New Mexico’s malpractice gold rush

In New Mexico's sprawling northeast corner, residents have only one health care option, for everything from medical emergencies to annual physical exams: Union County General Hospital (UCGH), a full-service facility in Clayton, the tiny county seat. In just over a month, it might be forced to close its doors for good.

UCGH faces many of the same pressures that are straining rural hospitals throughout New Mexico and across the country. Declining populations and low reimbursement rates for Medicaid and Medicare patients, who are over-represented in small towns, have made it difficult to cover costs. A nationwide shortage of doctors has hit rural hospitals especially hard, as more and more physicians opt to move to urban centers.

But in New Mexico, a unique problem has pushed many hospitals in far-flung areas into crisis mode: The state has become so lucrative for medical malpractice lawsuits that most insurers have fled. The few that remain now charge such exorbitant rates that small hospitals are desperately struggling to pay the premiums — if they can even find an insurer to cover them.

"I've looked for insurers in London, in the Bahamas, all over the world," says Tammie Chavez, Chief Executive Officer at UCGH. During her search in 2023, one after another turned her down, saying they wouldn't do business in New Mexico. "My policy was going to expire at midnight on December 31, and I thought we were going to be closing the doors on January 1."

After scouring the globe and being rejected by more than 40 insurers, Chavez was able to find two companies willing to cover the hospital at the eleventh hour. The price tag for the cheaper of two available policies: $850,000 a year, which is nearly 500 percent higher than the $142,565 premium the hospital had paid previously. On top of that, she would have to put up a $100,000 certificate of deposit and close down the hospital's bariatric program, which the company would not insure. She signed the papers, keeping the hospital's lights on for another year.

Now, once again, Chavez needs to find another plan when the hospital's current coverage expires at the end of this year. If insurers hike their prices yet again, the cost of coverage will likely close the hospital, the county's only health care clinic, and a school-based health center — all of which are staffed by UCGH.

"There is not another hospital in New Mexico close to me for 84 miles," Chavez says, referring to the nearest medical center, which is in Raton. For patients needing specialty care for certain conditions, the closest facility is in Amarillo, Texas, a two-hour drive away.

"Heart attacks will not make it to the next town if we're not here," Chavez says. "Stroke victims won't make it. Trauma victims won't make it. I don't know how to put it any more bluntly: Without this hospital, people will die."

Residents of Union County aren't alone. Across the state, hospitals both large and small are grappling with an exodus of insurers and a corresponding explosion in coverage costs. But the problem is particularly acute in rural hospitals, which typically have much smaller budgets and thinner margins than their urban counterparts.

Rural populations also tend to be older, with more complex health needs. Lower-income patients covered by New Mexico Medicaid plans often can't get coverage in Texas hospitals, which are shorter distances away for many residents of eastern New Mexico. Such patients are forced to drive for hours to get care in Santa Fe or Albuquerque — or, if they can't make the trip, to forgo care entirely.

There are non-medical risks, too: In New Mexico's northeast, UCHG is the county's largest employer and the linchpin of the region's economy, which is otherwise dominated by ranching and farming. According to Union County Commission Chair Clay Kiesling, its closure would be "catastrophic" in terms of job losses.

"We'd be looking at a cascading kind of event," Kiesling says. "We have an aging population here that needs health care, and without it people might leave. We'd have a drop in population. We'd lose the largest employer in this area. I mean, it would be really bad."

Malpractice gold rush

Higher-than-average malpractice insurance premiums in New Mexico are not entirely new. A 2020 report from the state Office of the Superintendent of Insurance showed that while premiums in the state were only slightly higher than average for internal medicine, they were substantially higher than most other states for general surgery and obstetrics and gynecology.

But those costs surged even higher after the legislature's 2021 regular session, with passage of a bill that dramatically raised the caps on malpractice liability from $600,000 to $6 million over a five-year period — among the highest in the country. That figure can be applied to different defendants in a single case, so, for example, if a suit is brought over a surgery that involved an obstetrician, an anesthesiologist, and a hematologist, a plaintiff can ask for $18 million — a figure that doesn't include punitive damages, which can drive the payout much higher.

New Mexico's high caps on liability are only part of the equation, says Fred Nathan, executive director of Think New Mexico, a Santa Fe-based nonprofit that focuses on public policy.

"The state doesn't cap attorney's fees or punitive damages, and it allows lawyers to file multiple lawsuits over a single incident of alleged malpractice," Nathan says. Plaintiffs in a successful suit can get paid in one lump sum, and because there are no caps on attorney's fees, lawyers can keep as much of that money as they can negotiate with clients. "These sorts of factors have resulted in some extremely large verdicts against hospitals," Nathan adds.

Several recent cases illustrate the financial stakes. In May 2023, a jury awarded a patient nearly $23 million after a botched prostate surgery that caused complications requiring at least 17 follow-up operations. A year later, a suit filed in response to a problematic hernia operation at Rehoboth McKinley Medical Center in Gallup resulted in a $68 million judgment, an amount that pushed the hospital to the brink of bankruptcy. And last month, jurors in Albuquerque awarded a patient more than $412 million for unnecessary erectile dysfunction shots administered by a clinic called NuMale Medical Center, setting a national record for these payouts.

