shall be operative for the purposes of this chapter. For the purpose of determining the maximum amount that a contributor could make to an education individual retirement account for state income tax purposes, modified adjusted gross income as used in section 530 as operative for this chapter means federal modified adjusted gross income as defined in section 530."

SECTION 6. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date, nor does it affect the rights of the State of Hawaii under section 663-10.5, Hawaii Revised Statutes.

SECTION 7. In codifying the new sections added by section 2 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 8. If any provision of this Act, or the application thereof to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the Act, which can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 9. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 10. This Act shall take effect upon its approval; provided that Part II of this Act shall take effect on July 1, 2010, and shall apply to taxable years beginning after December 31, 2010, and further provided that Part I of this Act shall be repealed on the earlier of January 1, 2016, or upon the failure of any insurer providing professional liability insurance for a health care provider in the state to meet the following requirements:

(1) Between July 1, 2010, and December 31, 2010, no insurer providing professional liability insurance for a health care provider in the state may increase the professional liability insurance rates unless a rate increase is required to avoid imminent insolvency or provide a fair rate of return;

(2) Beginning January 1, 2011, all insurers providing professional liability insurance for health care providers in the state shall implement a premium rate that is the lower of the following:

(A) Not greater than the rate in effect on January 1, 2007, unless to do so would cause imminent insolvency or fail to provide a fair rate of return; or

(B) Seventy-five per cent of the lowest rate in effect between January 1, 2007, and December 31, 2010, unless to do so would cause imminent insolvency or fail to provide a fair rate of return;

and

(3) Beginning January 1, 2012, no insurer providing professional liability insurance for a health care provider may implement any rate increase greater than two and one half per cent in any twelve month period, unless a rate increase greater than two and one half per cent is required to avoid imminent insolvency or provide a fair rate of return.

Any person may seek a declaratory judgment as to whether an insurer has failed to comply with paragraph 1, 2, or 3 by bringing an action against the insurer in the circuit court of the county in which the petitioner resides or has its principal place of business; provided that upon the repeal of this Act, sections 663-11 and 671-1, Hawaii Revised Statutes, shall be reenacted in the same form they were in one day prior to this Act taking effect.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	2754
TWENTY-FIFTH LEGISLATURE, 2010
STATE OF HAWAII