Hospitals, reserve gaps exposed

A bankrupt hospital chain’s decision to self-insure malpractice claims without setting aside money has left hundreds of patients and doctors chasing coverage that may not exist. (propublica.org) ProPublica reported on April 9 that Los Angeles-based Prospect Medical Holdings filed for bankruptcy in January 2025 after promising to cover malpractice defense costs and payouts itself, in some cases up to $7.5 million per claim. Becker’s said the filing froze more than 300 lawsuits seeking more than $800 million in damages. (propublica.org) (beckershospitalreview.com) The basic issue is simple: a self-insured hospital system acts as its own malpractice insurer instead of paying premiums to an outside carrier. In Prospect’s case, ProPublica reported that court filings showed no money had been reserved to pay claims or compensate injured patients. (propublica.org) That gap has exposed patients, employed physicians, and outside lawyers at the same time. Becker’s reported that some doctors learned they could be personally liable, and some contingency-fee lawyers said they were declining new malpractice cases involving Prospect because any recovery could amount to pennies on the dollar. (beckershospitalreview.com) State oversight of this setup is thin. Becker’s said insurance regulators in Connecticut, Rhode Island, and Pennsylvania told ProPublica they had limited authority over self-insured health systems, which do not face the same reserve checks as commercial malpractice insurers. (beckershospitalreview.com) The reporting landed as malpractice scrutiny was already widening beyond individual doctors. The federal National Practitioner Data Bank says it collects reports on malpractice payments and adverse actions involving physicians and, in some cases, other licensed health care practitioners, including nurse practitioners and physician assistants. (data.hrsa.gov) (npdb.hrsa.gov) A recent review in *Annals of Emergency Medicine* identified 83 malpractice lawsuits involving nurse practitioners and physician assistants, underscoring how liability questions now often reach teams, supervisors, and hospital systems rather than a single clinician. (annemergmed.com) Even when a patient wins, state law can sharply limit what comes next. Texas law caps noneconomic damages at $250,000 against an individual physician or other non-institutional provider, with separate limits for health care institutions that can bring the institutional total to $500,000 per claimant. (texas.public.law) (statutes.capitol.texas.gov) California moved in the other direction in 2022, when Governor Gavin Newsom signed Assembly Bill 35 to replace the old $250,000 cap under the Medical Injury Compensation Reform Act. The law raised noneconomic damage limits and set scheduled increases beginning January 1, 2023. (gov.ca.gov) (legiscan.com) Colorado also changed its law in 2024. The General Assembly said House Bill 24-1472 will raise the medical malpractice wrongful death cap to $1.575 million over five years and then adjust it for inflation, while the long-standing noneconomic damages cap also rises in phases. (leg.colorado.gov) Prospect’s case pulls those two tracks together: whether money exists to pay a claim at all, and how much a state will allow even after negligence is proved. For injured patients, the legal remedy can shrink twice — once in bankruptcy and again under state damage limits. (propublica.org) (texas.public.law)