New Mexico has the second-highest rate of malpractice suits per capita in the country, behind only Pennsylvania, according to data from the U.S. Department of Health and Human Services. The vast majority of those cases — about 80% — were filed by out-of-state firms, says Troy Clark, president and CEO of the New Mexico Hospital Association. "They hire a New Mexico attorney and get a New Mexico license, but all their operations are outside," says Clark, with most of the lawyers who file suits in New Mexico coming from firms based in Texas, Missouri and Illinois.

"We are an attraction for law firms to come in and do business in New Mexico," he says.

Searchlight could not independently verify the numbers of malpractice cases filed by out-of-state firms, because most law offices are registered as local businesses with the New Mexico Secretary of State.

Still, it's clear that the number of cases is substantial: During a two-year period beginning in July 2022, New Mexico courts received applications to file 233 malpractice suits, according to data compiled by the New Mexico Medical Review Board, a state commission that analyzes malpractice cases.

This flood of litigation has meant that malpractice insurance companies have consistently lost money in New Mexico. For every $100 insurers receive in premiums in this state, they pay more than $183 in claims, according to a report by Think New Mexico — by far the highest "loss ratio" in the country, and more than double the national average.

"I do believe that if a hospital makes a mistake, then the patient should get restitution," says Kaye Green, CEO of Roosevelt General Hospital in Portales. "But when the same mistake results in a $250,000 settlement in Texas and millions here, something is wrong. We have a situation now that's really harming health care in New Mexico, and it's especially harming small rural hospitals."

One particularly troublesome consequence, Green says, is the effect that New Mexico's malpractice landscape has on providers who are trying to hire new doctors, or to replace ones who move away or retire.

"It's already hard to recruit physicians to rural hospitals," she says. "It's almost impossible. And now, when I interview physicians from other states that I'm trying to recruit, even those that are right out of residency are telling me they cannot come to New Mexico because of the medical malpractice situation. It's just crazy."

"We desperately need a cardiologist, another general surgeon, another couple of primary care physicians, and they just won't come," Green adds. With physicians, and especially specialists, in short supply, many patients in the area end up traveling to Lubbock for medical care. "The patients go to Texas, and the lawyers come to New Mexico," she says.

New Mexico has lost physicians at an unparalleled rate over the past five years, a change that experts attribute at least partially to malpractice exposure. According to a study by the Physicians Advocacy Institute, a nonprofit research and policy group, the state lost a total of 248 practicing physicians between 2019 and 2024 — the only state in the country to experience a net loss of doctors during that span of time.

The shortage has stressed hospital systems across New Mexico, sometimes in unexpected ways. One prominent example occurred this year at Santa Fe's largest hospital, Christus St. Vincent Regional Medical Center. In April, administrators there outsourced its labor and delivery unit to a venture capital-backed staffing firm called OB Hospitalist Group, a company that brings in doctors from a wide geographic area to work temporary shifts.

One of that group's first orders of business was to slash midwife salaries by 30%, according to employees who spoke to Searchlight. Many midwives and obstetricians left as a result, scrambling patients' birth plans and leaving a substantial gap in services. This fall, staffing problems had become so severe that the hospital had no OB-GYN on site for a 24-hour period — a problem the hospital attributed to staffing "hiccups," the Santa Fe New Mexican reported.

In explaining the outsourcing decision to the New Mexican, Christus Chief Operating Officer Hope Wade cited the state's difficult "malpractice scenarios."

Christus did not respond to Searchlight's requests for comment.

A slew of factors are driving the staffing crisis in the state's health care system. New Mexico charges gross receipts taxes on medical services, which reduces the income doctors can make and reduces the revenue of hospitals and clinics. Over a third of the state's population is covered by Medicaid, and a further 20 percent are covered by Medicare — both of which often reimburse at a lower rate than the cost of care, forcing health care providers to operate at a loss for many patients. And New Mexico does not offer the tax incentives for medical practitioners that many other states provide. Problems with the state's education system, crime and other social ills that disproportionately affect New Mexico are further disincentives, hospital administrators say.

"The whole country needs more doctors right now," says Annie Jung, executive director of the New Mexico Medical Society, an organization that advocates for physicians. "And we have barriers that other states don't have. We're competing with those other states for doctors." And, she adds, we're "not competing well."

The state government's record on the issue is mixed: While many analysts and hospital administrators believe the legislature's decision to drastically increase caps on damages was a catalyst for today's runaway insurance costs, some lawmakers have taken steps to keep hospitals afloat, at least in the short term.

During New Mexico's 2024 legislative session, lawmakers changed the state's formula for Medicaid reimbursement, which resulted in more money flowing to smaller hospitals. And to offset the rising costs of insurance, Sen. George Muñoz (D-Gallup) and Sen. Pat Woods (R-Broadview) successfully introduced a bill to give two years of subsidies to a dozen rural hospitals, including UCGH. Currently, those bills are "the only thing keeping us going," Tammie Chavez says.

Some think those measures don't go far enough.

"There are many additional steps that the state should take," says Fred Nathan. His organization recently published a report on medical malpractice and its consequences in New Mexico. It recommends specific reforms to the state's malpractice law that Nathan believes would "make patients whole and provide reasonable compensation for their attorneys without excessively burdening doctors and hospitals." Proposed reforms include capping attorney's fees, ending lump sum payouts, and tightening caps on punitive damages.

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Searchlight New Mexico is a nonprofit, nonpartisan media organization that seeks to empower New Mexicans to demand honest and effective public policy.